Pricing for Success: Strategies to Optimize Subscription Pricing in E-commerce
- 15 June 2023
Implementing an effective subscription model pricing strategy can be the key to success. You should take some things into consideration regarding e-commerce subscription management (e.g., price monitoring) in order to optimize subscriptions. But the end effect may significantly boost your sales.
By offering customers the convenience of recurring purchases and access to exclusive benefits, businesses can create a loyal customer base and generate a steady stream of revenue. However, to ensure success in implementing subscription model pricing strategies, it is crucial to have a well-defined plan in place.
In this article, we will delve into the topic of e-commerce subscription management, and we will try to:
- explore its benefits,
- discuss common mistakes to avoid,
- uncover the best strategies to optimize subscription pricing.
Subscription Model in E-commerce: Definition, types, examples
Let’s start by understanding the concept of the subscription model in e-commerce. Simply put, a subscription model allows customers to pay a recurring fee at regular intervals in exchange for a product or service available online.
Types of Subscription Models
Understanding various types of subscription models in e-commerce can help you determine the most suitable approach for your e-commerce business, and will surely optimize your subscription strategy.
Here, customers subscribe to receive a specific product or a curated selection of products regularly. This type of subscription may concern, for example:
- personal care products (razors, cosmetics, etc.),
- meal kits (often matched with particular diets),
- fashion products (new outfits, accessories, etc.).
Harry’s Shaving Accessories Trial Subscription Plans
Granting customers exclusive access to premium content, services, or perks. It focuses more on building a community rather than promoting/selling certain products/services. This may include:
- online streaming services (on-demand movies, TV shows, music, etc.),
- premium news (newsletters, exclusive materials, etc.),
- fitness and well-being (webinars, personalized training plans, working-out videos, etc.).
Software as a Service (SaaS) Subscriptions
SaaS subscriptions grant customers access to software or digital services on a subscription basis. Depending on the type of software/service, it may include:
- regular updates,
- access to exclusive tools and features that enhance users’ work with the software,
- online databases instead of storing data only on users’ devices,
- cross-device work instead of limiting users to one device per license/account/IP number.
Microsoft Subscription Plans for Home
A curated selection of products tailored to the subscribers’ preferences, which may include, for example:
- fashion items,
- beauty products.
It can be offered in boxes containing particular sets of categorized items, and the selection may be done by some experts in the field (e.g. Curated by XYZ, a leading fashion designer in kids’ fashion…).
Subscription Model in E-commerce – examples
Examples of Successful Subscription Models
There are several examples of subscription models that have become successful. For example, Dollar Shave Club or Amazon.
Dollar Shave Club started offering affordable monthly razor blade deliveries, revolutionizing the way men purchase grooming products.
- exclusive movies, music, TV shows etc.,
- free shipping and same-day delivery in certain zones,
- Amazon Day feature – select a day of the week that will be the fixed delivery day for all the stuff you buy during the entire week,
- discounts in some shops (e.g. Whole Foods Market),
- rewards and cashback on certain items bought on Amazon.com,
- and many others…
Amazon Prime Subscription Options and Benefits
What is Subscription Pricing?
Subscription pricing refers to the process of determining the cost that customers will pay to access a product or service on a recurring basis. Subscription model pricing strategies focus on creating long-term relationships with customers.
It involves tiered pricing models that enable customers to access the benefits of a product or service over a specific period, usually monthly or annually. Depending on the variant, many subscriptions often offer some discounts proportional to the length of the subscribing period (e.g., 20% off if you pay for 1 year in advance instead of paying every month for a 30-day period).
Subscription pricing – benefits
Implementing the right subscription model pricing strategies in your e-commerce business can bring several benefits.
Predictable Revenue Stream
Deciding to go for a subscription business model provides businesses with a predictable revenue stream, as customers commit to recurring payments. This stability allows businesses to plan and allocate resources more effectively.
Increased Customer Loyalty
By offering subscription-based services, businesses can foster stronger relationships with their customers. The recurring nature of the payments:
- leads to higher customer retention rates,
- makes customers check out new offers more eagerly,
- increases the probability of getting more reviews from customers,
- helps you build a stable community of subscribing customers.
Enhanced Customer Engagement
Subscription pricing provides an opportunity to engage with customers on an ongoing basis. Businesses can deepen the customer relationship by offering their subscribers such benefits as:
- exclusive content,
- personalized recommendations,
- early access to new products,
- or even special events and competitions.
Better Inventory Management
With subscription pricing, businesses can anticipate demand more accurately, leading to improved inventory management.
By having a clear understanding of customer preferences and consumption patterns, you can optimize the supply chain and reduce waste.
How to create and optimize a subscription pricing strategy?
Developing a subscription pricing strategy requires careful planning and consideration, not to mention optimization techniques.
To optimize the subscription model in your business, try following these tips:
- understand your target audience – run market research and analyze customer behavior to identify their needs, preferences, and willingness to pay;
- define clear proposition of values – identify the unique benefits, features, or exclusive content that sets your subscription apart from one-time purchases;
- decide on pricing tiers and options – offer varied pricing options to adjust your products and services to customers’ budgets, desired level of access, or additional perks;
- leverage price monitoring and repricing strategies – regularly monitor the performance of your subscription pricing strategy (Dealavo Price Monitoring and Repricing tools might come in handy here),
- offer trial periods – potential subscribers will be able to experience the value of your subscription firsthand before deciding to commit.
Subscription pricing in e-commerce – common mistakes
When it comes to e-commerce subscription model management, it’s sometimes really easy to fall prey to some simple mistakes that might be difficult to notice at first glance. It’s essential to avoid at least such common ones as those below.
Why Do Customers Cancel Subscriptions?
Overpricing or Underpricing
Setting the price of your subscription too high may deter potential subscribers, while underpricing may undervalue your offerings and hinder profitability. Conduct thorough market research and competitor analysis to determine a pricing structure that is both attractive to customers and financially viable for your business.
Lack of Flexibility
Providing flexibility in your subscription offerings is crucial. Customers’ needs and preferences may change over time, and rigid subscription plans may lead to dissatisfaction or cancellations.
Allow customers to upgrade, downgrade, or pause their subscriptions to accommodate their evolving requirements.
Neglecting Customer Feedback
Customer feedback is invaluable for you to optimize your subscription pricing strategy in your business.
Neglecting customer feedback may cause severe problems with customers’ loyalty and trust. Try to remember to:
- ask for feedback regularly,
- conduct surveys from time to time,
- constantly monitor customer reviews to understand them better,
- identify pain points, and make necessary improvements.
Insufficient Marketing and Communication
In order to optimize the subscription model in your business, you should remember that even the most well-designed subscription pricing strategy will struggle to succeed without effective marketing and communication.
Ensure your marketing efforts clearly convey the value of your subscription, target the right audience, and utilize various channels to reach potential subscribers.
Best subscription pricing strategies in e-commerce
Here are some of the best strategies employed by successful e-commerce businesses. Try implementing some of them into your own subscription model to optimize subscriptions in your business.
Offer different tiers with varying levels of access, benefits, or features to cater to different customer segments. This allows you to capture a broader audience and maximize revenue potential.
In the freemium model, customers can access a basic version of your product or service for free, but they can upgrade to a premium subscription for enhanced features or exclusive content.
This subscription model allows you to attract a larger user base and convert a portion of them into paying subscribers.
Offer personalized subscription options based on customer preferences, interests, or past purchasing behavior. By tailoring subscriptions to individual needs, you can enhance customer satisfaction and increase engagement.
Limited-time Offers and Exclusivity
Create a sense of urgency and exclusivity by offering limited-time promotions, early access to new products, or exclusive perks for subscribers. This encourages customers to subscribe and fosters a feeling of being part of an exclusive community.
Incorporate gamification elements into your subscription pricing strategy to increase engagement and retention.
Reward subscribers with points, badges, or exclusive benefits for reaching milestones or participating in activities related to your product or service. Remember to maintain a healthy sense of progress between consecutive milestones to provide your subscribers with a stable level of gratification.
Subscription Pricing and Dealavo: Why Should You Monitor Your Prices Before Employing Subscription Pricing?
Dealavo is a leading price monitoring platform that provides businesses with valuable insights into their competitors’ pricing strategies. Why is price monitoring essential before you would even think of a subscription?
Gain Competitive Advantage
By monitoring your competitors’ prices, you can gain a competitive advantage in the market. Dealavo’s comprehensive price monitoring solutions enable you to:
- track pricing trends,
- identify opportunities for repricing,
- analyze competitors’ pricing techniques,
- optimize your subscription pricing strategy based on market conditions.
Say goodbye to inaccurate pricing!
Optimize Subscription Through Data-Driven Methods
Dealavo’s data-driven approach empowers businesses to make informed decisions about their subscription pricing strategy.
By analyzing real-time market data, you can:
- identify the optimal price points,
- adjust your offerings,
- maximize profitability…
… and all this while staying competitive.
Dealavo provides valuable market insights which can greatly enhance your e-commerce subscription management processes. These include, for example, price trend insights, competitor analysis, and customer demand patterns tracking.
Leverage Dynamic Pricing
With Dealavo’s price monitoring capabilities, you can implement dynamic pricing strategies that adjust your subscription prices in real-time based on market demand, customer behavior, and competitor pricing.
You Can Add Multiple Pricing Rules To Your Dynamic Pricing Strategy with Dealavo
These insights enable you to stay ahead of your rivals, anticipate market changes, and make data-driven decisions to optimize your subscription pricing strategy for your business.
Subscription Pricing in E-commerce – Conclusions
Subscription pricing is an approach that e-commerce businesses can use to add value and convenience. When deploying a subscription model, it’s important for businesses to take into account user feedback, competition, and their long-term business models. Careful consideration of these elements will dictate which subscription packages fit best for different types of customers.
By understanding your target audience, defining clear value propositions, and monitoring your prices with the help of tools like Dealavo, you can attract and retain customers while maximizing revenue.