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How to order your pricing in a subscription model. ( human misjudgements)

by vianney
5 replies
Hey,

I have been thinking about how to order your pricing in a subscription model.
These last couple of months i have been reading; " Influence The psychology of persuasion."

One of the models that the author adressess is reciprocity.
He states that the compliance rate of the rejection- then- retreat technique is very significant.

As an example; if we ask on a campus if a student would be willing to go to the zoo with youth juvineles every week for a year 83% would say no. But if we back off after this question and ask them to at least go once, 50% would say yes. While if we would just ask them to go once, the compliance rate is only 25%. So, by asking a more and then backing off you get your compliance rate to increase with 100%.

This principle is caused by a combination of the reciprocity tendency and the contrast misreaction tendency.

Now to the marketing part; i am wondering, why are all subscription models priced like this;
free - $ 100 - $ 1000 ( from cheap to expensive).

Wouldn't it make more sense to go from expensive to cheap ( $ 1000 - $100 - free).
By doing so people will make a concession and take the second option.

Does anybody have any experience with this?
#human #misjudgements #model #order #pricing #subscription
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  • Profile picture of the author Kay King
    why are all subscription models priced like this;
    free - $ 100 - $ 1000 ( from cheap to expensive).

    Because it works. In IM for example, new marketers will often download 'free' options/reports/etc - then will move into buying in the $7-20 range and after a time will buy at $47, $67....$99....etc. The barriers to paying money for 'info' seem to change with marketing experience. That was what i found to be true, at least.



    Many of those new people would leave permanently if first presented with a $1k option....they wouldn't stay around to see 'better' offers.


    Of course you could always test the 'low to higher' and 'high to lower' pricing and see what works for you.
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    • Profile picture of the author Odahh
      Originally Posted by Kay King View Post

      Because it works. In IM for example, new marketers will often download 'free' options/reports/etc - then will move into buying in the $7-20 range and after a time will buy at $47, $67....$99....etc. The barriers to paying money for 'info' seem to change with marketing experience. That was what i found to be true, at least.



      Many of those new people would leave permanently if first presented with a $1k option....they wouldn't stay around to see 'better' offers.


      Of course you could always test the 'low to higher' and 'high to lower' pricing and see what works for you.
      i am actually confused and since it was the original poster first post it may be their only post ..

      and maby this might be one of the few times i have a simple view ..because usually the subscription packages with most services the pricing is based on the amount of the service a person expects to use ..

      and companies make money either when people don't use near as much as they pay for .. or go over and have to pay at higher fees ..

      a good chunk of revenue comes from the people paying the subscription bu rarely using them and forgetting or not bothering to cancel ..

      the video game industry gave up on a standard subscription model 5-10 years ago .. and has shifted to whale hunting /free to play ..
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  • Profile picture of the author Matthew Stanley
    Many of those new people would leave permanently if first presented with a $1k option....they wouldn't stay around to see 'better' offers.
    Would agree here. I think even Cialdini would admit his "door in the face" technique had its limitations for "unreasonably large" requests, where it can have a backfiring effect. That said, i think it's an interesting and easily testable idea assuming you have "reasonable" ranges to present in the order you wish. (And more broadly, it's clear there's truth to his reciprocity principle generally ... from the free trials every media product offers, to free food given out by food-box subscriptions, nearly every major player in the subscription game utilizes it in one way or another ... certainly a principle worth ruminating on for your business too imo)
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  • Profile picture of the author Ben Goodman
    This is a great question. First, we should always test and not assume one way will work for all markets.

    The principle at play here actually isn't Reciprocity (or consistency and commitment from Cialdini). It is Anchoring. I forget who discovered this, but Dan Ariely talks about it in Predictably Irrational with his experiment with social security numbers and the price of wine.

    There is a lot of research that shows that if we start with a higher price, that becomes the anchor point for comparing what we see after.

    So vianney, you're right that we should, in theory, start with the higher (decoy) price which will then make the lower prices more appealing.

    Offering more than one price also serves to change the decision making from 'should i buy or not?' to 'which option should i choose' which improves sales a lot.

    Adding in text that says "Most Popular Choice" brings in Cialdini's Social Proof lever to improve results even more.

    But again, always smart to test.
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  • Profile picture of the author Claude Whitacre
    Originally Posted by vianney View Post

    Hey,

    I have been thinking about how to order your pricing in a subscription model.
    These last couple of months i have been reading; " Influence The psychology of persuasion."

    One of the models that the author adressess is reciprocity.
    He states that the compliance rate of the rejection- then- retreat technique is very significant.

    As an example; if we ask on a campus if a student would be willing to go to the zoo with youth juvineles every week for a year 83% would say no. But if we back off after this question and ask them to at least go once, 50% would say yes. While if we would just ask them to go once, the compliance rate is only 25%. So, by asking a more and then backing off you get your compliance rate to increase with 100%.
    When pricing, it's usually best to use three prices, lowest to highest. But the reason you do this is to sell the middle price. So you make the difference between the first price and the second one minor, and the difference between the second and third one greater.
    This is for pricing one time offers. Not subscriptions.

    It's not a matter of reciprocity, but a silent negotiation going on in the prospect's mind. Make the middle choice the obvious one.

    Ask yourself "Who do you want?"

    You want subscribers...paid subscribers. In the subscription market, the single most effective way to get them is with a low (Maybe $7) fee for the first month or two...and then your regular monthly charge.

    Why is this better than free? Because there is a vast difference between someone getting free information and someone giving you a credit card for a $7 charge. That $7 charge makes them a buyer. You want buyers.

    After they buy...you can make other offers, and even offer a yearly (or lifetime) subscription for a larger sum of money.

    Even guys like Russell Brunson, who offers a free rial to his $300 a month service...mostly does that after you buy a book, or a few upsells. ....

    Because now you are a buyer.

    I used to have a $39 a month newsletter. I tried free trial offers, Yearly offers, and forced continuity (where they got the subscription when they bought an expensive course from me). The $5.95 fee for the first 3 (then 2) months, worked the best...by far.

    About 80% of the $5.95 buyers kept the subscription....for an average of 14-18 months. In the newsletter business, that's pretty good. But I was selling by speaking at trade shows, (and selling it in the back of my books) not online.

    And of course, the subscribers were now my audience, and they got all the higher end pitches.


    Originally Posted by Ben Goodman View Post

    This is a great question. First, we should always test and not assume one way will work for all markets.

    The principle at play here actually isn't Reciprocity (or consistency and commitment from Cialdini). It is Anchoring. I forget who discovered this, but Dan Ariely talks about it in Predictably Irrational with his experiment with social security numbers and the price of wine.

    There is a lot of research that shows that if we start with a higher price, that becomes the anchor point for comparing what we see after.

    So vianney, you're right that we should, in theory, start with the higher (decoy) price which will then make the lower prices more appealing.
    I think of this higher priced "Anchor point" is best brought out earlier...not as a hard price, but as part of an example..."I regularly get $500 and hour for phone consulting"....it sets a value, and a comparison to a lower price made later.


    Originally Posted by Ben Goodman View Post

    Offering more than one price also serves to change the decision making from 'should i buy or not?' to 'which option should i choose' which improves sales a lot.

    Adding in text that says "Most Popular Choice" brings in Cialdini's Social Proof lever to improve results even more.

    But again, always smart to test.
    Yup. The purpose of offering more than one price..as you said.

    "Popular" and "Recommended " are two magic words that pull the buyer to the offer you really want them to buy.
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