87% of shoppers say knowing they got a good deal is important when choosing a brand or store. It\u2019s really crucial that you put some thought into your pricing decisions because pricing is a powerful tool when you learn how to use it. And it\u2019s not just selling more or growing fast\u2014data-driven pricing decisions can help you grow your business profitably, build a strong brand image, and long-lasting relationships with your customers. Reading this post, you\u2019ll learn: \tWhat to consider when making pricing decisions \tHow to find out what people are willing to pay for your subscription service \tHow to use pricing intelligence to your advantage \tHow to expand your customer base using customer data \tHow to make use of predictive analytics in your pricing decisions Let\u2019s dive in! Factors to Consider When Making Pricing Decisions Online prices are transparent. That means two things. Shoppers Compare Prices Easily Shopping in the digital age is different from conventional methods. It is very easy for customers to compare products faster and get good value for their money. There are several price and feature comparison sites that garner high traffic in almost every country. Consumers are changing, but not the way you think, says a Deloitte study. While the new consumer identifies with brands with shared values, price is still the most important factor in the decision-making. So it\u2019s vital that you take competitor prices into account when pricing your subscription service. It\u2019s all about positioning. Make sure you\u2019re charging fairly based on how you differ from the competition. Find Out What People are Willing to Pay for your Subscription Service Not everyone has the same spending habits or the same spending power. Back when we had small businesses and mom-and-pop stores, retailers knew their customers in person and had an idea of their preferences and buying behavior. In the digital age, however, what you know about your customers comes from their data. Those who\u2019re willing to share data with you are a treasure. When you\u2019re setting prices for newly launched subscription products\/services\u2014or when you\u2019re not sure about product pricing\u2014ask responsive customers about their willingness to pay. Survey Existing Customers Select a group of customers using the random selection research method and send them a survey asking several questions based on what you want to know. For instance, if you\u2019re launching a new feature, ask that group how much money they\u2019d give up for that. Also, ask how they value the most about your product and what\u2019d make them want to pay a higher price. Or, if you\u2019re selling subscription boxes, you can ask them what\u2019d they want to add to the box and how many extra dollars would they pay for that. Although those answers will not reflect their buying behavior with 100% accuracy, you\u2019ll still have an idea of what they\u2019re willing to pay. Offer a Variety of Options Tailored to your Customers\u2019 Expectations Based on your findings, you\u2019ll have segments. Let\u2019s say 70% of your customers are willing to pay something between $50 and $78 for your service. Now, you have several options. One is definitely going after the mass market share. In that case, the majority of your offers should fall between those price points. Another is targeting a smaller group of high spenders, where you have to offer a unique selling proposition and have a solid branding that justifies the price difference. You can also build your marketing strategy around low price points and standard quality service. And the best way to decide which way to go is to look at data. Find out which customer segments make up for the majority of your total revenue\u2014considering their estimated lifetime value. Experiment with different pricing models and test if they work for your audiences, such as penetration pricing, cost-plus pricing, or value-based pricing. Deciding on a pricing model depends on your pricing objective and on your cost structure, such as variable costs, production costs, or total fixed costs. At the end of the day, the right pricing model will help you in revenue maximization. Send Personalized Discount Codes Now, if you\u2019ve conducted a real-life willingness to pay analysis, you\u2019d realize that some people are very far away from being your prospect. Not everyone\u2019s expectations fall in line with your subscription offer, and you\u2019re better off excluding them from your target audience. But some of those price-sensitive customers are worth your effort. If their expectations can be met with discounts that you can afford\u2014ones that don\u2019t deeply cut into your profits\u2014there\u2019s no reason why you shouldn\u2019t target those potential buyers. Source Send personalized discount codes to your recurrent website visitors who haven\u2019t subscribed yet. They\u2019ll be more likely to give you a chance, and you won\u2019t have to offer everyone a discount. Meaning, you\u2019ll get more customers without hurting your profit margins and profitability. Lean on Pricing Intelligence Gathering pricing intelligence gives you a heads up when something of concern happens. Monitor your Competitors Track your competitors\u2019 prices and stock availability information. Even if your businesses has different pricing schemes, knowing how they price their products is crucial. Because people have reference prices. We\u2019ve got these price points at the back of our minds, and they give us an idea about what\u2019s a fair price of a product\/service. For instance, you know that a noodle plate shouldn\u2019t be sold for $100 on a regular street. You know that because you\u2019ve seen or eaten noodles sold down the street over and over, and none of them cost $100. Monitor your competitors to make sure there\u2019s no unjustifiable price difference, and your selling prices are reasonable. Offer Competitive Deals 2020 was a tough year for many households. People\u2019s finances were negatively affected by prolonged uncertainty, and their consumption behavior changed forever. That holds for some of your customers and knowing they get a good deal is more important than ever. Based on the pricing intelligence you gathered, set competitive prices. Not all your products\/services should be priced below your competitors, but make sure your offers are enticing enough for these new price-sensitive customers. For e-commerce subscription businesses, seeing competitors\u2019 prices also gives one leverage when dealing with suppliers. If you realize a competitor continuously has the best price, they\u2019re likely getting a better deal from the supplier. Use this information when negotiating with your suppliers. Expand your Customer Base using Existing Customer Data Growing your customer base is extremely important yet equally hard. If you don\u2019t want your efforts to go in vain, you can target people with shared interests and needs with your existing customers. Even if you don\u2019t have enough data points of your prospects, existing customers\u2019 data is out there waiting for you. Use WTP Data to Understand your Prospects Although basic Willingness to Pay surveys don\u2019t yield highly accurate results, they give you an idea of your customer base. Since you want to attract similar people, you can understand the perceived value of your service and how much money they\u2019re willing to spend on it by looking at your survey data. Suppose you\u2019re planning to launch a new product and asked the following questions in your survey: \tWhich specific product line we offer makes you return to our store? \tPlease pick the features\/similar products that\u2019d motivate you to pay more for this subscription. \tWhich of the following would encourage you to upgrade your subscription? Those answers will be gold. First, they\u2019ll help you save money. You won\u2019t invest in something that doesn\u2019t seem essential to your customers\u2019 happiness. Second, you\u2019ll launch a well-targeted campaign that\u2019ll represent your prospects\u2019 pain points, interests, and needs\u2014including their willingness to pay. Moreover, you\u2019ll find out what brings value to your customers the most and reshape your strategy on the way. Send Price-drop Emails to Email Subscribers If your prospects left email information yet didn\u2019t subscribe, you can hold on even to that single touchpoint. When there\u2019s a planned discount or a price drop on your website, those leads should be the first group to know. Send them automated price-drop emails and see if anyone\u2019s interested in your deal. If you\u2019re using repricing software, integrate it with your email software to automate the process. If this works, try out new ways to collect emails. A free course, research, reports, etc., are among the most popular content types that generate leads. Make use of Predictive Analytics Before Implementing a Price Increase\u00a0Plan So far, we\u2019ve focused mostly on expanding your customer base and increasing your visibility. But you\u2019ve got another major, everlasting concern. How do you keep your customers? Well, sometimes, it\u2019s what you don\u2019t, not what you do. A poorly executed price increase plan, for instance, can push weak-tie customers away in minutes and forever. But you can\u2019t avoid it forever, right? That\u2019s why you should test your price increase plan. Test your Price Increase\u00a0Plan First Suppose you\u2019ve introduced a feature that\u2019ll be included in each subscription package. Naturally, you want to restructure your pricing plan. But before, here\u2019s how you segment your customers based on their price elasticity. Look at How they Reacted to the Previous Price Changes This will give you an idea about their price sensitivity. What was their reaction to the latest price decrease, for instance? Did they give you any signal that they\u2019re annoyed? It can be a question coming to your customer success team, asking for the reason behind the price increase. Or, for customers that canceled their subscription and returned later, did their return coincide with a price drop? And what about discounts? Who subscribed to your business using a discount? Was that discount big? Or was a small discount enough to entice them? These questions\u2014and others you can come up with\u2014will help you segment your customers based on their price sensitivity. Let\u2019s say you\u2019ve assigned your customers a point on a scale from 1-100, based on their answers to those questions above. Divide them based on their scores into, let\u2019s say, four groups\u2014or more if you like. Now, randomly select a smaller group from each group, and talk to them about your price increase plan. Their answers will give you a good idea of how those four segments will react to your price increase plan. You can also communicate your plan to them quite transparently, telling them you\u2019re only considering the increase yet. Of course, this test might not yield highly accurate results; it\u2019s much better than no testing at all. You can also build a predictive algorithm on your own, or use a demand forecasting tool if you have the budget and time and need more accurate forecasts. Offer Discounts to Price-sensitive\u00a0Customers or Exclude them for a While Let\u2019s say the most price-sensitive segment (the 75-100 points range) reacted very badly to your price increase plan. What\u2019s next, are you canceling the plan altogether? But your costs are increasing, and this price increase is incremental to your profitability. Instead of abolishing the plan, exclude price-conscious customers from it, at least for a while. Offer them the old price and tell them that they\u2019re given a special discount. Perhaps knowing they got a better deal from the rest will convince them to stay with you. Also, they\u2019ll be happy to see you making an effort just for them, which makes people feel like they\u2019re cared for. Doing this doesn\u2019t guarantee you\u2019ll keep them, but it\u2019s definitely worth trying. Head here to know more about pricing experiments for subscription businesses. Parting Words Data-driven pricing decisions can open your business up to opportunities you can\u2019t even imagine. But even if the data sits in front of you, you might not be looking in the right place for insights. We\u2019ve talked about several data-driven pricing strategies for your subscription business, and now you have a better understanding of the power data-driven pricing grants you. Test those strategies to see if they work for you, and tell us about the results!