Subscription Model and 10 Common Mistakes

Currently, the subscription economy has gained considerable ground in its business. Industries are now moving towards subscription-based pricing. Thus; they are by-passing most slow movers while resuscitating many struggling companies. Speculation has it that it must be a significant revolution where ownership ends, and users begin.

Lately, many industries have joined the cue. Such companies like Honeywell, GE, Thales, Bosch, Siemens, Caterpillar, and many others are offering subscription-based digital offers to many of their channel partners and direct clients. While on the other hand, similar companies are newly adopting flexible consumption business and pricing models. As a result, they are likely to make mistakes right from the beginning.

There is a need for industrial companies to be attentive to the failures and successes of the other B2C companies. On your journey towards the subscription-based business economy, you need to be wary of these ten mistakes;

Handling Subscription and Leasing models as the same

These business models are different from each other. For many decades now, industrial markets have offered to lease. As a result, finance teams have become experts in constructing leasing programs together with financial enterprises. However, then, a subscription is altogether another business model. It doesn’t only mean moving from the “CAPEX” to the “open” model; it also adds more customer value. That is; apart from financial benefits. It has been known that a customer who is subscribing for a product-as-a-service offer do pay many times the asking value of that product throughout the subscription agreement period. That is the reason subscription-based models should be different so that they can offer great value to their customers. Make sure that your finance company is aware of this.

Using cost as the Major determinant of Subscription Prices

Within the most industrial economy, cost-pricing is their primary price-setting methodology. The reason is that it offers a sense of being in-charge and internally focused. However, it is irresponsible to apply the subscription-based pricing methodology to this economy that is commoditizing and dematerializing. When you come to the digital world, the cost of accessories and devices are falling radically. While on the other hand, the obsolescence of equipment is skyrocketing. Pricing that is based mainly on value means that prices are falling cycle after cycle. Thus; it isn’t sustainable. Any pricing model that is based on subscription should have its base on the 3Cs for setting prices such as; competition, cost, and customer.

Using the wrong Value Metric in the beginning

The price metric you use should be by that of your customer. If the customer’s expectation is towards linear yard or run time, it means that it should be reflected in the pricing model you use. You should ask yourself; how will you feel if you are the customer? It will help you to understand them better. Likewise, it should be the same with your subscription analysis time. It would be best if you took the time to get acquainted with your client’s profit-and-loss statement. Also, it would be best if you studied their income and cost measurement and even the metrics and language they use.

Starting with meager prices

If the price you are selling your product is quite low from the beginning, there is always room for an adjustment. If your business is a recurring one, it means that your mistakes will be recurring also. If you set a 2-year subscription price agreement too low, it then means that your price will be wrong for two years. Because most industrial enterprises apply competition-base-pricing while setting their prices, their focus is only to penetrate and capture their market share at a meager price. The crux of the matter is that price always falls from where it began. It is quite challenging to increase the amount when the value is not presented as part of a successful marketing strategy.

Setting One Price For All Customers

It is common knowledge that carrying out customer needs, according to segmentation, is challenging to industrial companies. The “one-size-fits-all” strategy is more natural to commercialize and design. When talking about subscription pricing, applying one price for all is not recommended. Offering a “one or zero” choice to customers reduces the chance to catch a much larger share of the entire addressable market. The perfect amount of offers should be 3 or 4 if you go by what subscription experts say.

Poor Packaging and Lack of Visioning

Likewise, inside market or customer segments, the packaging and design of subscription should base on the options which are commonly accepted and applied in B2C: good/better/best, core package, a-la-carte pricing, bundles with options, etc. Price setting is scientific, while subscription-based pricing isn’t a new thing. That is why; industrial organizations should study from the successful practices of industries where the use of subscriptions is part of. Such sectors as; SaaS, Music, Media, etc.

Offering Freemium without User Conversion Strategy

Freemium is an excellent choice to attract users into test driving your business models. Also, it comes in handy if you want to create a solid user base. The Freemium model is built to convert a part of the user base to paying customers in due time. The conversion process of this particular model has also become a challenge to individual B2C companies. It is due to the process which needs an upfront design before the freemium offer launching. That is why; it is vital to have a road map which can go from free-free to catch value of the addressable market. If you happen to launch your subscription without using a roadmap, it will result in an unending freemium. Bear in mind that savvy buyers in industrial love keeping things free.

Offer Considerable Discounts because it is for your Products

It is a usual occurrence for subscription price to consist of tiered pricing rates according to usage or volume. However, industrial marketers shouldn’t transfer the already existing pricing structure of their product to subscription offers. On the other hand, high discount rates for industrial services and products are not unusual. The procurement team expects to get discounts from the vendors. Then, it is not sensible to offer 70% or 60% discounts for subscription pricing. It may be the perfect chance to transfer subscriptions to net pricing. Everything should be simple.

Not allowing your offer Roadmap and Subscription Pricing Roadmap to Match

A portion of your business strategy roadmap for subscription offer should add a pricing roadmap. Your value proposition and technology are likely to evolve. There may be a need for your offer to pivot many times for some years. Your pricing metric may go from the hybrid pricing strategy with an upfront payment, a subscription, to a complete subscription pricing strategy. It is crucial to be worried about renewing the subscription in your designing roadmap. Most especially since your competitors may be offering the same subscription.

Don’t Offer the Option to Change Pricing at the Time of Subscription Agreement

The people that purchase from you want to have options and be free to make any change they wish to the subscription. Throughout the subscription period, the customer will increase users, upgrade or downgrade their subscription, pause it till further notice. The more your customers have these options; your growth will be higher. There is a need for your subscription pricing to have the right packaging. Also, it should be flexible and dynamic at the same time. That is why; you should have the appropriate subscription billing.

Price setting is a science that you cannot improvise. A person has to design it, integrate, package, and scale the pricing models. The pricing decisions you make should incorporate input from your competitors, customers, and cost models. If not, pricing is not appropriately integrated; it is likely to be cost-based or free for some time.

Most of the B2C organizations have tried subscription-base-pricing and broadcasted their successful practices. Make sure you do not make these ten mistakes and be right your first time out.

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