Digital Pricing

Digital pricing refers to the use of new information technologies and digitalized processes in price management.

Dynamic pricing and personalized pricing, also referred to as price differentiation, are particularly well known forms of digital pricing. Digitalization affects pricing in two ways:

  • Price models for new, digital business models
    While General Electric, for example, used to set a sales price per drill, the company now works with a usage-based model for IoT machines. In this model, the company charges per day of drilling combined with fees for additional services. General Electric’s intelligent software solutions make it possible to read out machine data and usage information in order to predict maintenance requirements and continuously increase customer productivity.
  • Digital pricing for existing business models
    Many companies now offer solutions for digital pricing. Pricing software is characterized by an optimized and market-oriented management of relevant data sets, which surpasses the still widespread use of Microsoft Excel-based tools in efficiency and user-friendliness. With PRIMA, for example, Homburg & Partner offers a software solution that combines professional price management and maximizes process efficiency. The central platform is based on intelligent algorithms, automation, and a modular structure to enable customer-specific execution of all pricing activities and strategies.

Differences between analog and digital pricing

Digital pricing promises to offer the optimal price at the moment of use (segmented dynamic pricing) and to increasingly follow the trend of non-monetary pricing.

In contrast to analog pricing, where prices are mainly set for a specific time period, price adjustment and communication in digital pricing is done in real-time and according to individual requests. While analog pricing primarily differentiates prices according to quantity demanded, quality or time horizon with fixed price/quantity combinations (second degree price differentiation), digital pricing considers

  • Internal factors (production and opportunity costs of the company, e.g. yield management with quotas or higher sales prices for machines in case of expected higher material prices in the future),
  • environmental factors (weather, exchange rates, observation of competition) and
  • customer segments (with high demands on data availability, usage rights, IT infrastructure and pricing algorithm) for dynamic, personalized pricing.

In contrast to analog pricing, digital pricing ultimately also uses non-monetary price components for digital products and services. For example, digital media or e-mail services, which are perceived as “free” by business customers and end users, imply a non-monetary payment, such as watching advertisements or passing on company-related and personal data.

Overview: differences between analog and digital pricing

Overview of the differences between analogue and digital pricing