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An Analysis of Usage-Based Pricing Models for Smart Products

Frederic Thiesse & Moritz Köhler

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version abrégée This contribution concerns itself with the potential of Usage-Based Pricing policies for smart products. We develop an analytical model of a supplier of machines and his customer that allows us to compare Usage-Based Pricing to a traditional scheme with fixed prices, and to determine optimal solutions for both parties. Based on these findings, we discuss the value of Usage-Based Pricing on an operational as well as on a strategic level. The main conclusion that can be drawn from our research is that Usage-Based Pricing does not provide any additional value that could not also be achieved by information sharing and joint price optimization. From a more strategic perspective, however, we find that the transfer of demand risk from the customer to the supplier implied by Usage-Based Pricing might be used as a strategic tool to attract new prospects and to enter new markets, but only to a lesser extent as a means to keep existing customers.
   
Genre Journal paper
   
mot-clé Pricing, Sensor Technology, Ubiquitous Computing, Smart Products, Revenue Management, Yield Management
   
Projet M-Lab
langue English
kind of paper journal article
date de sortie de la publication 1-6-2008
journal Electronic Markets
maison d'édition Springer
émission du journal 18
numéro du journal 3
page(s) 232-241
Review Double-Blind Review
   
citation Thiesse, F., & Köhler, M. (2008). An Analysis of Usage-Based Pricing Models for Smart Products. Electronic Markets, 18(3), 232-241.