This July, we discussed the affiliate channel with Filecritic and saw that a combination of diverse channels, strong customer relationships and data analysis generates higher revenue.
We thought about the implications of Mary Meeker’s internet trends report, and we wondered how these trends affect the way that subscription businesses create effective customer experience to drive recurring revenue.
Then last week we posted a thought provoking video from cleverbridge Co-Founder Craig Vodnik. In it, he advocates for subscription businesses to examine their billing and pricing models to see if they are at risk for disruption from a competitor with a similar product but more attractive business model.
The Subscription Digest this month covers some new territory in our mutual quest for recurring revenue success.
Subscription Billing — Pricing Models and Customer Relationships
There are a lot of options for slicing and dicing the pricing and billing of your subscription business (For the sake of consistency: pricing = how much; billing = how often). You can bill on demand (think Uber) or at regularly scheduled intervals (think Netflix). And you can price your product or service at flat (Netflix again) or fluctuating (Uber again) rates. There are many other options you can employ, like a tiered pricing model or a base and overage model. As Craig Vodnik noted in this recent video, you need to get creative with how you charge customers lest you risk external disruption. That’s what’s so interesting about this article from Consumerist.
Angie’s List has clearly embraced this decision to experiment with and embrace new pricing and billing models. The business executives behind this subscription based, online community decided to deploy freemium marketing, raised and diversified their pricing structure, and included various levels of functionality and features for paid subscribers in a tiered pricing plan.
The end of this article contains another very important lesson for subscription businesses looking to experiment: short-term sacrifices must be made for long-term payoffs. Will allowing a bunch of free users to roam wild on their site increase costs for Angie’s List? Probably. But their long-term bet is that those are early customer acquisition costs that eventually lead to long-term customer relationships.
Whether you are looking to acquire more customers, grow long-term customer relationships, or simply experiment with alternative pricing models, your mindset should be firmly in the place of what recurring value can you provide to your customers that makes it worthwhile for them to provide you with recurring payments.
According to this HBR article, there is an overarching category of commercial enterprise called the digital membership economy. Two core parts to this digital membership economy are subscription products and online communities. When companies embrace their subscription based digital good or online service as a part of the membership economy, it crucial that they have the right perspective. What’s more, the article’s analysis of what produces leaders and stragglers lines up with ideas previously stated in Three Keys to Success in the Cloud and Craig’s video about focusing on customer lifetime value of initial conversion rates.
The other noteworthy, possible counter-intuitive idea in this HBR article is that in spite of this emphasis on customer experience, you shouldn’t necessarily let long-term customers dictate the direction of your strategy. That means that as you monitor product usage or experiment with new pricing structures and billing models, understand that just because some inert users have certain preferences regarding features and functionality, that doesn’t mean their preferences are a recipe for a successful strategy.