Retail Subscriptions: Why Pricing is Everything
Customers love retail subscriptions. But subscriptions are only popular when they offer the prices that customers want. This article is an in-depth look at the appeal of subscriptions to retailers, subscription pricing models, and how personalization can help retailers give their customers the packages they want. It also reveals the best kind of technology that delivers all the ingredients needed to get subscriptions right.
In this article:
- Subscriptions in Retail – Why Do People Love Them?
- Types of Pricing Models
- Where Bad Decisions Hit the Hardest
- Plot Twist – A Personalized Pricing Model is the Way
- One Solution for Everything
Retail subscriptions are extremely popular with customers. But only if the price is right.
There’s a lot of pressure to choose the best pricing models for the subscriptions. Make the wrong decision, and you could lose customers (and revenue) for good.
But the right pricing strategy will keep the customers you have, attract new ones, and boost your profits.
If you’re a retailer with subscription plans or you are considering offering subscriptions, read on to discover what kinds of pricing will work for you, and how you can enjoy the benefits the best pricing models can bring your business.
Subscriptions in Retail – Why Do People Love Them?
When done right, customers and retail businesses love subscriptions. Here’s why:
Convenience: Subscriptions give consumers an easy way to get products they want and need when they need it. No more repeat purchasing decisions. No more inconvenient trips to the store.
Customer loyalty: Subscriptions require a long-term retailer/customer relationship. There’s ample opportunity to build loyalty to your brand and cut churn.
Differentiation: Subscription differentiate your brand from competitors by giving your customers a unique experience.
Predictable revenue: One-off purchases give no stability. However a steady and predictable revenue stream provides a great foundation for better financial planning and stability.
Subscription businesses have grown 4.6 times faster over the past decade compared to the S&P 500.
(SaaS) sector outperformed other SEI sectors in between 2022-2023, with 12.3% revenue growth on average.
Subscriptions work across most retail sectors.
Even for retail businesses that have large, single-purchase products (like cars, boats, industrial farm equipment, etc.) retailers have found creative ways to incorporate subscriptions, including regular parts and servicing and add-on complimentary products.
But no matter how creative the subscription offering, there’s one thing more important. Pricing.
What type of pricing options does a retailer have?
Types of Pricing Models
There are plenty of choices that retailers can consider for their subscription service pricing:
- Fixed: This is the most common model. It involves offering a set price for each subscription over a certain time period. Though it’s easy to understand, it might not meet the needs of every customer.
- Usage-Based: Meant more for subscriptions involving consumption (like broadband or royalty-free music), this model charges customers based on their product usage. This generally works best for customers who have fairly consistent consumption rates.
- Tiered: This variety of pricing levels depends on which level of products and services appeal most to the customer. They choose a plan that suits their needs. The only drawback is that the terms of each plan can be more complex.
- Freemium: Subscription customers get a standard service of basics for free, and if they’re ready for more, they get premium features at a cost. Though this model attracts a wider customer base (which is great for general brand awareness), it can be challenging to convert them to paying users.
- Dynamic: Subscription prices change depending on availability, demand, etc. This is another model that can be more complex.
It can be difficult to figure out which one is right for both the retailer and the customer.
But manually choosing to price risks mistakes. There are so many variables to keep track of. It’s really not a place for guesswork.
- How is it possible to figure out the optimal price points that boost profitability and please customers?
- How long does it take to figure out whether your customers like your pricing?
- What happens when circumstances change and prices must be adjusted?
- How do you keep your sales team motivated when pricing models are wrong or have to change?
On top of that, manually adjusting and updating the pricing and terms for each customer in your base is time-consuming and steals your labor resources.
And when the pricing’s wrong, churn and missed opportunities get costly. The good news is that there’s one pricing model factor that doesn’t go wrong.
Plot Twist – A Personalized Pricing Model is the Way
Personalization can make any pricing model a lot more appealing.
Customers both love and expect personalization across their experience, starting with pricing.
This involves subscription plans tailored to incorporate their wants, needs, buying behavior, demographics, and segment.
Personalized plans are hassle-free because they’re easy to understand. They save the customer from choice blindness. They offer value for money because the combination reflects who they are as a customer.
Personalization works across the pricing models too. Here are some examples of how it could work:
- Tiered – A beauty subscription box company could base their tiers on past purchasing and preferences. A customer who primarily buys skincare could be offered a tier that includes premium and new, cutting-edge products.
- Usage-Based – Not only would a customer receive offers based on their usage patterns, but they could be offered exclusive product sessions or discounts for loyalty.
- Freemium – A software company could send a customer targeted promotions that complement how they use specific free features, enabling them to unlock a unique combination of advanced tools that meet their needs.
- Flat Rate – A meal kit delivery service could offer personalized add-ons based on the customer’s preferences, like special ingredients, or free desserts, or bonus portions for their favorite meals.
Personalization makes a difference because it shows customers that the business pays attention to them and their needs. And they back that up with action.
Now, this might sound great to you. But it also begs the question, “How do I get all of this done?”
One solution can handle everything for you – the pricing model choices, the keeping track of subscriptions and terms, any last-minute changes, add-ons and upgrades, and all the personalization needed.
One Solution for Everything
It’s simply robust subscription management software. That’s all you need.
It automates these tasks:
Powered by AI, all customer data (including purchase history, behavior, demographics, location, and preferences) is tracked and analyzed in real-time. AI breaks it into segments, microsegments, and individuals so that each can be reached and nurtured throughout the entire lifetime of the relationship.
On top of that, it spots and creates selling opportunities including renewals, add-ons, upgrades, and cross-selling. It tracks subscription term dates. It can create new offerings that complement customer needs and usage too. And it channels them at the right time. This brings in additional revenue that may have been missed otherwise.
The solution offers automated responsiveness that makes pricing models flexible and agile to anticipate/react to changes in circumstances. It also collects and analyzes customer feedback to refine and improve pricing strategies over time.
The right solution doesn’t just easily bring in subscription revenue. It saves countless hours and costs as well.
It knocks down silos between marketing, sales, and finance, removing the hours wasted between teams chasing information on customers, products, usage, and contract terms.
It automates the entire invoicing and payment process. That includes everything from billing cycles, payments, invoicing (without human errors), payment reminders, payment collection, and reconciliation. This includes automatically recognizing revenue.
The data and analysis created the reports needed for audits, compliance (no matter where the location of your customers) and the most informed strategic financial decisions. It monitors performance and KPIs to make recommendations for change too.
And it consolidates inventory management systems so that everything works together.
Scaling isn’t a problem – no matter how fast you grow your customer base, operations automatically keep ticking away.
Retailers that choose good solutions get all the benefits of the right subscription pricing models while saving time and resources.
At Last, A Complex Solution Made Simple
Important decisions are usually harder to make. However, the right software solution will make both the decision and implementation easier.
All what’s left is a happy customer base and a reliable new revenue stream.
Curious to see what the right solution could do for your retail business? Book a free Discovery Call with our team today.
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