Addressing a Subscription Retention Crisis Through Pricing

October 21, 2015 · 3 min read

If your business is suffering from unsustainable levels of customer churn (and it doesn’t seem to be tied to problems with your business model or product), you need to go back to the basics.

A churn rate that spikes during subscription renewal periods often means one of two things:

  1. It’s time to lower involuntary churn
  2. A problem in rates or pricing formulas

This is the ideal time to review your pricing practices and make sure they include the following principles:

Price variation

If a subscriber lands on a renewal page that lists several available products/services, especially around the same price point, they’ll likely be overwhelmed with the possible options and leave the page rather than buy again.

You can fix this by:

  • Explaining your pricing structure in clear, easy-to-understand terms, with visual aids (for more on how to display prices, head here)
  • Highlighting the differences between tiers
  • Making sure that the copy is framed in terms of who the right customer is for each product, and what the biggest benefits of that product are

Weber’s Law

This psychological principle explains the way consumers tend to view pricing changes in proportional terms, rather than as fixed values. In other words, when a customer sees a price go from $10 to $15, they’re more likely to view it as a 50% increase, instead of a $5 bump.

Weber’s Law starts to kick in at around the 10% mark – meaning that price increases over 10% are more likely to irritate customers. On the flip side, renewal discounts or special deals are less likely to have a positive impact, if the customer won’t be saving more than 10%.

Incorporate this by:

  • Offering customers discounts of at least 10% (especially in cases of solving a customer service dispute or attempting to retain a customer before they churn)
  • When raising rates, try to raise them gradually and at smaller markups, instead of increasing prices more than 10%

(Need a subscription billing management tool that makes it easy to offer customer discounts? Head here to learn more.)

Price anchoring

People view the world in relative terms – already shown to us by Weber’s Law. When it comes to pricing, that means that both prices and products don’t exist in a vacuum. Price anchoring takes advantage of this phenomena by putting a more expensive price first. That makes the less expensive price feel like the reasonable choice in comparison…even if it’s more than the customer was going to spend originally.

As the old sales saying goes, “How do you sell a $2,000 watch? Put it next to a $10,000 watch.”

Even if a more expensive product isn’t relevant, listing it alongside their realistic renewal choices encourages them to perceive the less expensive choices as a better deal.

Take advantage of price anchoring by showing higher priced offerings on renewal and product pages. If you don’t have a higher priced offering, create one, even if you don’t intend to seriously market it. You never know – someone may go for the more expensive product, and you get money you would have left out on otherwise. (Of course, it goes without saying that you should only offer products you can realistically follow-through on.)

Looking for more ways to optimize your prices? Check out our Price Optimization Guide for experiments you can do right now, categorized by funnel stage and difficulty. Download it and get started today:

Price Optimization Guide

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