Choosing the best Pricing Model

Which pricing model best suits a business model depends among other factors upon the level of product awareness amongst the target customers.

For consumer a simple pricing model and the opportunity to test the product or service before its purchase is very important.

The freemium model provides a basic product or service for free but charges a premium for value-added features. This pricing model is attractive for risk averse consumers because it allows them to test a product or service without risk. If they if they find it valuable they have the option to purchase more advanced features.

In this pricing model, the user is charged a fee per transaction. Unlike in a subscription model where consumers pay regardless of their use, the transaction model reduces the risk for consumers because they only pay for what they use.

The mobile operators revolutionized the pricing model for telephone service by switching from a contract-based monthly subscription model to a pre-paid pricing model on a ‘pay as you go’ basis. This model continues to be largely responsible for the rapid growth of mobile services among low-income consumers. A variation of the transaction model is the revenue-share model, where instead of a per-transaction fee, a percentage of overall revenues is charged. This applies only for B2B transactions though.

This model is usually driven by an established, big company, with a presence in the target market it can take the financial risk of creating a new product and is looking to increase loyalty amongst its existing client base. This model reduces risk for companies by utilizing existing resources to launch a new product that will ultimately benefit their original product. This is not the space for small entrepreneurial companies. This model has the following features:

How to choose the best pricing model?

And/or

If basic information feature can be offered for free and thus attract new customers, while higher value or transaction- related services can be charged.

… choose the freemium model and consider the following approach:

And/or

And/or

…choose the Transaction Model and consider the following approach:

…then choose the following pricing model and consider the following approach:

Identify which complementary partners could ‘make’ your product or services as a part of their offerings. since this kind of partnership creates large dependencies be sure to closely evaluate potential parners and carefully consider:

Once a partner has been found, you will need to negotiate what revenue share your company is willing to invest in the partnership. collect sufficient information to ensure that you have a realistic view of your negociation power.

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