titled “Quantity Discounts: Managerial Issues and Research Opportunities.” In the paper, he more precisely specified the variety of motivations for quantity discounts and provided guidelines to managers for designing quantity discount schedules, also known as tiering. While this paper is from a while back, the ideas in it were novel at the time.
Software companies vary in how they approach volume discounts. Some offer them, others don't. But with non-user-based licensing schemes where quantities can become very large, volume discounting is especially critical—and this is where tiering really breaks down. It turns out that giving customers a few bulky tiers is significantly less profitable than more finely-grained discounting approaches.
In his paper, Dolan covered two approaches to volume pricing: A discount can be for “all units or only units incremental to certain amounts.” In other words, one approach applies the same price to every unit, while the other treats the pricing structure like a tax table. In software, applying volume pricing to all units is not ideal because it’s a form of.
Then there’s the issue of volume mechanics as tiers get wider. Say there’s a catch-all tier where 100,000 licenses and over are priced at $70 per license. Consider two customers: One buys 200,000 licenses, and the other buys 400,000 licenses. They each will be asked to pay $70 per license, yet one is buying twice as much volume as the other. The one purchasing 400,000 licenses will likely feel that it’s unfair that they’re paying the same rate as someone who purchased half the amount.