The SBIFT framework is a powerful tool for developing pricing strategies and aligning them with business offerings. It consists of five dimensions: Scope, Base, Influence, Formula, and Temporal rights. Each dimension represents a critical aspect of pricing decisions and can help guide the development of a robust pricing model. Let's walk through the exercise step-by-step, providing examples along the way.
For each of the five dimensions select one item to form your pricing model. Then compare your pricing model with your competitor pricing models:
|Your pricing model||Competitor A||Competitor B||Competitor C|
Scope: The Scope dimension refers to the granularity of your pricing offer. It involves determining whether you will provide a complete package of products and services or price each attribute individually. Here's an example:
- A software company offers a comprehensive package that includes the core software, customer support, regular updates, and additional modules. Customers pay a single price for the entire package, regardless of whether they use all the features.
Base: The Base dimension focuses on the information base that dominates your pricing decisions. You need to consider three key bases: Cost, Competitors' prices, and Customer value. Here's an example:
- An e-commerce retailer sets prices based on competitor analysis. They monitor the prices of similar products offered by their competitors and adjust their prices to stay competitive within the market.
Influence: The Influence dimension considers the extent to which the seller or the buyer has the ability to influence the price. It encompasses various pricing approaches, including pricelist-based pricing, negotiation-based pricing, result-based pricing, pay-what-you-want pricing, auction-based pricing, and exogenous pricing. Here's an example:
- A consulting firm adopts negotiation-based pricing for their services. They have a base price for their consulting packages, but they allow clients to negotiate the final price based on the specific requirements and scope of the project.
Formula: The Formula dimension focuses on how price is connected with volume. It involves selecting the appropriate formula for pricing, such as fixed pricing regardless of volume, fixed fee plus per unit rate, assured purchase volume plus per unit rate, per unit rate with a ceiling, or per unit price. Here's an example:
- A printing company offers a per unit rate with a ceiling for bulk orders. The price per unit decreases as the volume increases, but beyond a certain threshold, the price remains constant, providing cost savings for large print runs.
Temporal Rights: The Temporal Rights dimension pertains to the duration of customer rights to use the offering. It includes options like perpetual ownership, leasing, rentals, subscriptions, or pay-per-use models. Here's an example:
- A car rental company offers rentals for a specified period. Customers have the temporal right to use the car for the duration of the rental agreement, and once the agreement expires, they must return the vehicle.
By following the SBIFT framework and considering the dimensions of Scope, Base, Influence, Formula, and Temporal rights, businesses can develop effective pricing models that align with their offerings and market dynamics.