Subscription (SAAS) based pricing — maybe not your best choice.

Just a quick musing, trying to get the writing gears churning again.

Subscriptions are unlikely the future of pricing for all. Most audience groups do not like or value subscriptions. If you, like many, are seeing existing profits and benefits from subscription pricing and thinking it’s the answer, that’s a bad path to go down. But many are going that direction!

Of course it’s understandable why business, especially software, want to be a subscription based product or service. Recurring revenue is generally thought to de-risk future development. (I’m not sure it does, but not the focus here)

So to borrow a line from Amazon, make sure if you want to experiment with this, it’s a two-way door. You’ll likely want to be able to go back through that door relatively easily.

Let’s look at one of the more obvious mistake many people are making with subscription pricing — they are looking at a world that had fewer subscription services.

A lower competitive environment allowed the few subscription services that existed to prosper. Fewer existing created larger profits, partially from survivor bias of looking at only the companies that won. Traditionally, how many newspapers did people subscribe to? How many entertainment services? Today, if you are your target audience’s 10th or 20th most important subscription, what longevity does that have?

The current environment conditions have made it easier for companies to charge, and easier for more customers to pay, for subscriptions. But that is not even close to the same as “subscriptions are perceived more valuable to the target market”.

Also of note, those relatively older industries changed drastically (e.g. delivery methods or mediums). But it’s also true of more modern products like videogames — also moving from mostly physical to digital products opens this window for new pricing models to be part of a product’s domination.

The target audience for most subscription services are a new upcoming audience of tech savvy adopters (although it impacts older audiences too). But, again, will their target audiences still perceive value in paying for many more subscriptions? Likely, not long-term.

Subscriptions are now easy and everywhere. It’s no longer a competitive advantage to have a subscription program nor to have a subscriber. And, it’s likely low or negative value to most target audiences.

On the other hand, if you’ve done your work to understand what your customers’ value — and their values align with subscription pricing, then you’re likely fine to make a permanent (one-way door) or more sizeable investment in this change.

Like most product/service decisions, your best future pricing is determined by what your customer value most in the present and future. To get at what that might be, some insight can be gained by looking at your target psychographic group’s past behaviours and what they value most.