Winning Pricing Strategies for D2C Subscription Businesses
Pricing undeniably plays a critical role in D2C subscriber acquisition and retention. In a world filled with choice, today’s customers don’t think twice about trying a new service or switching over to other services. To win over new subscribers and retain existing subscribers, your pricing, offers and promotions must align with the needs and preferences of the modern consumer. Their consumption patterns will determine how much they value your service which in turn drives how much and how they prefer to pay you.
The best way to cater to their pricing preferences is by giving them the freedom to pick the offer that best suits their needs. It’s a very different approach from the “one product – one price” practice dictated by the traditional product-based business model.
Here are some winning pricing strategies of leading D2C companies:
Don’t Risk Losing Customers to Competitors
When companies don’t cater to changes in consumer consumption preferences, they risk losing them to a competitor who does. Let’s look at the telecom industry as an example. For years, customers were tied to multi-year, monopolistic contracts that penalized us for consuming more but never offered any benefits for consuming less. Choice was limited and most carriers offered similar plans.
Things changed when T-Mobile embarked on its “Uncarrier strategy” in 2013. In an unprecedented move, the company decided to break away from the rigid contracts and plans that all players in the industry followed. Instead, T-Mobile offered its customers the ease and flexibility they had long wanted — Customers were no longer chained to a plan or carrier for years but instead, could choose from various plans in a range of price points on a monthly basis.
Plans were kept simple and easy to understand, thus erasing long-term consumer frustration at having to keep an eye on talk-time minutes, texts, and what’s more, subscribers could even use their own phones! Over the last few years, T-Mobile has been expanding the strategy and offering consumers more freedom in phases to cover other services such as data, roaming charges, music, etc
Over a three-year period, T-Mobile grew from 33 million subscribers to 64 million subscribers and increased market share from 10 percent to 17 percent. In D2C markets, more subscribers always mean a larger market share which then translates into an increase in revenue.
T-Mobile had disrupted the industry by simply offering customers the freedom they had been craving for years.
Customize, Experiment and Iterate
Successful subscriptions are often those that are highly customizable by customers to suit their needs. So, instead of offering your service at one fixed price to all subscribers everywhere, consider offering pricing based on access tiers (Gold, Silver, Bronze), by geography, device types, usage and number of users. You may offer these individually or in layers such as “Gold access in North America for 3 devices”. It must be noted that the same offerings will not work across markets, so global businesses will need to offer further customization based on regional customer preferences.
It’s also important to figure out the price points that gets customers to latch onto your service. You want to be able to test out different pricing and packaging strategies to iterate and see what’s going to be the easiest, least confusing, most attractive to customers and brings you the most revenue. It’s also important that your launch pricing and packaging strategy accounts for future growth as well. While a low price point might initially help you grab new subscribers, it probably won’t work as well when you grow. Once your subscribers are hooked to your service, they will probably be willing to pay more for more access or value-added services. The trick is to identify the “just right” pricing for customers at different stages of the subscription journey.
A great example of a D2C company strategically experimenting with pricing flexibility is The Financial Times. The newspaper dropped its paywall over the Brexit weekend for all news related to the referendum, leveraged subscription analytics to test price points and offers in real time and saw a 600 percent surge in digital subscriptions sales (compared to the average weekend).
Jon Slade, Chief Commercial Officer told DigiDay “We dialed up our marketing on a real-time basis. We were looking at buying patterns, opportunities in social, and spending our marketing budgets in pretty aggressive ways in an attempt to try and dominate a story. We then made sure that didn’t conflict with the efforts of our audience engagement team, so there was constant dialogue between audience engagement and editorial, and between marketing and acquisition.”.
Cross-sells and Upsells
Not all pricing change has to be so dramatic. Having flexible pricing strategies and systems will allow you to not only strike when an opportunity presents itself, but also gives your subscribers more ways to engage with you on an ongoing basis. Think cross-sells and upsells, and seasonal surges in demand.
A good example is The Economist which has had great success with creative pricing strategies to drive acquisition. A few years ago, the publication went against the common practice of bundling digital and print assets where digital access is usually offered “free” with print subscriptions. Instead, they unbundled them and placed a “premium” on their digital content.
“The idea was to increase our renewal subscription revenue by making people opt for the print and digital package rather than the print-only package. So, instead of giving it away for free, we are actually starting to charge a premium for it” explained Subrata Mukherjee, VP of Product and Head of Business Systems at The Economist Group.
The publication increased revenue 25 percent on those willing to add digital to print. The Economist is now experimenting in various ways to bring in more people into the funnel such as presenting subscription offers to those who have ad blockers installed, special student packages, and opportunities for frequent fliers to use their air miles or other reward membership programs towards an Economist subscription.
Whether you’re considering value-based pricing, free trial offers, tiered pricing, unlimited access or special rates for families, friends, and students — flexible pricing and packaging is a key component to subscription success. And in order for you to offer customers choice with pricing and plans, your business must have the freedom to experiment with and implement creative pricing strategies. You must be able to customize, test, tweak and try again until you get it right. And then rinse, repeat and constantly update to keep pace with your customer’s ever-changing needs
Key takeaway
Flexible pricing and packaging strategies play a key role in driving subscriber acquisition and retention and offer a competitive advantage for D2C businesses. Make sure you have the systems to support the rapid launch of new pricing models and the ability to iterate on them.
To learn more about how your D2C company can succeed in the competitive Subscription Economy, download Zuora’s e-book Top 4 Imperatives for Successful Direct-to-Consumer Subscription Businesses