Three Tier Solutions & Subscription Options

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Robbie Kellman Baxter shares key points on developing tiered pricing options that elicit a positive reaction from subscription-based customers. 

Netflix, one of the largest and most successful subscription companies in the world, has among the simplest of business models. There’s a one-time, short, free trial and then the only option is to subscribe.* They only offer a few subscription options, are very limited in the partnerships they utilize and generally stay away from bundling their products with those of other organizations. You don’t get a free toaster with your Netflix subscription and you don’t get a free Netflix subscription with your toaster. The clean model makes it easy to track subscriber behavior and understand how people value their offering. After all, if you only subscribed to get the toaster, you’re going to behave differently than if you intended to make Netflix content part of your new normal. In contrast, news organizations have a huge range of offers. They bundle with other content providers–music, video and other news organizations. They have dynamic paywalls, offering more free articles to some people than others. And they have dynamic pricing, trying to optimize for revenue on every transaction and every relationship.

Tactics around dynamic pricing, while effective in the short term, don’t always make sense from a Membership Economy’s long-term perspective, and focus on lifetime customer value (LCV). For example, it’s accepted wisdom that long-time subscribers are less likely to cancel or complain about pricing. So there’s a temptation to give new customers better pricing than loyal ones. To me, that logic seems like “our best customers are dumb enough to trust us, so we can charge them more than we charge new customers.” In a world of increasing transparency, where it’s easier than ever before to quickly assess what any product is worth and the best available price, this is dangerous.

 

Points covered in this article include: 

  • Dynamic pricing
  • Gaining the trust of the subscriber
  • Managing internal systems

 

Read the full article, How to optimize tiered pricing options for a subscription, on LinkedIn.