Optimizing subscription pricing with a new approach to segmentation research

Today’s subscription economy not only presents consumers with more choices, but also more personalized experiences. For telecom, tech and online brands these heightened expectations place even greater pressure on maximizing the revenue per user.

Whereas in the past you could position your products and services based on traditional demographic insights, those rules no longer apply today — especially when it comes to pricing.

If you want to uncover why consumers are attracted to your brand, the value they get from it and the price they’re willing to pay, you should consider a needs-based segmentation approach to pricing research.

This technique delves deeper into what drives consumer decision-making and can help you thrive in a crowded market.

Basing your segmentation on needs and consumer behavior

Over the past four decades, we’ve partnered with many subscription brands across industries, from media and entertainment, to consumer goods like meal delivery kits to B2B / technology services. By conducting robust pricing research for every type of subscription business model (freemium, multi-tier, a-la-carte), we’ve identified three most common consumer segments:

1. Price conscious – these consumers will make their online purchase decisions based solely on the cost of a product or service. They’ll only buy if the offer is within their price limit and if it isn’t, they’ll choose your competitor. These consumers are typically the largest segment and comprise online shoppers looking for low-cost products. For example, technology consumers may choose the cheapest cloud storage package or for music streaming, they’ll opt for the free ads-based option.
2. Quality and brand loyals – shoppers who seek a certain level of quality or are loyal to particular brands typically make up the next largest segment. For these online shoppers, price is a secondary consideration and the perception of quality is paramount. Companies such as HelloFresh and StitchFix or Cloakroom, who have clearly defined this segment in their customer base, can have higher fee structures and are therefore able to generate higher revenues on a smaller customer base.
3. Feature Focused – segment of subscription consumers makes purchase decisions based on the presence of specific features. The feature they’re after may simply be quality, but it may also be a specific attribute, such as a flexible product returns policy. While the “more-the-merrier” subscription bundles won’t necessarily appeal to them, they may also be price conscious. When they find what they like, these consumers will be loyal to you — but knowing where to pitch price and mix is tricky.

Armed with these consumer segments, you’ll have richer insights to address your consumer needs in just the right way. It’s a vital component to optimizing your subscription pricing strategy.

6 ways needs-based segmentation could grow your subscription revenue

Adding this segmentation technique to your market research strategy can help drive more accurate and actionable pricing insights by helping you:

1. Identify the types of products, services and combinations of both that would appeal most to your customers
2. Indicate how much consumers would be willing to pay for those products or services
3. Determine who would be receptive to different pricing tiers and bundles and why
4. Discover what sort of choices they may make in relation to your offerings and the competition
5. Predict how you can best influence their decision behavior to meet your specific marketing objectives
6. Uncover new customer groupings that you might not have considered before. For example, you may find that with a simple adjustment of your monthly subscription box, such as an add-on feature, you can open a part of the market not previously explored

Helping you thrive in the subscription market

All subscription customers are not the same – different products appeal to different segments. To identify which product offers have the most optimal reach for your target group, segmentation is key.

As a brand, you don’t have to stick to servicing only one segment. Differentiating your portfolio in a smart way will allow you to gain interest from different segments.

If you’re curious to learn more about this new approach to segmentation or what pitfalls to avoid when setting subscription pricing, .