The subscription ecommerce market has an estimated worth of $12B-$15Bn.

What’s more, 2018 was the year in which the highest amount of capital was invested into subscription box businesses.

Fast-paced growth and yet-to-be-discovered niches attract numerous big retailers and new market entrants. To stay ahead of the competition, you must utilize pricing power to the fullest extent. Luckily, we’ve gathered four pricing optimization strategies for your Shopify store.

But before jumping into that, let's figure out why the subscription business model is attractive to online retailers as well as shoppers.

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What makes people subscribe?

People have recurring needs. Instead of shopping for everyday products over and over, they use subscription services that deliver everyday needs to their doorstep.

While big retailers apply this model mostly on consumer goods, an increasing number of SMBs utilize it to send subscribers a selection of enjoyable lifestyle products to be discovered. The lifestyle products range from a french press to a book, from candles to clothes, and so on.

From a retailer point of view, this model reduces the risks arising from uncertainty. SMBs often have a hard time estimating business costs and profits accurately, whereas subscription stores do not face uncertainty problems thanks to their steady customer base and stable costs.

Tip: Trust your subscription tracking with the ultimate ReCharge guide for Shopify

More and more retailers either switch to this model entirely or apply it on certain products in their assortment. So, what’s a good pricing strategy to outshine the competition?

1) Measure Willingness to Pay (WTP)

Willingness to pay is the maximum amount of money people are willing to give up in exchange for your products.

Before setting the price of a product, measure WTP. Charge a price in line with customer expectations to substantially increase the likelihood of purchase.

Surveys are the easiest way of measuring WTP, and they grant you a chance to get to know your audience better. Ask the value-adding qualities of your service and find out customers’ pain points:

  • "Please rank order the product features below according to the value you see in each"
  • "Which product feature(s) do you think should be improved?"

Keep up the good work and improve the negative aspects identified by customers.

Perhaps more importantly, customers will be happy to know that their ideas are appreciated and taken seriously. It’ll increase the chance that they refer your subscription store to their friends, and referrals are far more effective than traditional marketing channels. In turn, offer referral discounts to enhance customer loyalty.

Out of WTP research, you'll obtain multiple price points around which people are clustered. The following step is to utilize that data to divide your target audience into several segments.

2) Offer a variety of options and pricing

Naturally, people differ in their WTP for a product. Now that you've segmented your audience based on shoppers' WTP, it's time to target each segment at different price points.

For example, if you sell lifestyle subscription boxes like Birchbox, make boxes of varying quality and charge more for high-quality ones. Tiered pricing structure entices both price-sensitive and luxury customers to subscribe to your boxes.

WTP changes over time, but it’s impossible to conduct WTP research frequently. Instead, test different price points to see if they yield better results.

Note that even though fewer people buy luxury products, they can generate higher profits. Since high-end buyers don’t look for cheap prices, provide them a truly premium service quality.

When it comes to commodity goods, however, no one wants to pay extra money for toothpaste. If your Shopify store specializes in everyday essentials, offer competitive prices. Which brings us to our next point...

3) Track competitor prices

Millennials are financially worse off than older generations, and it's reflected in their shopping behavior. Price is the most influential factor  when US shoppers decide where to buy a product.

Thanks to the transparency of online prices and ease of using comparison shopping engines, shoppers effortlessly find the cheapest deal for their everyday needs.

The only way to appeal to a price-sensitive and tech-savvy audience is by offering the cheapest deals for commodity goods. That's why you have to track competitor prices.

You can try manual tracking, but the results won't serve the purpose. By the time you finish collecting competitor prices, the data will be irrelevant. Prices change far more frequently than we could track manually.

Another option is building an in-house pricing engine. Since it'll only belong to you, you can customize it according to your needs.

The important thing to note here is that the software requires maintenance. You'll devote a lot of time and resources to software development, and the expenses will keep coming up.

And finally, you can use pricing SaaS with a monthly fee. Your activity is limited to the standardized service the company offers, but you don't spend hours on software development and maintenance. It's more affordable than maintaining an in-house engine.

4) Make use of predictive analytics

Predictive analytics is a technique to predict future outcomes based on historical and real-time customer data. What does it mean for a subscription ecommerce store?

You know that customer retention is far more important than customer acquisition. Returning customers account for more than 40% of US revenue even though they make up only 8% of all online visitors. What does it have to do with predictive analytics, or pricing to start with?

Costs increase over time. Since you can’t sell at a loss, you have to increase prices. But price increases come at a cost. It’s highly likely that a portion of your customers will leave when faced with a price increase.

Before making major changes in your pricing structure, use predictive analytics to determine which customers/segments will likely to churn after an increase.

Don’t alienate the most price-sensitive customer segments with an increase. A small profit is way better than no profit.

Final Words

Subscription ecommerce is gaining popularity among online retailers. To stay ahead of the competition, retailers must utilize the power of pricing. Implement these optimization strategies to gain and maintain a competitive edge:

  • Measure Willingness to Pay and take it into account when pricing
  • Provide multiple products at different price points to target each segment
  • Track competitor prices
  • Make use of predictive analytics

And of course, track with accuracy – the data never lies, and tools like Littledata's Shopify app for Google Analytics (or Segment) also help optimize your pricing strategy. With better data, you can price better!

 

This is a guest post by Betül Parlak, Inbound Marketer at Prisync, which helps ecommerce companies increase sales by tracking prices automatically from any marketplace around the world.