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//Monday d. 23.03.20

Subscription Pricing Is One of The Most Important Decisions You’ll Have to Make

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Written by Morten Suhr Hansen

We see it again and again. Every time we work with launching new subscription concepts with our customers, one of the key questions is: What should the subscription cost? This occurs both with startups launching a subscription for the first time and with established companies that are about to launch a new subscription product.

But it is quite a different story when it comes to established subscription companies that already have one or more subscription products in the market – at least if you believe the US-based company Zuora that provides software for subscription companies. Zuora has investigated how much time established subscription companies spend on pricing and pricing policy. And the answer is quite surprising: The vast majority of companies spend less than 10 hours a year evaluating and developing their pricing and pricing models.

Why is this surprising you may ask? Because surveys indicate that companies that work with their prices frequently and continuously are also those who are growing the fastest. Therefore, there seems to be a correlation between continuously working on price optimization and a company’s success.

A popular example that shows the importance of working with prices, pricing models and pricing policies comes from the English magazine The Economist. This example is portrayed in a TED Talks with the American psychology professor Dan Ariely:

The Economist tested two different pricing models:

Example 1:
Subscription, print + digital $125
Subscription, digital $59

In this test, 68% of all buyers chose a digital subscription. Subsequently, they presented the price in a new way:

Example 2:
Subscription, print $125
Subscription, print + digital $125
Subscription, digital $59

In principle, 68% should still opt for the digital subscription since the difference between print + digital and digital are still the same. However, this was not the case because by launching the opportunity of buying print alone, the combination of print and digital suddenly looks more interesting. Therefore, in Example 2, as many as 84% now chose to buy a print + digital subscription.

The point is obvious: Buyers are NOT rational, and the way you present your subscriptions hugely impacts your sales and business.

Of course, there is a wide variety of elements, decisions and parameters that can affect how your subscriptions are selling. Pricing itself is important, but as the examples above illustrate, it is often a combination of different prices that is absolutely crucial. However, decisions such as naming your products can also impact how your subscriptions and the various packages are perceived, and thus sell. In addition, the way the different features and functions in the subscription is presented is also crucial and can play in both positive and negative directions.

Finally, the duration of the subscription is an important parameter in the pricing policy. Today, many subscriptions are sold as monthly subscriptions as the low monthly price helps lower the barrier for customers when they are looking into buying a subscription.

In reality, my point with this article is that one must work with prices continuously as it is a significant task in all subscription companies. All subscription companies of a certain size should have a Pricing Manager who solely works on developing the company’s prices and pricing models.

Are you spending enough time on pricing in your business? Feel free to reach out to me on + 45 40 29 45 34 or mha@subscrybe.com and we can have a chat.