I can't quit you, subscription pricing model
February 28, 2010 7:25 AM Subscribe
Looking for psychology research related to how people perceive the value of different pricing models. Specifically, how a perception of accrued value in something affects the likelihood of no longer wanting the item / service.
I'm developing a service that I'm going to sell as a subscription with additional top-up payments as required. The idea of a subscription is really nice, as it provides a guaranteed base income per customer. However, the total value of a customer is dependent on the length of time they remain a customer (I know, obvious).
For this product, the subscription payment is a credit towards the use of the service. Commonly (such as in the cellphone subscription model), these credits are "use it or lose it" on a periodic basis. From a business perspective, I understand how the subscription designer would like to be able to "capture" the revenue as quickly as possible and have a handle on the profit level per customer. Also, the customer often has to "hit a hole in one" to maximize their value from the subscription pricing.
However, another model is possible - where the customer's unused credit accrues over each subscription period (this is the "rollover minutes" thing on steroids). This will result with the customer seeing that they have, say, $150 in "potential value" associated with the subscription - an amount many times more than the subscription amount, and something they will lose if they decide to cancel the service.
I'm interested in research into how people react to these kinds of situations, and whether there is a "breaking point" at which the customer decides that the potential value has become a liability rather than a positive thing.
NB: I don't see the pricing model as being a substitute for a great product, but everything matters.
I'm developing a service that I'm going to sell as a subscription with additional top-up payments as required. The idea of a subscription is really nice, as it provides a guaranteed base income per customer. However, the total value of a customer is dependent on the length of time they remain a customer (I know, obvious).
For this product, the subscription payment is a credit towards the use of the service. Commonly (such as in the cellphone subscription model), these credits are "use it or lose it" on a periodic basis. From a business perspective, I understand how the subscription designer would like to be able to "capture" the revenue as quickly as possible and have a handle on the profit level per customer. Also, the customer often has to "hit a hole in one" to maximize their value from the subscription pricing.
However, another model is possible - where the customer's unused credit accrues over each subscription period (this is the "rollover minutes" thing on steroids). This will result with the customer seeing that they have, say, $150 in "potential value" associated with the subscription - an amount many times more than the subscription amount, and something they will lose if they decide to cancel the service.
I'm interested in research into how people react to these kinds of situations, and whether there is a "breaking point" at which the customer decides that the potential value has become a liability rather than a positive thing.
NB: I don't see the pricing model as being a substitute for a great product, but everything matters.
Best answer: this book is right up your alley.
posted by poissonrouge at 9:09 AM on February 28, 2010
posted by poissonrouge at 9:09 AM on February 28, 2010
Response by poster: I had a feeling someone would cite Ariely ;) I have the audiobook but I haven't taken the time to multitask with it. He's certainly the kind of guy I'd expect to have reviewed the literature, if not contributed to it.
posted by lowlife at 10:04 AM on February 28, 2010
posted by lowlife at 10:04 AM on February 28, 2010
This thread is closed to new comments.
posted by miasma at 8:55 AM on February 28, 2010