This post contains summaries on a few semi-related resources discussing pricing, pricing models, and subscription models with a few thoughts of my own in bold.
Grade I gave myself for this assignment: 92/100
Dynamic Pricing
This first section contains some of my key takeaways from “How to Build a Better Pricing Strategy” from the HBR On Strategy podcast. The episode centers around dynamic pricing, in which a company adjusts the price of their product or service regularly due to changes in demand. The best example of this is the shifting prices of airline flight tickets in response to available capacity on specific flights.
In the context of setting ticket prices (but potentially applicable to other markets), they discuss that companies are generally conservative when setting prices because they want to protect the existing brand image, and it is often harder to lower prices than raise them later once they’re already set (“How to Build a Better Pricing Strategy,” 2023). Any other reasons to be conservative when setting prices? My instinct says it would be harder to recover from a consumer being shocked about how high a price is than it would be to recover from a consumer being shocked about how low it is. That said, a shockingly high price might make a consumer reconsider whether a product or service is actually worth more than they thought (which could be good), whereas too low of a price might cause them to do the opposite (less desirable).
They then tackle the question: what do you do when demand is lower than you expected? The argument in the podcast is that rather than simply lowering prices, you should focus on upselling customers who are already interested as well as clearly communicate to potential customers if you do end up lowering the prices to encourage them to jump on it. They note that if you do lower the price, there will inevitably be some people who would have been willing to buy at the higher price and you’ll lose that extra revenue (“How to Build a Better Pricing Strategy,” 2023).
Lastly, the podcast discusses how Amazon temporarily chose to take dynamic pricing one step further and offer different prices to different consumers at the same time for the same product (before later deciding to eliminate the practice) (“How to Build a Better Pricing Strategy,” 2023). Do you think there’s any case for a company being able to offer different prices to different customers for the same product at the same time? My first thought is that this seems like it would open up the door very quickly to actualized bias in decision making; that said, something along the lines of a sliding scale price informed by a customer’s ability to pay might make a product or service more equitably accessible. Actually implementing anything like that in a way that wasn’t also motivated by maximizing sales would be difficult, but I don’t think it would be impossible.
The Subscription Model
This next section covers some of the basics of subscription models for pricing products and services. Memberships & subscriptions are not new concepts; think labor unions; think milkman subscriptions; think magazine subscriptions (Forbes) (“Is a Subscription Model Right for Your Business?”, 2023). That said, technology has greatly widened the scope of possibilities for these trust-based, service-providing relationships (“Is a Subscription Model Right for Your Business?”, 2023).
What does a subscription model offer for companies?
- Higher brand loyalty (Forbes)
- Higher retention (Forbes)
- More consistent revenue (“Is a Subscription Model Right for Your Business?”, 2023)
- Ability to interact more directly with consumers rather than with contractors/third parties (“Is a Subscription Model Right for Your Business?”, 2023)
- Deeper relationship with customers & ability to track behavioral data (“Is a Subscription Model Right for Your Business?”, 2023)
- My additional thoughts: can focus less on new customer acquisition
What does a subscription model offer for consumers?
- Improved, more personalized customer experience (Forbes)
- Higher convenience (Forbes)
- Often more cost savings (Forbes)
- My own thoughts: increased product familiarity, increased product predictability, can use the subscription to help promote new habits
Downside of subscriptions: takes a while to grow customer base (Forbes)
The Main Meat of the Subscription Model
The podcast proposes that all subscriptions must consider one critical question when determining whether the pricing model will work for them: “What problem is this solving for customers forever?” (“Is a Subscription Model Right for Your Business?”, 2023), which is in contrast to the general product question, “What problem is this solving for customers right now.” In other words, a company must figure out how they will continue to provide consistent, ongoing value to customers that justifies the continued need for the subscription. Along the same lines, they discuss “Subscription Guilt,” in which a customer doesn’t feel like they can justify the cost of a subscription they continue to keep given the value it’s providing them.
A Note on Subscription Cancellations
A big portion of the HBR podcast touched on cancellation options that subscription services provide. The core of the argument is that while some subscription services make it very hard to cancel or change a subscription, an easier cancellation experience makes customers more likely to come back, improves the brand reputation, and helps to build trust with customers (“Is a Subscription Model Right for Your Business?”, 2023). Moreover, the podcast discusses that as consumers become more discerning with subscriptions, they are expected to be careful to pay attention to how easily they can cancel the subscription when initially signing up (“Is a Subscription Model Right for Your Business?”, 2023).
There’s one more resource I wanted to cover but didn’t have time to:
“How to Compete with ‘Free’ Products and Services.” HBR On Strategy. 2 August 2023. Spotify.
Thanks for reading.
Works Cited
Dunne, Dana. “The Origin Of The Subscription Model.” 3 December 2021. Forbes. https://www.forbes.com/sites/danadunne/2021/12/03/the-origin-of-the-subscription-model/?sh=6fd0c9736c74.
“How to Build a Better Pricing Strategy.” HBR On Strategy. 19 April 2023. Spotify.
“Is a Subscription Model Right for Your Business?” HBR On Strategy. 3 May 2023. Spotify.
BYOMSPM 
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