Questions

Pricing strategy question: How do you determine whether to offer subscription pricing, transaction pricing or both?

I'm building a database to sell information on employment contracts and comparisons (terms typically found, what they mean, analytics on what percentage of people have them, etc) and am trying to figure out my pricing strategy. Users submit their information to get our information (similar to Glassdoor), so volume is important early on to continue building up the database. I've always read that 3 pricing options is the way to go - Low, Medium and High. What are the pros and cons of a transactional (one time) model versus a subscription model? How do you price this out if you offer both?

5answers

As someone who has worked in pricing for almost 30 years, I know that one of the biggest myths of pricing is that you should only offer one pricing model. Offer two - both subscription & transactional. Customers will self-select &/or the market will segment, and you will quickly find out what is their preferred pricing model.
As an aside, another pricing myth is that you can low-ball your pricing and raise prices later. Its successful in ~10% of attempts.
By default, the choice of pricing models also states the obvious. Its not about what you want. Its about what the customer wants.
And yes, you should have three choices. One choice gives you a 50:50 chance of closing the sale. Two choices forces the customer to make a price-based decision. Three choices, and the customer says "which one do I buy?" not "do I buy from this outfit?" and secondly they are forced to make a value-based decision.
Also think about creating a decoy product, and on the pricing page on your website, lay the packages out dearest on the left, cheapest on the right.
Happy to chat further about any of the above...or more!


Answered 4 years ago

If you anticipate customers returning regularly to query the database for fresh information, then subscription pricing may be your best bet.

As a single transaction, the cost to the customer would need to be 12 times as high just to equal the revenue from a 1-year subscription. Since $600 up front is more intimidating than $50 per month, this will deter signups. Customers are more reluctant to try out a service with a high price tag.

Meanwhile, if paying $50 allows them to experiment with your database, they'll be more likely to begin. And to continue.

Using a subscription model has other advantages. You can retain greater control over your database by dishing it out only incrementally to subscribers, query by query.

Also, you'll gain a lot of useful intelligence on how customers use that database if you steer them to an in-house portal. I'm not talking about individual customer profiling. You can respect user privacy but simultaneously learn what customers want, expect, or need from your database / interface. That allows you to improve their experience.


Answered 4 years ago

Others have shared the pros and cons of each model.

From real world experience, here's my advice:

You can't charge 12X the monthly subscription fee for the transaction amount when you have the subscription option available. Unless, of course, you don't really want them to buy using the transaction option.

You have to discount it at least by two months or say 20% (which I know is more than the 16-2/3rds percent 2/12ths is, but "16.667% Off" just doesn't have a nice ring to it or seem like a significant discount worded that way, does it?

Anyone who has taken basic accounting knows the maxim, "A dollar today is worth more than a dollar tomorrow." This is because of opportunity cost and the interest rate.

So getting your revenue now--unless you have some weird matching principle thing going on and want to spread that revenue out over several quarters--is better than having to wait for it in little pieces.

Also, and here's the real world intruding with its messy, "not nice" truths again, buyers screw up.

They run out of money.

They forget to fund their payment method.

They decide to buy beer or postage or pay their Over 90s instead of pay your subscription this month, and if you're using Paypal that auto subscription fails and Bang! it's dead.

So get your money now if you can. Because every month you have to come back around, cap in hand for collections, is yet another chance for the buyer to fail you.

And then you have to do unpleasant things in response like turn their access off or make a phone call to their Accounts Payable department.

One other factor in setting up these pricing options is to include an option nobody wants. Despite seeming pointless, this third option helps buyers make up their minds.

Dan Ariely explains this in his "Predictably Irrational" video:
https://www.youtube.com/watch?v=9X68dm92HVI

1 > Paris
2 > Rome
or 3 > Rome With Coffee

makes Rome With Coffee seem superior not just to Rome, but to Paris as well.

You need a third option available to make this work. It isn't possible with only two.

Get paid in full NOW if you can. Then you can rest easy in the knowledge you've already been paid...and get down to providing serious customer service. After all, they've paid for it.


Answered 4 years ago

Transactional model:
1- you get all the bucks as soon as possible.
2- to do that you should price correctly your service since if you are low you cannot cover your business while if you are high you are not even able to start.
3- if you choose this model you should and/or could survey your potential clients to understand the range of price they can afford which you be better off at.
4- by this model you cannot acquire your clients' loyalty nor diversify a range of services or functions.
5- this fact does not allow you to profile your customers.
Subscriptional model:
1- you can create (and graphically you should) a rainbow of functions and services from standard to premium to be browsed ( 3 is a good number but 4 are better if you agree with giving a minimum free service)
2- you will be able to profile your costumer base from private to corporate, from age to social and etnographic features.
3- from above, you will be also able to figure out what is the most wanted and how to personalize the final product.
4- if needed you could also pivot finding a by-product without losing the primary service and business.

All the best


Answered 4 years ago

After all these extensive answers, some other points to consider in brief if your product is B2B:

1- What is the the customers budgeting approach & limits regarding OPEX vs. CAPEX
2- Do they favor discount or installed payment?

Last but not least, you can always promote the way you prefer in a strategic way via comparison manner.. However, this is easy to say, hard to execute..


Answered 4 years ago

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