Non Linear Pricing Model

Presented by Group 4

Pallavi N 19035
Prashant Kumar Ravi 19098
Katta Ashish 19144
Vishal Prajwal R 19179
What is non linear pricing model?
● Any kind of price structure in which there is a nonlinear relationship between price
and the quantity of goods
● Two Forms of non linear pricing model:
○ Bundling: By contrast, bundling refers to the practice where products or
services are sold together as a package providing a discount relative to
component pricing.
○ Quantity Discounts: Bundles consisting of multiple units of the same product
Reasons for choosing this model:
● Reasons for choosing this model:
○ Heterogeneity among the customers: Gives room for price descrimination
○ Inventory cost Advantage: Quantity discounts acts as a propeller to the customers, helps the firm
to reduce their inventory costs.
○ Competitive Pressure: Companies in a capital intensive industries resort to innovative price models
to tackle new customers.
○ Eg: 1) Federal express such as USP charges offers non linear pricing schemes to draw customers
2) Apple iPhone - Changes in prices in different International Markets
3) Wireless Communications - Different pricing models for different industries irrespective of
the quantity
4) Hewlett Packard Company - Charges different rates for its clients for customized laptops
disregarding the quantity
Types:
a) Hybrid Model
● Hybrid is the best pricing model for bigger, longer and ongoing projects with unclear objectives at the start.
● This hybrid pricing model has the best features of both the models – T&M and FP
● The hybrid pricing model helps customers optimize budgets without compromising on the quality of product
or application.
● It also gives the service provider a controlled environment with shared risks in operations.

EXAMPLE: Netflix
b) Managed Services Model

● The managed services model offers defined service deliverables at a fixed cost.
● In the managed services model, the value-add is quantitatively measured in terms of target Service Level
agreements (SLAs).
● This is based on clearly defined parameters in the project performance and quality.
● Customers are billed at a fixed monthly cost plus unit cost per additional unit delivered.

EXAMPLE:Hiring platforms
c) Outcome based Pricing Model

● Outcome-driven model is ideal for projects with clearly defined business outcomes. By delivering
measurable results, the service provider can have a direct impact on your success.
● Clearly defined and measurable outcomes, which can be delivered for a specific project, are critical to its
success.
● Through continuous optimization, the service provider can manage the risks and charge the appropriate risk
premium, translating to higher incentives for better results.
● Similarly, when the fee is linked to a specific type of output, it turns into an output-based model.
d) Transaction Pricing Model

● This model considers the total volume of the transactions processed, which defines the scope of the project. It
enables you to buy volumes whenever required.
● The volume of transactions and the variations in volume in a day, week, month or months make a huge
impact on pricing and effort.
● The service provider spreads the investment cost across multiple clients needing the same kind of service.
● As a result, the cost per transaction reduces drastically due to economies of scale, providing higher margins
for both the stakeholders.
Factors to be considered:Consumer
Preferences
1) Purchase frequency
2) Dimensions of the tariff
3) Units of the purchase
4) Quality Dimensions
5) Method of billing
Format for initial due diligence:
Pricing Project Project Risk Client Service Service Customer
Model Scope Duration Budgeting Provider Provider Engagement
Billing Margins

Name of the Scope for Short Risk How Per low/medium/ Customer
pricing both the term/long assessment frequently is minute/daily/ high engagement
model client and term for both the it fixed weekly/mont strategies
the parties hly or usage
company basis
References:
https://oren.ieor.berkeley.edu/pubs/I.B1.125.pdf

https://nscpolteksby.ac.id/ebook/files/Ebook/Business%20Administration/Handbook%20of%20Prici
ng%20Research%20in%20Marketing%20(2009)/17.%20Chapter%2016%20-%20Nonlinear%20pricing.
pdf

https://blog.fusebill.com/hybrid-pricing-strategies-combine-recurring-billing-with-one-time-sales#:~:
text=The%20hybrid%20pricing%20strategy%20combines,offer%20their%20customers%20more%20
options
.
Thank you!