Every consumer goes through a decision making journey when thinking of making a new purchase. Typically the decision making journey has four stages, that is, consideration, evaluation purchase and loyalty loop.
When it comes to subscription products, consumers evaluate subscription services from two perspectives:
- Firstly, they compare the cost of subscribing to the cost of a one-time purchase.
- Secondly, they consider the additional benefits they would get from a subscription that they wouldn't receive from a one-time purchase.
Therefore subscription services that same money tend to attract customers. However expensive subscriptions can succeed if the added value or the value perceived by the customer is high enough.
However in order to make it to evaluation stage of the subscriber decision making journey, your subscription product needs to cross the first hurdle, which is to be in the consideration stage of the decision making journey.
In the consideration phase consumers mostly look at factors such as price of the subscription, product portfolio, flexibility of the subscription contract and other factors such as familiarity with the brand or company.
When launching a subscription pilot, one of the objectives/goals of the pilot can be to introduce a new service to exiting customers or to attract new customers to the brand by brining a new value proposition or service to the market.
In the first case, that is introducing the a new service to existing customers, the customer is already familiar with the brand and has some level of trust. Demand in such markets can be generated by highlighting value in the new service and convincing the target customers of the service.
In the second case, that is attracting new customers to the brand by brining a new value proposition, the target audience isn't necessarily familiar with the brand yet (no trust) and will mostly consider purchasing (or in this case subscribing to the product) if the price and product is appealing.
In this article we look at price, product portfolio and flexibility of subscription contacts to see how these factors play a role in demand and revenue generation for subscription products.
Let’s start with the price of the product
Data suggests that offering multiple products with different prices can increase demand and revenue for products compared to offering limited products with only premium pricing.
This pricing strategy is known as price tiering or price discrimination.
Several studies have shown that price tiering can increase demand by attracting more price-sensitive customers who may have been priced out by a single premium price point. For example, a study published in the Journal of Marketing Research found that offering three price tiers for a digital product led to higher sales and revenue than offering a single premium price point.
Another study published in the Journal of Consumer Research found that consumers are more likely to choose a product from a set of options when there is a range of prices available, as it gives them a sense of control and allows them to make a more informed purchasing decision.
Overall, offering multiple products with different prices can be an effective pricing strategy for increasing demand and revenue, as it allows businesses to capture a wider range of customers with different price sensitivities.
Is the same true for subscription products?
Yes, the same principles of price tiering and offering multiple products with different prices can apply to subscription products as well. In fact, many subscription-based businesses use price tiering as a key pricing strategy to increase demand and revenue.
Offering multiple subscription tiers with different features and pricing can attract a wider range of customers with different needs and budgets. For example, a basic subscription tier may offer only the essential features, while a premium subscription tier may offer additional features, priority support, or other perks.
By offering multiple subscription tiers, businesses can capture both price-sensitive customers who may not be willing to pay a premium price for a single product, as well as customers who are willing to pay a premium for additional features and benefits.
Studies have also shown that price tiering can increase customer retention and loyalty, as customers may be more likely to upgrade to a higher subscription tier over time as their needs and budgets change.
However, it's important for businesses to carefully design and price their subscription tiers to ensure that they are differentiated enough to justify the different price points and that they align with customers' needs and preferences.
Price in combination with product portfolio
When launching a subscription pilot, consider including entry level products in your product portfolio.
Offering entry-level products at an entry-level price and offering premium products at a premium price are two different pricing strategies that businesses can use.
The best strategy for a particular business depends on various factors such as the target audience, competition, brand positioning, and the overall business strategy.
Offering entry-level products at an entry-level price is a strategy that aims to attract price-sensitive customers who are looking for basic or essential features at a lower price point.
Offering entry-level products at entry level price can make it easier for the target audience to try out a product. Chances are that if they like the product they are more likely to stay or upgrade.
This pricing strategy is effective in markets where there is a lot of competition and price sensitivity among customers.
By offering an entry-level product at a lower price, businesses can capture a larger market share and build brand loyalty among price-sensitive customers who may upgrade to premium products over time as their needs and budget increase.
On the other hand, offering premium products at a premium price is a strategy that aims to target customers who are willing to pay a higher price for advanced or premium features. This pricing strategy is effective in markets where there is a strong demand for high-quality, premium products and services and also when the target customers are already familiar with the brand and have some trust in it.
By offering premium products at a premium price, businesses can differentiate themselves from competitors and position themselves as a premium brand, which can lead to higher profit margins and brand loyalty among premium customers.
In general, both pricing strategies have their advantages and disadvantages. Offering entry-level products at an entry-level price can help businesses attract a wider range of customers and build brand loyalty, but may result in lower profit margins.
On the other hand, offering premium products at a premium price can result in higher profit margins and brand loyalty among premium customers, but may limit the overall market size and appeal.
Ultimately, the best pricing strategy depends on the specific business goals, target audience, and market saturation that is whether your targeting a highly competitive market or not.
Flexibility as a factor in generating demand
In an article published in 2020 by Jason Aten, a tech columnist and writer for Inc. Aten argues that offering flexibility is crucial for subscription businesses to succeed, as modern consumers expect to have control over their subscriptions and the ability to customise their plans based on their needs.
Aten points out that subscription businesses can offer flexibility in a number of ways, such as allowing customers to change the frequency of their deliveries, offering different pricing tiers based on usage or features, and giving customers the ability to pause or cancel their subscriptions at any time.
The article also cites examples of subscription businesses that have successfully implemented flexible subscription models, such as Blue Apron, which allows customers to skip deliveries or change their meal plan preferences, and Peloton, which offers different pricing tiers based on the type of equipment and classes customers want.
Aten concludes by emphasising that subscription businesses that prioritise flexibility and customer choice are more likely to attract and retain customers in today's competitive market.
Offer a diversified product portfolio to increase adoptability and also offer entry-level products at entry-level prices when promoting a new service or offer to prospects.