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InContext / An inside look at the business of digital content

6 Pricing strategies to drive revenue growth

April 26, 2021 | By Jose Luis Kruyff, SVP Broadcast/OTT, Americas — MPP Global @mppglobal

The lifespan of a subscriber is dictated almost entirely by how they perceive value in a service. Subscribers will simply cancel and churn if their expectations are not met. Thankfully, there are many approaches to take. These include building a diverse product portfolio, informed product pricing, and promoting engagement to encourage loyalty.

Here are six approaches to consider as you work to satisfy subscribers and grow revenue:

1. Bundle / unbundle pricing

Bundling – putting all your content in an all-you-can-consume package – is a common strategy for simplifying a subscription product. To build a more diverse portfolio, however, consider unbundling.  To do this, provide topic-centric packages to suit “fly-by-trial” subscribers, with low CLTV and conversion rates. This strategy is also helpful for the “neglected middle” subscribers who subscribe to full packages, but concentrate their interest in key topics.

To increase CLTV and serve both markets, consider offering tailored packages for the subset of subscribers that show less engagement. At the same time, maintain strong value in the full package for the rest of your audience. Balance is key. The full package must be a better value than a combination of tailored packages. It must have a lower barrier of entry in terms of cost, to serve both markets.

2. Stepped pricing

A traditional trial takes the form of a free period, followed by a full-paid period. Triallists cancancel before making payment. The problem here is that a free trial does not reflect the value of the content you are producing. An alternative is stepped pricing, which puts a smaller, “trial” price at the start of the subscription. The most common form of stepped pricing is a lower price trial period, for example, £1/$1/€1 for one month, before stepping up to full price.

The key advantage of this model is that it demonstrates content value right at the start of the subscription. And even low lifetime value subscribers and “fly by trial” subscribers still generate revenue.

3. Tiered pricing

Tiered pricing is like stepped pricing, only the onus of switching tier is on the subscriber. The customer can gain access to more content by opting to “upgrade” their subscriptions. Crowdfunding services such as Patreon, which allows users to configure many levels of “rewards” based on different monthly fees, is a good example.

This format uses a single product with a low monthly fee, with incentives to subscribe to more comprehensive access at higher price points. Again: Balance is key. There is research to suggest that companies operating five tiers or more realize 40-50% higher ARPU than those with fewer than five (including none). Remember, though, that too much choice can also be a turn off.

4. Role based pricing and family/business plans

Role based pricing is like differential pricing, in that it provides a price based on certain attributes. However, it is actually based on the customer’s status, rather than geographical location or a reward-based system. Common examples include student, Over 65s, family plans or business accounts. As a result, subscribers will perceive this as a better deal than a standard subscription.

Corporate accounts are popular in the publishing industry. These allow business subscriptions under many accounts, with one single paying account.

5. Super-premium pricing

Consider offering an all-encompassing “super-premium” offering. You know: a top-tier, platinum package. There are two key advantages with the super-premium tier. Engaged, loyal subscribers have an opportunity to invest fully in the service, as a “badge of honor” for being part of the community.

Secondly, adding a top-tier price sets the maximum that subscribers could pay for a service. This provides a “price anchor” in the minds of subscribers and potential subscribers. Any price below this is seen as a deal in some respect. This in turn makes standard subscriptions seem more affordable, and boost conversion rates.

6. Dynamic pricing

Dynamic pricing, or propensity pricing, is the natural evolution of intelligent pricing. It relies on rich consumer data, subscriber persona building, and the ability to deliver personalized  offers at scale. It’s a tall order. But with a flexible subscriber management solution, aggregated data, and A/B testing, true next-generation customer experiences will drive up acquisition rates.

This process would track a subscriber using first party cookies and analyze their viewing habits. Then it would suggest a subscription package tailored to their buyer persona and tracked habits. This would significantly increase that user’s likelihood of signing up. From a revenue optimization perspective, that same system could track engagement rates and content types, suggesting content and subscriptions accordingly.

Ultimately, dynamic, personalized experiences driven by AI are likely to be the future of the digital subscription.

Engagement and value

CLTV is commercially important. However, it is not fit for use as an engagement measurement tool. To really understand subscriber value over time, study their engagement compared to the price they are paying. How do they perceive the value of your product? This information must be gathered from centralizing first party customer data and tracking audience habits. It is important to engage people by asking them questions through surveys or social media.

Then, you can use this data to experiment with one or more of the models described to determine what works best for your subscribers. This will allow you to truly drive CLTV, retention, and brand loyalty. Engagement is everything. Understanding how to maximize engagement is the key to breaking through subscription revenue plateaus.

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