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There are many pricing strategies that can be used in the subscription business model - but you may want to consider the humble freemium.
As the world moves away from ownership of products, more and more sectors are jumping on the digitalized subscription economy bandwagon. However, there are several different pricing models that can be utilized as a subscription business, each with their own unique advantages for both businesses and consumers.
One such strategy is the ‘Freemium + Upsell’ pricing model. This form of pricing has been prevalent amongst subscriptions for a while, with many businesses across all industries adopting this model in an attempt to acquire new subscribers.
Freemium + Upsell allows a product/service to be accessed immediately by a subscriber and for free with the potential and opportunity to upsell a paid subscription to the customer later on. All that is needed from the customer to begin with is their customer information. A key advantage of the freemium model is that it is very attractive for new customers because they do not have to make any monetary commitment to begin with. This means with the right marketing, it should be easy to acquire new subscribers.
The Freemium + Upsell pricing strategy gives customers a free version of a service, with the option to upgrade to a paid subscription after a certain period of time - this is where the ‘upsell’ comes in. The free version is usually limited in some way compared to the paid version. The ways in which a product may be restricted include:
• Limited features, such as the limits on the free version of Slack that are not present in the paid versions
• Limited capacity, such as the limit of 5GB of free storage on iCloud
• Limited use times; such as the five consecutive ‘lives’ available on Candy Crush, after which players must either wait or pay
Other freemium models include having a limited period of a full feature product that reverts to feature-limited free version if customers do not opt for a paid version.
Software providers can also use an ‘open core’ model, in which a feature-limited free version is open-source software, but versions with additional features are commercial software. An example of the freemium + upsell pricing strategy is YouTube Premium, formerly YouTube Red. YouTube is the ubiquitous video streaming platform which has been supported by advertising revenue since 2006. YouTube Premium is a monthly subscription of €11.99, which gives access to an ad-free version of YouTube, as well as exclusive original content and other features, like the ability to have videos playing in the background or downloaded to watch offline. YouTube Premium also bundles its video streaming platform with a new YouTube Music app, which is a streaming service similar to Apple Music or Spotify.
Once you’ve got subscribers, then it is up to the offering to ensure that it is bringing the subscriber added value in order that they continue paying for the subscription when the freemium version ends. Businesses must carefully thread the needle in what is offered in the free version of their product; if a freemium product more or less caters to consumer need, then they will be less inclined to invest in a subscription. However, if the free version proves to be a frustrating customer experience, then consumers are more likely to seek alternatives than to buy a subscription.
Stay tuned for the next instalment in this series, where we will be discussing how pricing strategies can allow maximum customization of a subscription service.