How to price your subscriptions for better conversions?
Pricing involves more than just number crunching in a world where subscribers are always seeking the best deal. They are powerful tools that encourage customers to make a purchase. It can often influence their buying decisions through psychological means. Understanding how certain pricing strategy affects user behaviour can transform your potential subscribers into dedicated clients. To get here, your pricing strategies should be designed and crafted in a manner to draw the user’s attention. Here’s where we need to identify the relevance of a subscription management tool. But before that let’s understand the importance of optimizing pricing.
Why optimize pricing in subscription management?
In the world of subscriptions, pricing is crucial for effective conversions. Revenue can be generated quickly by continuously optimizing the pricing of these subscriptions. It is only through proper price optimization that one can boost the subscriber-base for any subscription business. Apart from revenue generation and increasing subscriber-base, price optimization can improve customer acquisition and retention.
Popular pricing strategies in subscription management tools
As discussed above, pricing strategies are a way to improve subscription business. If done correctly, it can easily convert to profits. Pricing strategies can influence a whole lot of activities for the user, including the decision-making process by creating a sense of value, urgency, and exclusivity. Often these pricing strategies behave like persuasion tools that hone the human brain to take action on the desired subscription. However, more than being a persuasion tool, it is a strategy that steers the users to choose the subscription that it is beneficial to both the merchant and the user.
In this blog, we will share popular pricing psychological hacks that subscription management tools use to help optimize pricing strategy, boost conversion rates, and ultimately maximize profits.
Charm Pricing: Use $9.99 instead of $10 to make prices seem lower.
Charm pricing is all about pricing subscriptions with amounts ending in decimals like .99 or .95 without rounding it off to the closest whole numbers. It is also about pricing subscriptions just below a round figure, e.g., $499 instead of $500. Merchants adopt this strategic pricing approach to make their users believe that these subscriptions are less expensive than those subscriptions priced at the closest whole numbers or other rounded figures. This makes users feel that they are getting a good deal for a lower price along with a sense of satisfaction and gratification. Charm pricing also lures users to make quick decisions on these subscriptions without much overthinking, resulting in increased conversions.
This kind of pricing convinces the human brain that subscriptions that are priced a few cents below a whole number are far more reasonable even though the reality is that their difference is close to negligible.
Charm pricing in a subscription management tool helps merchants make their offers look attractive and in turn increase the number of sign-ups.
Research from Nielsen suggests that charm pricing strategies are used by subscription businesses around the world to enhance customer appeal and boost sales.
Anchor Pricing: Show higher-priced options first to make others look cheaper.
This is yet another psychological pricing strategy used by subscription management companies where the highest-priced subscription is presented first such that the rest of the subscriptions appear appealing and more affordable too. Here, the first price acts as the anchor or reference point for the rest of the subscription prices which now seems to be more reasonable or attractive in comparison to the first subscription.
Through this anchoring technique, users are easily guided to buy the subscription of the merchant’s choice using the reference point that will easily help to frame their decision. Thus, by comparing the various subscriptions, users find it easy and simple to understand the value of all the subscriptions such that choosing the one that fits their needs is easy and simple. This kind of anchoring pricing strategy can easily increase revenue and improve overall customer satisfaction.
Decoy Effect: Add a third, less attractive option to highlight the best value plan.
Also known as the Asymmetric Dominance Effect. Here, a less appealing option called the decoy is introduced alongside other subscription options making them look more appealing in comparison.
The decoy option makes the higher-priced plan look more attractive by comparison. It works on the principle that the higher-priced plan has more value, thus guiding users towards it.
The decoy is not meant to be chosen but is used to highlight the value of the targeted subscription which appears as the best deal. This works on the principle that when faced with a decoy, users tend to feel that the pricier subscription is the one that offers the most value in relation to the other choices.
Comparative Pricing: Use direct comparisons to help users see why a particular offer stands out
This pricing strategy highlights the value of a subscription by comparing them internally with other subscription plans or against competitor subscriptions. This approach helps users to understand the value of the various subscriptions which further guides them to make a purchase decision. Thus, the goal here is to allow users to understand the value of one subscription plan over another through direct comparison.
Here, users can make informed decisions by comparing and contrasting the different features of the various subscriptions against each other. This way users can easily evaluate and choose the subscription plan with the right pricing strategy that best suits their needs. This easily simplifies the decision-making process by promoting transparency in the pricing. Here, trust is wbuilt, and users know exactly the value they are getting for their investment.
Relative Pricing: Make the mid-tier plan the best value compared to others.
This is a slight variation to the comparative pricing strategy. The difference here is that the subscription prices are set only in relation to those of the competitors. Using this strategy, businesses can position their subscriptions as better and more valuable than others in the marketplace.
Here, the pricing for the subscriptions can be set slightly higher than that of the competitors by offering superior features or it can be priced slightly lower to attract cost-conscious customers. In this pricing strategy, it is essential to justify what more your subscription has to offer in case of a higher price for the subscription. This can make the subscription more appealing to potential customers.
By offering clear and distinct value to the subscriptions when compared to the competitors, users find it easy to make their decisions regarding the choice of subscriptions. This way conversions are increased with minimal hesitation.
Scarcity Pricing Strategy: Use limited-time offers to create urgency.
Yet another pricing strategy works on the perception of scarcity or limited availability to create a sense of urgency and in turn drive sales. Even though these subscriptions are priced higher, users often rush to buy them, driven by the fear that they may go out of stock or that they may not get to buy them anymore. These higher-priced, limited-time subscriptions create a sense of urgency, making users feel they need to act on it quickly so that they don’t miss out on a valuable offer.
Thus, this scarcity pricing strategy encourages users to make quick decisions and reduce procrastination before the products or services are sold out. Also, the limited availability tag for that particular subscription can give it a higher perceived worth such that it appears valuable, and users are willing to pay a premium for it. This kind of scarcity approach against a subscription can increase its demand and drive its revenue by making users invest in this exclusivity.
Wrapping up!
Having discussed some of the popular pricing strategies, we can easily conclude that pricing is not just about numbers but goes way beyond to understanding human behaviour and leveraging this knowledge to get the desired business outcomes. In the world of subscriptions, the right pricing approach can aid in thriving and scaling your subscription business. This can be achieved through the appeal of charm pricing or the urgency of scarcity pricing. Each of these strategies will impact customer choice in different ways. Understanding them and implementing them, helps subscription management tools to cater to diverse customer segments, increase conversions and maximize revenue.
The need for a flexible, customer-centric pricing is a necessity rather than a luxury in today's fast-evolving digital environment. So, experiment, analyse, and adapt. The right pricing strategy with a robust subscription management tool can easily take your subscription business to the next level.
If you are looking out for a powerful subscription management tool that will help you optimize and create pricing strategies that will eventually increase your customer base, then reach out to saaslogic. Our user-friendly platform is out there for you to help you achieve this goal.