What pricing strategies gain the most customers and revenue?
Subscription services pricing strategies is a topic I have been asked to write about for an e-magazine article, but before I complete the article I would like to gather some opinion from business executives like you on how your pricing strategies are supporting your customer adoption and revenue.
Personally I like to think about the classic mobile phone plan as my idea of the standard to which we might all compare ourselves to and here’s why.
A mobile phone plan, although rather complex in its execution, is actually pretty easy to understand and it accomplishes two major goals I think are absolutely key:
Number 1: Mobile phone plans virtually eliminate all barriers to adoption, by providing a pricing plan for every size of potential user.
- For the very smallest customer there is the prepaid card plan. You put as little or as much as you want on a card, use your phone and when you have used up what you paid for you can choose to add more funds to the card or not.
- With creative bundling and the use of a la carte menus there is a plan that will fit in to every users need and budget.
- As a result mobile phone adoption is amazingly high with some countries having adoption rates higher than 1 phone plan per capita.
Number 2: Mobile phone plans capture every penny of revenue by employing complex yet easy to understand and fair pricing strategies.
- You can choose from any number of bundles designed to target different user requirements and size of need. In addition you can select service upgrades from an a la carte menu, to get exactly what you want instead of being forced to pay for services you don’t want or need.
- Most of the services come with a set amount of included usage (phone minutes, data plan, # of txt msg’s), however you are never limited to how much you can use (exception being prepaid). You simply use what you want and get billed for the overage, maximizing revenue from customers who opt for lower cost plans as an entry point (remember with a higher entry point you might never have gained that customer in the first place).
- Mobile phone companies offer incentives (or is it higher prices) depending on the time of day or day of week you use the services. You pay a monthly fee for free evenings and weekends. This seems like a great deal to you but at the same time it is enabling the mobile service provider to shape usage patterns in order to spread the load out over their systems thereby saving them on infrastructure costs while still charging you for time that would otherwise have much less usage.
Subscription services pricing plans especially in SaaS vary significantly from company to company. My pet peeve is with the companies that have pricing entry points that assume consumption that is 10x greater than I can use. Why not give me a plan that suits my consumption of the services, capture my business and let me grow with you.
I would really like to hear your thoughts and opinions on this subject, so as an added incentive, I will select 5 responses at random and send those 5 a $20 U.S. Starbucks card.
To respond please follow this link to leave your comment on my blog (preferable), or e-mail me directly at klennox@ipapplications.com. Because of my submission deadline, I will select the 5 responses from those received by midnight Wednesday February 4th 2009.
I look forward to hearing from you.
Billing has always been a challenge. We are getting along using PayPal but there is no room for growth or flexibility. As we grow I am going to be seeking a billing company that will provide me with ultimate flexibility. As the market changes and the vertical segments we target change, we are going to have to change our pricing model. As Kevin points out cell phone provides have a certain model, but let’s take a look back at cell phone providers. They have changed their pricing model over the years due to competition and consumer demand. So, to recap, the single most important word in billing (next to security) is flexibility.
Good points Kevin.
I agree that subscription pricing can be good, but used alone it might lead to problems in the sales cycle. Offering just a subscription plan could cause the sale to focus on price.
For example, if you offer a set of subscription plans, like:
Up to 50 transactions per month = $35
50 – 150 transactions per month = $70
300+ transactions per month = $140
Your competitor could offer the same plans at lower prices ($25, $50, $100). It would then be natural for the customer to focus on price, even if your service offers better features. I think the way to guard against this is to mix it with some amount of usage based pricing.
For example, match your competitors on the subscription prices. But then add usage based pricing terms that charge extra for differentiated features. This will hopefully change the focus from price to the enhanced value offered by your solution. Like:
add $1 per transaction that requires less than 1 hour response
add $4 per transaction outside of business hours
add $10 per transaction that requires human intervention
Peter