It seems that good pricing advice is like buses, you wait for ages for one and then two come along at once. So I’ve included two pieces on pricing this week but they come from very different perspectives. This week I also take a look at some thinking from Matthew Ball that focuses on entertainment companies, but has applications for any business in terms of building brand / affinity / love.
Pricing tricks to experiment with
Julian Lehr of Stripe and previously of Google Play identifies pricing tactics to experiment with, although focused on SaaS companies, they could be applied to any subscription business. Here are the best:
You can probably charge more than you think - too often there’s a believe that as you increase the price you’ll lose customers. But this treats price just as a financial exercise when of course it can also be an indicator of quality, value etc.
Use early adopter discounts - even if the discount is 100%. The rationale? Having a price from the start creates an anchor point and communicates the value to the customer. The discount drives adoption.
Offer different prices and products to capture different audiences - although this adds complexity it does address the reality of different types of users eg those buying for personal use to enterprise customers. This does apply beyond SaaS, Netflix offers Ultra HD at a different price point to address a specific audience.
Price discrimination - similar to the last point you can charge different prices to different audiences (but for the same product). For example Notion have a price that only applies to students. Twitch (see below) are moving to offer prices specific to countries to fit the context.
The illusion of choice - offer different prices to highlight the subscription you actually want users to buy, this is illustrated in the example from Tinder below.
There are some other great tactics and more detail in the article - read more.
D2C - what do Harry’s and Peloton do?
As part of The Drum’s “Digital Transformation Festival” they offered a panel under the title of “The rise of the subscription economy” as it turns out the panel was usefully, a discussion about how two of the participants from Harry’s and Peloton approach subscription marketing. You can watch a video of the panel here, below I’ve tried to capture some insights:
Retention has to be the first thing you think about. It can’t be an afterthought, Peloton focuses on retention from day 1.
Engagement should be built in, to retain subscribers you have to work at the customer experience as much as the product itself. Companies providing a superior customer experience will win the retention battle.
There are many levers to pull in subscription marketing, be aware and look for the impact on multiple variables on any initiative you test - you need to be constantly testing and tuning.
Customer centric / obsession - this was quoted a lot, easy to say and difficult to do. It should really be table stakes. But for these companies it’s about working hard to:
- understand user behaviour
- recognise or acknowledge the customer
- be radically transparent - with pricing, any changes to the service, how to cancel etc
D2C enables a proper relationship with the customer, focus on the customer needs, find out the channels they really want to communicate on and listen.
Organisation structure - unfortunately this wasn’t given enough time. There was a recommendation for legacy businesses to re-think especially on teams that might currently be separate eg acquisition versus retention.
What’s love got to do with it?
Matthew Ball consistently produces thought provoking pieces on streaming and media. His latest essay “What is an entertainment company in 2021 and why does the answer matter?” might not seem to have much to do with subscriptions. But I think it is a good reminder to think hard about what business you are in and contains some ideas that definitely apply to any content based business and probably any brand. Worth considering are:
As Theodore Levitt described in the 1960’s too many companies are defined by their products rather than the needs they meet. Clayton Christensen returned to this in prompting companies thinking about “the job to be done” for customers. This leads to Mattel driving adaptations of Barbie and Hot Wheels into TV, games and beyond - this isn’t just licensing either.
Ball suggests that an entertainment company does only three things:
1. Create / tell stories
2. Build love for those stories
3. Monetise that love
Not all content / stories are equal - great IP or access or isn’t enough. It’s how you tell the story. Ball illustrates this with the difference between Disney’s Marvel films versus Fox’s universe of Marvel characters. This is a bit vague. Is it just great storytelling or is there something else at play - a deep understanding of the audience, especially when these are fans?
Can this apply outside of film / video? Is this behind the New York Times subscription success or The Athletic’s?
Build love - “Businesses based around storytelling franchises excel based on an intangible sort of operating leverage. Because it doesn’t actually ‘cost more’ to make someone ‘love your content more’, but the ‘value of this love’ is substantial, companies like Disney benefit from enormous “returns to marginal affinity”. Whilst I understand this, there is no explanation of how to do it?
Monetise love - if you can build brand equity / affinity this enables you to monetise, people are willing to pay a premium for content, for early access, for merchandise. But be careful not to over do this - there is something in scarcity of the product that actually helps to strengthen the love.
Spreading the love - this is where Disney+ becomes very important strategically. It enables fans to see all the content in one place, this encourages sampling of content and exposure to new franchises, characters etc.
Disney+ also allows Disney to strengthen its relationship with their customers - they now know who is watching what, what they don’t like etc. Beyond the benefit of the data they could start to monetise in other ways through their direct connection.
Shifting to direct to consumer will enable Disney to build the love further and monetise more. Could this apply to other companies making the shift?
A lot more is covered in the essay, not the least how things might develop beyond D2C SVOD. It’s a long article, but worth the time. Read More.
More on subscription pricing
Robbie Kellman Baxter is the author of two books on subscriptions, “The Forever Transaction” and “The Membership Economy” so she’s well placed to talk about subscription pricing, in this article she offers 10 tips, I’ve picked out 5 for consideration.
Keep it simple - Baxter argues that even though technology enables complex pricing, don’t go down this route, keep your subscription pricing simple.
Price not just for acquisition - too many customers choose price points to get the customer to buy. But consider pricing to drive retention and upselling.
Cost saving is just the starting point - Baxter argues that “cost saving is expected in any subscription” I’m not sure this is applicable to all if many subscription services today. You should build a cost saving into the subscription product where there is an alternative one-off purchase. But subscriptions can also be about convenience, which has a value.
Tiers come later - while I completely agree with keeping it simple, I think you can and should have different price tiers from launch. They offer a way of testing willingness to pay and can act as a nudge to the offer you really want people to buy.
Don’t overlook Free - you should consider free as a price point both in terms of a trial and an ongoing price for certain users. You just need to be able to evaluate the return on investment.
Perhaps the most important tip on pricing is the last one in the article - “pricing should be unique, because your context is unique”. Copying business models. tiers or price points from another successful business makes no sense. The context for every business is different as is the value they deliver. In both streaming, news and SaaS markets there are a lot of companies with similar price points. Does this really make sense? Are we training the customer to think of these services as a commodity. Read more.
Twitter, as noted previously is working on a subscription service. Further details have emerged, it’s going to be called Twitter Blue and looks to be priced at $2.99 a month.
Twitch is lowering its prices in some territories to encourage subscribers outside of affluent western countries. Twitch tested localised pricing in Brazil and reported that subscriber count almost doubled.
Last but by no means least…
AT&T announced earlier this week that it is spinning off its media business WarnerMedia and merging it with Discovery. The merger creates a major new player in the media / streaming world - one that could compete with Netflix, Disney et al? The merger makes sense on paper - a combination of great assets, as an entertainment company (not something to drive phone sales), but can it restructure quickly enough?