Question

Topic: Strategy

Subscription Vs Flat Rate Pricing

Posted by nat.colley on 12/14/2013 at 12:05 AM ET 250 Points
I am building a large site with a lot of specialized content. So, for example, there are sections on apples, oranges, and pears. Anyone can read the recipes on all three sections, but only apple subscribers would get content on how to buy, grow and nurture seedlings, get started in the orchard business, selling to juice and pie companies, and so on. Orange and pear subscribers would also get this kind of specialized content, but targeted to their fruits.

I would assume that I will gain more revenue from having separate subscriptions for each section rather than a single flat rate for access to all three. But I have no evidence of that. And it may be that the goodwill I get from the flat rate would be worth more than the revenue of the separate subscriptions. But maybe not. That’s my question: how do I get hard evidence on which to make this decision? Are there existing studies out there that show one way or the other? Can you point me to them?

Now, if your answer is something along the lines of ‘you have to do A/B testing’, let me ask you this: I do the test, I decide A is the best option. How do I persuade my B customers to convert to the A plan smoothly and without anger at the change? For that matter, how do I justify the two different pricing plans during the test when customers find out about it, as they surely will?

Then there is the usability issue: If I do have a one for all flat rate, have I degraded the experience of my pear customers who now have to wade through all that apple and orange material to find what they are looking for? Yes, I can put each fruit in a separate section, but if I have to go to the trouble of building a specially restricted search engine I might as well keep the separate subscriptions, right?

Thank you so much for your insights.
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RESPONSES

  • Posted by Moriarty on 12/14/2013 at 2:39 AM Member
    As to restricting searches, if you had a few subdomains, Google's search plugin ought to do the trick.

    The other thing is that you need to express something of the character of what you do, rather than just the nuts and bolts. "It's not what you do, it's the way that you do it" as it were. That usually throws up lots of ideas for split testing and knowing the character of your enterprise and its specialty means honing your customer market is easy. It also means you get the cream of the crop!
  • Posted by Gary Bloomer on 12/14/2013 at 8:25 AM Accepted
    Have you considered individual sites that are specific to each fruit? As for the A/B testing, you will never please all the people and there will always be a few who bitch and moan. Opt instead to please the people you can please. As for the rest, you do not need them as customers: let them bitch somewhere else, about something else, to someone else.
  • Posted by Jay Hamilton-Roth on 12/14/2013 at 9:34 AM Accepted
    Are each of the sub-markets similarly sized? Have you determined if there is any cross-over between them? Your A/B test could be to offer a separate price for each or flat for them all.
  • Posted by Peter (henna gaijin) on 12/14/2013 at 12:05 PM Accepted
    I agree with Gary - you will never make everyone happy. Go for the most.

    But is there any reason you can't offer both the flat rate for all 3, and a rate for each individual?

    On your question on usability issue - if you can not separate out the products to make it work for separate subscriptions, it sounds to me that you shouldn't be offering separate subscriptions. You do have to make sure they see appropriate content if they are only buying appropriate content. Teasers on other content (to cross-sell that other content) is Ok, but them having to "wade through" other content is not.
  • Posted by mgoodman on 12/14/2013 at 4:21 PM Moderator
    Quick gut reaction: I'd have separate websites for each segment. That way you can target each one with the most appropriate copy.
  • Posted by nat.colley on 12/15/2013 at 10:00 PM Author
    Wow, thank all of you so much.

    Moriarty, Peter, and mgoodman: Yes, I thought about the separate subdomain route, but I am leaning against that because my understanding is that I’ll get a much better SEO kick from having a single site, and I can use database tables and user access controls to separate the special content. That’s more of a technical burden to code, and therefore more expensive and time consuming, but it will probably be worth it.

    Gary: I laughed so much when I read your response. But it is good advice, and I promise not to tie myself in knots trying to please people.

    Jay: No, they are not. Some are actually several times the size of the others. I don’t really know how much cross over there might be, but I am sure there will be some. This is a good question, because it is helping me think/clarify. Maybe if it is only 5%, I should let them pay the full freight for the additional access. But if it is 20% or more, a discount for the additional access might be a good idea. And I can determine that by keeping the pricing separate to start, and seeing where the demand takes me.

    Peter: You’re right, there’s no reason I couldn’t offer both, but that’s not how I was conceptualizing it. That doesn’t mean my concept was right, of course. Here’s what I was thinking: Let’s say Apples are $150/month, because it is so much bigger (there will be both more demand/users and more content); Oranges are $100, and Pears $75. I was thinking a flat all access rate of $100 would be simpler to administer and (perhaps) more popular, because people feel like they are getting more value with more access even if they don’t use the other stuff very often. But I am sure to be leaving money on the table as far as the Apple content is concerned. That’s why I thought the separate plans would generate more revenue.

    So, taking a cue from you, maybe my all access plan should be something like $250 instead of an average of all prices, as $100 would be.

    Ok, time for a confession / explanation: There was a time not so very long ago when I was struggling in this industry, and I would have LOVED a low price, affordable alternative. So part of this low price $100 idea is trying to help people who are now like I was then. Maybe that’s noble, but maybe it is also emotional, stupid, and unnecessary.

    There’s another solution here: freemium. I can give a feature rich set to people with little or no money, like the open access to recipes example I mentioned originally, and let my humanitarian kumbayah side be satisfied with that, while my capitalist side maximizes profit like a reasonable business should do. After all, if I don’t have enough income to succeed, I hurt myself without helping anyone.

    See, I am thinking about this as I write it out. I want to sit with this for a day or two, and see what I think / feel then. This has been VERY helpful. Sometimes you just need to bounce ideas off other people instead of the insides of your own skull. I’ll be back to let you know what I decide – and if you have new ideas in the meantime, feel free to post them.
  • Posted by saul.dobney on 12/16/2013 at 4:48 AM Accepted
    There are lots of pricing models possible. Most of them can be boiled down to a multibuy discount in one way or another. Eg Apples $150, Oranges $100, Pears $75 and all together at $250 - this is essentially a $75 discount (or 23%) for buying all three together. You can do a two-item discount (eg 15% if Apples and Orange $210) and a three item discount (eg 25%).

    You can then play with the base prices and the discount structure and which offers are shown or allowed - eg limited time or limited volume pricing offers to test price sensitivity, promoting certain products and bundles to test individual pricing, coupons to a sample of customers to test prices before rolling out more widely - one of my specialities is conjoint analysis research which is used by major companies for this type of work.

    A caution is to ensure you have the systems in place to handle the pricing structure you want to employ. How do people upgrade? What happens at renewal? What happens if part of the service is cancelled? How do you do promotions and coupons? How do you track prices offered and landing pages to ensure consistency for the customer? How do your expiry and renewal systems cope with and remind customers with the right products, right prices and upgrade options? How easy is it to set price increases? Often it's the challenge of these processes that mean businesses try to keep it simple.
  • Posted by nat.colley on 12/17/2013 at 8:36 AM Author
    "conjoint analysis"?! Saul, I love the $6 words! Something new for me to Google. And yes, it can get very hard and very complicated very quickly. No wonder people keep it simple - but aren't they leaving money on the table when they do so? Money that might mean the difference between being in the black and falling into a black hole?
    btw, to all of you: if it seems like I am slow to respond, or respond at odd hours, it's because my "day" job is in Christmas rush and we are all working insane hours.... just fyi, and thanks again, I really, really appreciate it.
  • Posted by nat.colley on 12/19/2013 at 5:48 AM Author
    Well, marketing profs seems to be in a rush to have me close this question, so I am doing so. thanks again to all of you!
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