The Best Subscription Model Need Price Testing Posted on 2014-04-13 16:21:00 by House of Kaizen

There is no magical formula for setting pricing when it to comes to subscription services. The range of goods and services are too varied; the market places too diverse, the profit margins too different and the economic climate too unpredictable.

There are also different subscription-model services including:

Fixed: One set price for a predetermined set of goods or a service for a defined period of time. Unlimited Use: One set price for unlimited use of services or collection of services. The usage can be personal or for a group using the service (such as a family or group).
Pay As You Go: Also known as a convenience model. Users pay only for the usage of a product or service when needed.
Premium Member Subscriptions: Users pay a basic access fee for usage of a services or goods, but are charged additional fees to access other services or gain access to additional or premium content.
Freemium: Basic services are offered free or charge in exchange for a user’s information (email, contact information, etc.).

So, when it comes to pricing for your subscription-based service it’s all about testing, testing and more testing.

The right pricing can make or break a subscription-based service.

You’ll want to use the specific data that you’ve learned about your target audience, along with some proven retail psychology techniques about pricing and perception, before you can come up with subscriptions or memberships priced at the best rates for conversions and profits.

Your testing for pricing can include multiple pricing options, but must also consider how you are handling the acquisition of new customers and the discounts they receive compared to your existing customer base.

Prior to your testing you should do some research on general pricing and changing consumer attitudes. It used to be that common wisdom suggested pricing ending with .99 (such as $9.99 or $19.99) was easier for consumers to process and think that they were getting a deal.

However, there seems to be new research suggesting that consumers have a greater desire to deal in round numbers and that trumps their hope that odd prices signal a sale. That means, pricing at $20 may work better for your target market than $19.99. But only testing will show the results for your specific business.

In your testing you’ll also want to factor in add-in and upsells. If your base pricing is considered too high, perhaps you will be losing sales of additional products. These all need to be factored in when designing clear testing models – especially if your predicted margins depend on a certain percent of upselling.

If you have rival in your market, you may be tempted to use a similar subscription pricing scheme; However, many industry watchers claim that isn’t a good idea. You want to differentiate your service, not just the price, as your company may flounder if consumers solely rely on a head-to-head pricing comparison of services rather than other differentiating factors.

Overall, testing is vital to success; analyzing data over time may show that you are not maximizing potential profit and need to adjust pricing or add new levels of benefits and services.