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Estd 4.22.2023
Based on our saas pricing book Price to Scale, dynamic pricing—which uses automated adjustments to reach a locally optimal price point by accounting for variations in price elasticity—can be a powerful tool, but its implementation should be carefully evaluated against your business model and customer segments.
Here are some key insights from Price to Scale:
• Dynamic Pricing as an Optimization Tool:
The book explains that dynamic pricing can help you reach a price-optimized local maximum by factoring in differences in customer willingness to pay. For example, as mentioned in one section, discount ranges vary by customer segment (e.g., 10–30% for Commercial, 20–50% for Mid-sized, and 30–70% for Enterprise). This approach essentially “pads” your base price to fit each segment’s elasticity.
• Alignment with Your Product and Market Conditions:
While dynamic pricing can adjust automatically with market demand, Price to Scale cautions that you only want to use it if it fits well with your product type. For instance, if your product is a capability that customers value for long-term stickiness rather than high-frequency usage (like some SaaS tools), an overly fluid pricing model might lead to unnecessary revenue volatility.
• Operational Considerations:
Automatically adjusting prices based on market conditions requires not only a robust pricing model but also disciplined controls. This includes setting appropriate discount ceilings and ensuring the sales team has clearly defined guidelines. The book suggests balancing automation with oversight—by limiting discounting authority and introducing increasing approval limits, you safeguard against pricing erratically.
In summary, our saas pricing book Price to Scale recommends that dynamic pricing can be beneficial if your customer segments exhibit clear differences in price sensitivity and if your product and operational framework can support frequent adjustments. However, its success hinges on a disciplined approach that matches your overall pricing strategy and market realities.
The takeaway: Consider dynamic pricing as one tool in your arsenal—but ensure it aligns with your customer segmentation, product usage patterns, and operational capacities before moving fully toward automatic adjustments.