Do you know how to price your AI-powered solution?

Digital Pricing Strategy - Capturing Value from Digital Innovations

The subscription-based economy is here, and traditional industries such as Honeywell, Bosch, ABB, Bridgestone, Schneider Electric, Siemens, Medtronic, Stanley Black & Decker, and many others are moving towards solutions with a subscription model. I have seen it; I have worked on many of these cases. With some of these, I have even had the pleasure of working with facilitating the business design and software pricing/packaging initiatives.

Native SaaS companies are used to pricing/packaging, but organizations that are moving from a more traditional licensing model will have to understand the process of the transitioning and how to execute the transition without losing customers. Another group of customers is the traditional industrial companies that have embedded software into their solutions and "given it free" to the customers. They are now considering commercializing the software portion of the overall delivery. I have facilitated many such cases, and it has been eye-opening to see how an organization and its different functions (such as sales) needed to change its perception of software vs. hardware, which is what it values most in the delivery. However, the reality is that the software ends up bringing the most value and, in many cases, the hardest to copy by the competitors.

Based on our findings in the marketplace, Independent Software Vendors (ISVs) are now asking what impact AI will have on pricing and how pricing of a solution with embedded AI should be constructed. Should the same approach be taken, or should there be new aspects that should be considered? These questions are on the rise, and we expect more ISVs to explore their pricing/packaging based on the characteristics of AI. Our pricing/packaging workshop delivery model is constructed using a process that helps the organization to answer the questions that are needed to derive an initial pricing model that then needs to be tested with the target customer profiles.

I am a big fan of Stephan M. Liozu, Ph.D. and Dr. Andreas Hinterhuber and their work in the pricing and monetization domain. I have all of their books in my library. The latest book, edited by Dr. Liozu and Dr. Andreas Hinterhuber, is a collection of articles from industry experts in digital and pricing strategies. The book Digital Pricing Strategy: Capturing Value from Digital Innovations comprises 25 chapters organized into five sections. Each section is organized thematically and focused on the following critical areas of digital innovation: pricing of data, subscription-based pricing, pricing in platforms and marketplaces, AI pricing, and digital pricing.

The structure of the book is as follows:

SECTION 1- DIGITAL PRICING

  • The Essential Ingredient for More Effective Digital Pricing: Value
  • Publish your prices
  • Dynamics pricing process
  • Realizing Your Monetization Potential Needs Customer Value Management
  • Measure and Quantify the Value of Your Digital Solution

SECTION 2 - SOFTWARE AND SUBSCRIPTION-BASED PRICING

  • Price increase for discounted Customers in SaaS: Pricing Research Description and Success Story
  • SaaS Pricing: From Subscriptions to Usage-Based Pricing Models
  • The Digital Pricing Framework: Best Practices in B2B Pricing and Offer Design
  • Tapping into the Subscriber Psychology with Good/Better/Best: Is There an Optimal Ratio between Tiers?
  • Value-Based Pricing of Smart-Product-Service Offerings in the Manufacturing Industry
  • Price Sensitivity Meter and Conjoint Analysis as Tools for Setting Your Industrial Subscription Pricing

SECTION 3 - THE VALUE AND PRICING OF DATA

  • Overcoming Real-World Challenges in B2B Digital Pricing Transformation
  • Holistic Approach to Market Segmentation of Industrial Smart Services: What Is the True Value of Data?
  • Three Considerations for Data Monetization and Value Creation in the Digital Age
  • The Economics of AI: How to Shift Data Projects from Cost to Revenue Center
  • The Pricing of Data: An Interview with Jian Pei, Simon Frazer University

SECTION 4 - SOFTWARE AND SUBSCRIPTION-BASED PRICING

  • Marketplace Monetization Methods
  • The Monetization of Marketplaces and Platforms in the Context of Web 3.0
  • Pricing in Platforms and Marketplaces: A Primer in Understanding All the Dimensions of the Pricing Problem and Opportunity in Marketplace Platforms
  • Online Pricing Experimentation

SECTION 5 - PRICING AND ARTIFICIAL INTELLIGENCE

  • Artificial Intelligence and Its Impact on Pricing Technology
  • Why AI Transformations Should Start with Pricing
  • Digitalization of B2B Pricing: A Fundamental Shift Required
  • Value-based Offers Assisted by Artificial Intelligence
  • Digital Transformation: How to Convert a Buzzword into Real Bottom-Line Value

Each section brings a plethora of up-to-date information, and it is impressive that the editors have assembled such industry luminaries in digitalization and pricing to share their insights in the form of this book. As in my previous book review from Harvard Business Review about Generative AI with separate authors giving their perspectives on Generative AI, I believe this book from Dr. Liuzu and Dr. Hinterhuber gives a fantastic view of relevant topics around digital pricing strategy. It includes up-to-date information on the topic and real-life experiences from leading experts. It is a no-brainer for me to have this book in your library.

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Yours,

Dr. Petri I. Salonen

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