# Pricing Patterns and Strategies Prepared for the `adaptive-pricing` project. ## Purpose This document summarizes common pricing models, pricing strategies, B2B/B2C differences, lifecycle considerations, and implications for building an adaptive pricing framework and implementation platform. Canonical terminology lives in `PricingOntology.md`. Adjacent research is prioritized in `PricingResearchRoadmap.md`. --- ## 1. Pricing Strategy vs. Pricing Model ### Pricing Strategy Answers: > Why should this price exist? Considers: - Cost floor - Value range - Market competition - Product lifecycle - Customer segments - Willingness to pay - Growth objectives - Margin objectives - Risk ### Pricing Model Answers: > How is the customer charged? Examples: - Flat rate - Per-seat - Usage-based - Tiered - Freemium - Enterprise contract - Credits - Outcome-based - Hybrid models --- ## 2. Common Pricing Models ### Flat Rate One product, one price. Strengths: - Simple - Easy to communicate - Easy to implement Weaknesses: - Poor segmentation - Limited expansion revenue - Over- or under-monetization --- ### Per-Seat Pricing scales with users, employees, agents, or accounts. Strengths: - Easy budgeting - Familiar to enterprise buyers Weaknesses: - Discourages adoption - Weak fit for AI-heavy products --- ### Usage-Based Customers pay for consumption. Examples: - API calls - Documents - Emails - Storage - Compute - Tokens Strengths: - Aligns revenue with usage - Low entry barrier Weaknesses: - Revenue volatility - Requires metering infrastructure --- ### Tiered Pricing Customers select from packages. Examples: - Basic - Pro - Enterprise Strengths: - Segmentation - Upsell paths Weaknesses: - Packaging complexity --- ### Volume Pricing Unit price decreases at higher volumes. Strengths: - Supports large customers Weaknesses: - Can destroy margins if discounts are not tied to commitments --- ### Graduated Pricing Each volume band has its own price. Strengths: - Smooth incentives - Fairer than pure volume pricing Weaknesses: - More complex to explain --- ### Stairstep Pricing Quantity ranges map to fixed prices. Strengths: - Predictable billing Weaknesses: - Threshold effects --- ### Package / Credit Pricing Customers purchase blocks of units. Strengths: - Budget control - Commitment generation Weaknesses: - Breakage and accounting complexity --- ### Freemium Free tier with paid upgrades. Strengths: - Acquisition - Viral growth Weaknesses: - Infrastructure burden - Conversion challenges --- ### Trial Models Temporary access before purchase. Strengths: - Reduces uncertainty Weaknesses: - Abuse potential - Activation challenges --- ### Enterprise / Custom Pricing Negotiated pricing. Strengths: - Flexible - Captures high value Weaknesses: - Sales overhead - Discount sprawl --- ### Outcome-Based Pricing Customer pays based on achieved outcomes. Examples: - Revenue generated - Cost saved - Tickets resolved Strengths: - Strong value alignment Weaknesses: - Attribution disputes --- ### Hybrid Pricing Combination of multiple pricing mechanisms. Examples: - Subscription + Usage - Platform Fee + Transaction Fee - Minimum Commitment + Usage Strengths: - Flexible - Increasingly dominant Weaknesses: - Greater implementation complexity --- ## 3. Pricing Strategies ### Cost-Plus Price = Cost + Margin Useful for establishing a cost floor. --- ### Value-Based Price reflects customer value. Useful for maximizing economic alignment. --- ### Competition-Based Price references alternatives in the market. Useful for positioning. --- ### Penetration Pricing Low entry pricing to gain adoption. Best suited for: - Exploration - Introduction --- ### Premium / Skimming Pricing High initial pricing. Best suited for: - Strong ROI - Low competition - Urgent customer pain --- ### Good-Better-Best Packaging Multiple tiers designed to segment willingness to pay. --- ### Dynamic Pricing Prices adapt to: - Demand - Capacity - Market conditions Requires careful governance and explainability. --- ### Personalized Pricing Prices vary by customer. Benefits: - Revenue optimization Risks: - Trust - Fairness - Regulation --- ### Segmented Pricing Different pricing for different customer categories. Examples: - Individual - SMB - Enterprise - Education - Nonprofit --- ### Lifecycle Pricing Different strategies across: 1. Exploration 2. Introduction 3. Growth 4. Maturity 5. Saturation 6. Decline --- ## 4. B2B vs B2C ### B2B Primary concerns: - ROI - Procurement - Predictability - SLA - Compliance - Integration Common models: - Seat-based - Usage-based - Enterprise contracts - Hybrid models --- ### B2C Primary concerns: - Simplicity - Trust - Immediate value - Easy cancellation Common models: - Subscription - Freemium - Family plans - In-app purchases - Bundles --- ## 5. Implications for adaptive-pricing Pricing should be represented as composable primitives. Examples: - Access fee - Usage meter - Commitment - Discount rule - Risk adjustment - Lifecycle phase - Segment rule - Boundary condition - Payment-provider mapping Pricing should be modeled independently from Stripe or other payment providers. Payment providers execute pricing artifacts. The adaptive-pricing engine owns: - Model definition - Constraints - Simulations - Recommendations - Explanations - Versioning --- ## References - Stripe Billing Documentation: https://docs.stripe.com/ - Paddle Pricing Guides: https://www.paddle.com/blog/ - Chargebee Billing Documentation: https://www.chargebee.com/docs/ - Reuters coverage on algorithmic pricing regulation: https://www.reuters.com/ - Research on trial subscriptions: https://arxiv.org/ - Nature Index article on psychological pricing: https://www.nature.com/