Many pricing strategies are utilized in the subscription business model for the different stages in the customer lifecycle. In this article, we are focusing on the humble freemium.
As the world moves away from owning products, more sectors are jumping on the digitalized subscription business bandwagon. During this transition, different pricing models are adopted in a subscription business, each with its unique advantages for businesses and customers.
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 adapting to it, attempting to acquire new subscribers.
What is Freemium & Upsell Strategy
Freemium and Upsell allow a version of the product or service to be accessed immediately by a subscriber for free with the potential and opportunity to upsell a paid subscription to the customer at a later stage. All that is needed from the customer, to begin with, is their customer information with or without payment details. The key advantage of the freemium model is that it is attractive to new customers because they do not have to make any monetary commitment at the start of the lifecycle.
The Freemium + Upsell pricing strategy gives customers a free version of a service, with the option to commit to a paid subscription after a certain period - this is where the ‘upsell’ comes in. The free version is usually limited as compared to the paid version.
Some examples 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 license, such as full features of Microsoft Word only being available for free to students
Software providers can also consider a similar model that YouTube carries, in which joining the community is for free and subscribers have unlimited access to video resources. At any point in time, they can choose to upgrade to YouTube Premium to further improve their own user experience. YouTube is the ubiquitous video streaming platform that is supported by advertising revenue since 2006. YouTube Premium is a monthly subscription of €11.99 that gives access to an ad-free version of YouTube and 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 that is a streaming service similar to Apple Music or Spotify.
Customer engagement that drives upsells
Once there is a list of subscribers, it is up to the business to ensure that it engages with customers at the right time to persuade the added value of the full subscription package. When it comes to designing the freemium package, there are two things to keep in mind:–
- Finding the sweet spot between what the customer needs and the upgrade trigger requires data and experiment. If a freemium product more or less caters to consumer needs, the consumers will be less inclined to upgrade to the subscription offer.
- A good customer journey is essential even though the freemium model doesn’t bring in revenue at first. If the free version proves to be a frustrating customer experience, the consumers are more likely to seek alternatives.
Stay tuned for the next installment in this series, where we will be discussing how different pricing strategies can enable conversions and customer satisfaction.