Following the subscription boom over the last few years, publishers are now faced with the challenge of maximizing revenue while retaining customers. Pricing decisions are a key component of a successful retention strategy. In the blog below, we break down some of the things publishers need to think about when searching for their pricing sweet spot.
From acquisition to retention
The past few years have seen a huge boom in subscriptions. But in our current economic climate, customers are taking a closer look at their subscription spend and reevaluating what to keep and what to cancel.
As a publisher, your customer retention strategy should of course be multi-faceted, but pricing can be a key component that is often overlooked. So how do you define a pricing strategy that helps you reduce customer churn while ensuring you are maximizing customer lifetime value?
There are a few key terms that can help publishers think about pricing.
Price elasticity is the ratio of the percentage change in sales (or quantity demanded) over the percentage change in price. The higher the value, the more elastic, or sensitive, a customer is to price changes. The lower the value, the more ambivalent a customer is about price. An understanding of this metric can allow publishers to apply the best price point to a customer to maximize ARPU and to extend the customer’s tenure – and increase Lifetime Value (LTV).
Price sensitivity can be defined as the extent to which demand changes when the price of a product or service changes. It is closely tied with price elasticity but looks at it from a slightly different angle.
Pricing expert and Head of Subscription Management at Aptitude Software, Jeff Spies, expands on these definitions, stating: “It’s really this concept of how your customers react to your brand and your value proposition and how much they are willing to accept a change in price and stay with you over the long term. Different customers will have different degrees of price sensitivity, price elasticity enables publishers to provide different pricing structures depending different strategies that range from location to customer loyalty status.”
What to consider when setting your pricing strategy
In addition to having a good idea of the price elasticity for your subscription, setting your strategy will require you to understand your company objectives. Are you looking to maximize revenue or grow your customer base? If your objective is to grow your audience and to have a larger number of paying customers, that could shift you in a different direction as to where your base price should be. A lower price will tend to drive more people to adopt the product while a higher price may maximize revenue.
As with any business endeavor, you must test your strategy. Matt Lindsay, pricing expert and President at Mather Economics, explains, “We use a couple of different approaches with pricing analysis. The first is modeling or using your historical data so we can see how your customers have reacted to offers and renewals in the past.” Mather takes this historical data and uses it to segment customers based on a set of characteristics to determine who might be more price sensitive.
They also use A/B testing where they apply a different price to a representative sample of customers which allows companies to control all other factors and just focus on the effect of the price change.
While it can feel daunting to engage in price testing, it’s best to just start small. Lindsay summarizes, “A/B testing is a great way to validate an assumption and make sure that you’re not risking too much revenue with your pricing changes.”
Mather & Aptitude Software: A powerful integration
Aptitude Software, the technology company that helps publishers accelerate digital transformation and drive recurring revenue, has joined forces with Mather Economics, a global leader in subscription management data analytics, to offer an integrated solution that allows publishers to implement sophisticated pricing strategies within the Subscription Management platform.
The combination of Aptitude’s specialist subscription publishing tools and Mather Economics’ data analytics delivers insights and support based on their clients’ complex analytics challenges and business focus. Together, the solution drives significant reductions in customer churn and increases in customer lifetime value compared with standard subscription pricing strategies.
Recently, Matt Lindsay, President of Mather Economics, and Jeff Spies, Head of Subscription Management for Aptitude Software recorded a 10-minute introduction to Pricing Strategies video podcast outlining how publishers can find their sweet spot with subscription pricing. You can listen to this video podcast, through this link: Pricing Strategies to Maximize Growth & Retention – Aptitude Software.