Determining bucket structures in pricing plans for private user cloud computing storage services: A Monte Carlo simulation study

Abstract

Purpose

Providers of cloud computing storage services (CCSS) charge offers in several unit bundles for a lump sum per bundle. This non-linear pricing approach is known as a bucket-pricing plan (BPP). If a customer exploits the purchased bucket, he/she can opt for the next higher bucket or refrain from further CCSS use. CCSS suppliers are faced with an optimization problem concerning the number of buckets as well as their lower and upper storage volume boundaries. The purpose of this paper is to develop a model, which supports CCSS suppliers in deriving a BPP-structure and which maximizes their profit in varying market constellations.

Design/methodology/approach

The authors develop a multi-period model of tariff choice decisions of private customers of CCSS. The model is applied in Monte Carlo simulations to determine profit-maximal tariff structures as a function of different market characteristics such as median demand saturation, demand heterogeneity, average price per storage unit and bucket ceiling allocation (identical size of each bucket within the frame set by the lower and upper overall boundary, varying sizes of the buckets offered, so that the interval between two ceilings consecutively increases for subsequent buckets) and type of a customer’s utility function.

Findings

The simulation analysis suggests that demand heterogeneity and average price per unit are the most influential factors for CCSS tariff structure optimization. Price plans with more than two buckets tend to generate higher profits than simple schemes with two buckets only if demand heterogeneity is low and the average price per storage unit is high and/or median saturation level of customers is low.

Originality/value

Despite the popularity of BPP among providers of CCSS for consumers, there is a lack of scholarly modeling work on the profit implications of the number of buckets entailed in a scheme and the size/ceilings of the various buckets on offer. The model suggested in this paper is a first step toward narrowing this research gap.

Citation

Gerpott, T.J. and May, S. (2016), "Determining bucket structures in pricing plans for private user cloud computing storage services: A Monte Carlo simulation study", Journal of Modelling in Management, Vol. 11 No. 2, pp. 612-643. https://doi.org/10.1108/JM2-09-2015-0074