Subscription pricing is a business model where a customer must pay a subscription to have access to a product or service. The strategy was initially developed by magazines and newspapers, but the number of companies and websites using this model for their products and services is increasing exponentially.
Netflix, Spotify and Amazon Web Services are all subscription and recurring revenue business models. Subscription pricing models can be found with software providers, financial services, club membership fees, mobile phone companies, cable television, gardening services as well as newspapers, magazines and academic journals.
A subscription model is an option for products and services sold both online and offline and is beneficial in industries where customers use the product continually, such as the music sector where subscription plans from companies like Spotify and Pandora have taken off.
When implementing a subscription-based pricing strategy it is important to consider the needs and preferences of your target audience as well as the budget for your business. If your prices are too low you may not be able to cover your costs and if you charge too much, customers will compare price to value and decide not to subscribe.
A good starting point would be to ask your customers what they believe the value of your product or service is. An alternative method is to A/B test several price points and see which has the higher conversion rate.
Also consider the customer lifespan - if you find that a higher price has a lower customer conversion rate but higher customer lifetime value this is obviously the better choice.
Freemium
Providing one tier of content for free but restricting access to premium features to paying subscribers only.
Promotional Strategy
Consider offering a free trial or providing the option to try one or two months of a paid service for free. Promotional incentives can be a great method for convincing wavering customers to renew a subscription.
Pay as you go
For certain types of business models, it can be practical to send a bill to customers at the end of the month for the services that they used instead of billing for a single fee up front. Cloud computing services such as Amazon Web Services use this model.
Overage
In the offline world, this type of pricing is most common in car leasing or rentals where there is a base price to a certain mileage and then a price per extra mile.
Online, overage is used for communications and data storage:
In order to be successful you can mix and match pricing components for your particular subscription business, as well as creating your own customised pricing.
If your competitors are only selling their goods or services on a one-off transactional basis it might be worth your while to consider selling via a subscription model. Subscriptions can make products and services seem more affordable.
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7 Out of the Ordinary eCommerce Pricing Strategies
Sources
https://www.chargebee.com/blog/subscription-pricing-strategies/
https://blog.fusebill.com/4-ways-to-determine-subscription-pricing
https://hbswk.hbs.edu/item/whats-the-future-of-the-subscription-model https://www.zuora.com/guides/innovative-subscription-pricing-strategies/
https://en.wikipedia.org/wiki/Subscription_business_model
https://blog.fusebill.com/2012/11/05/pricing-strategy-base-overage-pricing
https://www.mckinsey.com/industries/high-tech/our-insights/subscription-myth-busters
https://searchcloudcomputing.techtarget.com/definition/subscription-based-pricing-model
Monetizing Innovation by Madhavan Ramanujam and Georg Tacke 2016