Pricing Strategies Consumers are constantly making decisions between options that are right in front of them – consciously and unconsciously. When evaluating a product or service, they look at the relative price and value compared to the alternatives offered. Successful companies know they need to proactively adjust their options to influence consumers nearby what they buy and how much they apply.
A restructured portfolio can work wonders. The management consultancy Simon-Kocher, for example, helped an online marketplace based on subscriptions to increase average sales per user by 88% and monthly recurring sales by 62% – all through an optimized portfolio and an improved price structure.
As we have seen with many clients, restructuring your portfolio of underwriting pricing strategies can help you increase your income by attracting more clients and growing your ARPU. This article will introduce the four best subscription pricing strategies for taking advantage of relative pricing and successfully restructuring your portfolio. This article defines “packaging” as a set of product offerings with different characteristics and prices.
Arouse Interest And Increase The Acceptance
Bait is one of the best ways to get customers. The price of this offer should be relatively low compared to the rest of the portfolio. In this way, you arouse interest and give the interested customer the feeling that they are not taking any significant risks when testing.
For example, Dish Network advertises that pay- TV packages start at just $ 19.99 a month to boost orders and offer DISH as an affordable alternative to cable TV. In reality, however, few customers end up buying the package for $ 19.99, and the average sales per customer at DISH is even over $ 80 a month.
Because DISH restricts its lure offer in three ways: concerning the content, the extras, and the sales channels, in terms of content, for example, the $ 19.99 deal lacks some popular TV channels (such as ESPN, USA, and Disney), making it less attractive to sports enthusiasts and families. The extras subscribers to the $ 19.99 bundle won’t get HD or the DISHs Hopper® DVR. In addition, consumers can only subscribe to the package if they call a toll-free number. There they talk to a salesperson who tries to sell the caller one of the higher-quality subscriptions.
Sometimes we recommend using freemium products or free trial versions as a luring offer. It gives consumers a chance to learn about the key benefits of running a business without having to pay anything. This “free” price point is lovely for consumers and is based on the so-called “penny gap” phenomenon: jumping the price hurdle from 0 (free) to 1 cent is higher than jumping over the load from 1 to 2 cents.
The Golden Mean: Cover The Needs Of Your Market With Exactly The Right Offer
When it comes to pricing subscriptions, a low price is tempting for potential customers. But as soon as the customers have been approached and take a closer look at what options are available, they tend to avoid the packages that drift too far to extremes. Most consumers want a product that is “just right, that is, neither too cheap nor too expensive (this is also referred to as the “compromise effect” in behavioral economics).
Put yourself in the following situation: You are standing in front of the wine rack, and you can choose from two different wines. One bottle is $ 15, and the other is $ 20. In our experience, consumers are typically more likely to buy the bottle for $ 15. However, buyers prefer the middle price point if there is a third, more expensive bottle on offer.
Some companies very cleverly point out the “golden mean” in their offer and thus offer their customers a point of reference. They do this by visually highlighting the middle option as the most popular product. For example, Squarespace leverages the tradeoff effect by making it clear that other customers prefer the middle option.
Flagship Offer: Reach Your Customers With A Super Premium Option
A showcase is a great way to maximize your sales by targeting a specific audience in your market. Suppose you have a showcase offer in your portfolio – i.e. the premium version of your product – that costs a lot compared to the other packages. In that case, you will reach a particular target group: customers with the highest willingness to pay. Another advantage is that this offer triggers a kind of “bargain effect” since the other suggestions in your portfolio are more affordable.
In the example mentioned earlier of an online marketplace, there were initially three levels. Each one contained a list of the various extras for the subscribers who want to sell or rent objects to consumers. However, Simon-Kucher found that there was a demand for a more comprehensive premium range. Therefore, we have recommended introducing a super-premium tier at a higher price point (called “Advantage”).
With the new Advantage tier, the customer could generate additional sales thanks to subscribers with a higher willingness to pay and encourage customers to buy the Elite or Deluxe levels, which would otherwise have been considered too expensive.
The Kiss Principle: Make It Short And Simple
When designing the portfolio structure with different packages, you should also avoid offering too many pricing options. In this case, consumers are deterred because they have to compare too many variants with one another. In the worst case, they migrate before they even make a purchase decision.
When working with a telecommunications provider, for example, Simon-Kocher tested various strategies for adding subscription-based. Internet packages with usage restrictions to the product portfolio. Previously, this company only offered unlimited usage packages. Simon-Kocher found that less choice leads to better results.
Our tests found that the second variant (capped at specific points) could increase market share and sales. With the first variant with all checked options, 20 different packages were available in the end. The second variant, with a cap that was specified in advance, resulted in 15 packages. The reasons for this were less confusion on the part of customers. And a lower incidence of buying paralysis (which often occurs with over-supply).
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