The best pricing strategies give customers autonomy over their subscriptions whilst maximising profits for businesses. Win-win.
Regardless of the product or service on offer, digitalized subscriptions function in the same basic way - customers receive either continuous access to goods or services, or have deliveries arranged at regular intervals. Payment is automated and arranged online, usually through an app. Finding the right pricing model to suit a specific subscription service is critical for ensuring customer satisfaction and reliable revenue. Pay As You Go and Bundling are two commonly used pricing strategies in the digitalized subscription economy of today. Find out what they are and how you can utilize them for your subscription business.
Pay As You Go (usage-based billing)
Another pricing strategy that gives customers a greater sense of autonomy over the financial burden of a subscription service is the Pay As You Go model, also known as usage-based billing. Usage-based billing has become standard practice in the car-sharing industry, where customers are charged a sign-up fee, and then are charged per minute or per kilometre of travel. This model gives customers the sense that they are only paying for what they use, and allows businesses to benefit from increased use of their product, unlike a standard monthly or annual subscription where revenue remains static and does not reflect how often a service is engaged. For more information on usage-based billing, check out our article on the burgeoning car sharing industry.
When one company provides a sprawling ecosystem of products and services, it can be advantageous to ‘bundle’ various subscriptions to provide optimal value for the customer. A recent example is Apple’s launch of the new Apple One subscription, which bundles Apple Music Apple TV, Apple Arcade, Apple News+, Apple Fitness+, and iCloud storage in three tiers of monthly subscription, from a basic ‘Individual’ tier to the comprehensive ‘Premier’ tier. This consolidates multiple subscription services from within the Apple ecosystem into a single monthly transaction, which saves the customer time, effort, and money compared to having individual subscriptions to each service.
Bundling services also allows companies to promote new or struggling services, as they come as ‘part of the package’; the Apple One bundle is expected to improve the metrics of Apple TV, an over-the-top video streaming service that has struggled against similar services, such as Netflix. Bundling does not have to be limited to consolidating existing subscription services, but can also mean a single monthly fee that grants access to a variety of products and services. For example, Amazon Prime is a paid subscription program that gives users access to services that are otherwise unavailable, or available at a premium to non-members, and includes an assortment of products and services including same, next-day, or two-day delivery, grocery box delivery, a restaurant delivery service, as well as access to music and video streaming.
This was the last installment in our three part series on pricing strategies in the digitalized subscription economy. Check out the other article in this series: