Risk-Based Pricing & Discounting
Dynamic pricing that adjusts base prices and discount levels based on customer credit risk profile, payment terms, and historical payment behavior to optimize for profitability after bad debt.
Why This Matters
What It Is
Dynamic pricing that adjusts base prices and discount levels based on customer credit risk profile, payment terms, and historical payment behavior to optimize for profitability after bad debt.
Current State vs Future State Comparison
Current State
(Traditional)1. Standard pricing and discount tiers applied uniformly across customers. 2. Volume-based discounts: 5% for 1000+ units, 10% for 5000+ units. 3. No consideration of payment risk in pricing decisions. 4. High-risk customers pay same price as low-risk customers. 5. Bad debt costs absorbed uniformly across all customers (low-risk subsidize high-risk). 6. Sales reps negotiate discounts without visibility into customer payment history or risk profile.
Characteristics
- • ERP and Loan Management Systems
- • Credit Bureau Data and Scoring Models
- • Spreadsheets (Excel)
- • Email for communication
- • Advanced Analytics and AI tools
Pain Points
- ⚠ Data Quality and Consistency issues leading to mispricing.
- ⚠ Manual and Fragmented Processes causing delays and errors.
- ⚠ Static Pricing Models that do not adapt to changing borrower risk.
- ⚠ Complexity in Regulatory Compliance requiring significant oversight.
- ⚠ Customer Experience challenges due to less favorable terms for higher-risk borrowers.
- ⚠ Inaccurate or incomplete credit data can lead to increased risk exposure.
- ⚠ Reliance on manual workflows increases processing time and operational costs.
Future State
(Agentic)1. Risk-Based Pricing Agent calculates risk-adjusted pricing for each quote based on customer credit risk tier: A-tier (score 80-100) gets standard pricing, B-tier (score 60-79) gets +2-3% risk premium, C-tier (score 40-59) gets +5-8% premium, D-tier (score <40) gets +10-15% premium or requires insurance/surety bond.
- Agent integrates with pricing engine: ensures quotes automatically include appropriate risk adjustment.
- Agent tracks profitability by risk tier: ensures high-risk segments are profitable after accounting for bad debt.
- Agent tests pricing sensitivity: measures demand elasticity (do high-risk customers accept higher prices or churn?).
- Agent recommends insurance/surety bonds for ultra-high-risk customers: enables doing business vs declining (protects against default).
- Agent balances objectives: maintain competitive pricing for low-risk customers, recover bad debt costs from high-risk customers.
Characteristics
- • Customer credit scores and risk tiers
- • Historical bad debt rates by risk tier
- • Customer profitability analysis (margin, volume, bad debt)
- • Pricing and discount data
- • Quote-to-order conversion rates by price level
- • Payment history and compliance rates
- • Competitive pricing benchmarks
- • Insurance/surety bond costs and availability
Benefits
- ✓ 5-10% margin improvement by recovering bad debt costs from high-risk customers
- ✓ Low-risk customers no longer subsidize high-risk (competitive pricing for best customers)
- ✓ 30-50% lower bad debt through risk-adjusted pricing disincentivizing high-risk business
- ✓ Profitability by risk tier measurable and optimized
- ✓ Insurance/surety bonds enable business with ultra-high-risk customers (vs declining)
- ✓ Sales reps equipped with risk-adjusted pricing guidance (not blind to risk)
- ✓ Dynamic pricing testing identifies optimal risk premiums by customer segment
Is This Right for You?
This score is based on general applicability (industry fit, implementation complexity, and ROI potential). Use the Preferences button above to set your industry, role, and company profile for personalized matching.
Why this score:
- • Applicable across multiple industries
- • Moderate expected business value
- • Time to value: 3-6 months
- • (Score based on general applicability - set preferences for personalized matching)
You might benefit from Risk-Based Pricing & Discounting if:
- You're experiencing: Data Quality and Consistency issues leading to mispricing.
- You're experiencing: Manual and Fragmented Processes causing delays and errors.
- You're experiencing: Static Pricing Models that do not adapt to changing borrower risk.
This may not be right for you if:
- Requires human oversight for critical decision points - not fully autonomous
Parent Capability
Credit & Payment Terms Management
Delivers instant credit decisions, proactive collections, and significant bad debt reduction through AI-powered scoring and dynamic risk management.
What to Do Next
Related Functions
Metadata
- Function ID
- function-risk-based-pricing-discounting