A Value-Based Information Technology Services Pricing Strategies

* Haluk Demirkan, Arizona State University
Robert R. Harmon, Portland State University

While service orientation and commoditization are creating opportunities for customers of information technology (IT) services, it is also creating challenges for the service providers. Pricing strategies are the most important and also very complex decisions for today’s IT service providers. Pricing strategies for IT services have traditionally focused on covering costs, achieving desired margins and meeting the competition. These pricing schemes range from simple approaches, easily copied by competitors, to complex models that are not easily managed. In order to be successful in today’s competitive business world, the service providers need to define their pricing strategies by considering the customer’s perceived value from the service they receive rather than using traditional cost-based pricing strategies. Prior research has generated considerable knowledge about the design of effective cost based pricing strategies. Today, however, increasing signs have accumulated that this wisdom might be inadequate in shaping appropriate insights for contemporary practice. This paper seeks to direct research attention toward the following question: How should information technology services firms determine their pricing strategies in order to establish longer-term value-oriented service relationships with customers? We articulate vendor cost-centric vs. customer value-centric pricing models to review the literature and relevant theories. In articulating this logic, we aim to shift thinking away from the traditional product focus toward more complex structures that are reflective of contemporary practice. The structures are designed around IT services capabilities and value-based approach. Successful value-based pricing is dependent on the IT organization’s ability to understand and anticipate customer’s value expectations, experiences, user-generated service definitions, designs and implementations.

 

* Corresponding Author

Demirkan, H. and Harmon, R., “A Value-Based Information Technology Services Pricing Strategies” Working paper, Arizona State University, 2011.