The Art of Designing Tipping Points in Your Subscription Pricing
In marketing we often hear the concept of “buyer profiles,” or “buyer personas”, but “pricing profiles” are different. When we speak of buyer profiles or personas, we are often referring to the role someone plays at a company, what pain points they have, and what challenges our solutions might solve for them. With pricing profiles, you look at clusters of your market and see what common needs these clusters have and then understand what willingness-to-pay parameters they exhibit.
There is a fantastic article by Madhavan Ramanujam and Georg Tack of Simon-Kucher & Partners called Your New Hit Product Might Be Underpriced (which is also an excerpt from their very insightful book “Monetizing Innovation”) that discusses the importance of having the “willingness-to-pay” conversations very early on in the product innovation cycle.
When designing your subscription pricing and packaging, it is important to start by defining these “pricing profiles” for your market. Doing so will help guide you towards making important decisions around what should be mapped to base packages you might offer, and what parts of your offering might represent add-ons or cross-sell opportunities.
The 3 Inputs to Designing Your Pricing Profiles
There are three components to designing your subscription pricing profile:
- Identify most common needs. Examine your customers (or your target market if you haven’t launched yet), and identify the most common needs of those profiles. The product capabilities that you map to these needs will inform how you shape/design your base packages.
- Identify the edges. For each pricing profile identify their edges, or the needs that begin to tip these profiles outside the normal range of the customers in the group with similar needs. These become the capabilities that inform you on how to shape/design “tipping points” between packages, or optional add-ons that are sold a-la-carte.
- Identify adoption signals. For each pricing profile, identify signals that indicate higher adoption of the same set of capabilities over time. These become the variables that drive how you design your “consumption-driven” growth levers.
Avoid “Add-On Creep” and Maintain Compelling Tipping Points
We have seen many businesses start out with a design for their pricing and packaging that aligns well with creating a “growth journey,” where customers can start simple, and grow into larger or more complex offerings over time.
However what we also see over time, especially in the B2B world, is the concept of “add-on creep.” This is the concept of certain add-ons that are bundled with higher editions but at the same time are also being offered a-la-carte — at price points that don’t make sense.
Let’s take a look at this in action with a simple example in which a company could have benefited from avoiding “add-on creep” and creating more compelling “tipping points:”
In this example, you see that the company started off with Benefits A, B and C comfortably justifying a $50/user/yr price differential between two plans.
However, over time, the company began to offer Benefit A and Benefit B as stand-alone add-ons, either due to external market dynamics, or internal misalignment.
In the scenario on the right, Benefit C now bears the burden of justifying the $50/user/yr price differential. Over time, the company sees more people buying and remaining on the Bronze Plan, vs “growing into” the Gold plan.
Consider the "Value Optics" of Add-Ons
A different way to accomplish this would have been to group benefit A and B into an a-la-carte add-on, that has the same price differential as the price differential between the Bronze Plan and the Gold Plan.
In this configuration, the customer perceives it to be a higher value to upgrade to the Gold Plan, because Benefit C is now an added advantage for the same price.
By carefully creating your subscription pricing profiles and showcasing greater value (both perceived and actual) through smart pricing and packaging, growing revenues through upsells to your customers becomes an organic result of their subscription journey.