Deciding the prices you’ll charge for your services can be difficult. Of course, you want to offer attractive prices, but it’s also vital that you generate as much revenue as possible. Your business depends on the revenue you generate to not only stay afloat but to grow.
Some of your potential customers are more price-sensitive than others. Price segmentation strategies allow you to adjust for this price sensitivity without taking a big hit to your number of sales and the revenue you generate from those sales.
What Is Price Segmentation?
There are several revenue-related metrics that can make or break a subscription business, and there are a few strategies you can employ to increase your revenue. Price segmentation is a dynamic pricing strategy that offers the same product to customers in different customer segments at differing price points. This concept is grounded in the idea that different types of customers across different market segments have varying levels of price sensitivity.
A segmented pricing strategy offers lower price points for those who are more price-sensitive in an attempt to increase overall sales. It also leads to higher-value sales by offering the same or similar service offerings to those with lower price sensitivity at higher prices.
Unlike setting standard prices, price segmentation (when coupled with an effective subscription management solution) could help you increase the number of sales you generate and the overall revenue from those sales.
Key Price Segmentation Strategies
There are several strategies you can use in an attempt to find the optimal price for different segments of your audience. Some are more effective than others. Here are five price segmentation strategies we believe to be the most effective options.
1. Tailor Pricing Tiers To Match the Perceived Value of the Service
Some customers will perceive the value of your services at a higher level than others. For example, consider two website owners. One is launching a startup and plans his business around his website, while the other is creating a personal blog.
They both need hosting, but the customer attempting to build an enterprise-level web-based business has a higher perception of value in hosting than the customer creating a blog.
Consider the customer personas likely to take advantage of your service and how valuable they may believe it is. Use this customer persona information as you set up your segment pricing.
2. Implement Variable Pricing Models Based on Actual Usage
Another option is to offer a form of metered pricing. Decide on an easily trackable unit of usage of your service, and think about a price per unit that would be reasonable. This segmentation strategy is particularly useful if your customer’s perceived value of your service varies based on how much they use it. It’s also a great strategy when your customer’s use of your service puts a load on your overall system.
For example, let’s say you offer a subscription-based AI solution for marketers. Every time a marketer asks your AI a question, the AI puts a small load on your servers. In this case, your conditional pricing strategy could offer different pricing tiers based on the number of AI inquiries marketers take advantage of or want to take advantage of each month.
Think about ways you can track and quantify the usage of your service and consider providing service offerings based on that usage.
3. Offer Pricing Options Based on Subscription Duration
This is one of the most common segmented price strategies. You likely see it all the time. A service offers one price if you sign up for a monthly subscription and another for an annual subscription. However, the annual subscription offers a significant discount over the course of the year.
This is a common price segmentation strategy because it works. The key here is focusing on price elasticity.
That means you have to consider how much more users will expect from your service in exchange for a higher price. A 5% or 10% discount may be enough to entice new subscribers to subscribe for longer durations. In other cases, you may need to offer a far steeper discount to catch the attention of new subscribers.
4. Structure Price Plans Around Access To Specific Features
This is another common price segmentation strategy. There’s a high likelihood that your customers don’t all use every feature you offer with your service. Those that do likely have a higher perceived value of your service and are willing to pay more. Those that don’t may only be interested in lower price points.
Use this to your advantage.
Offer different price segments based on access to advanced features within your service ecosystem. It may even be a good idea to consider individual prices for one-time use of some features for customers who aren’t quite ready to commit to a higher subscription price.
Think about the overall value of your service and the value each feature within your offering provides. Use this information to build a dynamic pricing strategy that makes all customer segments happy.
5. Adjust Pricing Based on Regional Factors and Market Conditions
Chances are you’ve traveled and noticed price differences, whether across county lines, state lines, or even country borders. Regional price changes are a common occurrence. The simple fact is that people in different regions have varying interests and are willing to pay more (or less) for products.
Consider these regional factors as you set your prices. For example, if you already have a decent market share in one market, you can afford to charge a higher price. However, a lower price point may be in order if you’re just entering a market and want to access new market share.
Partner With the Best Optimization Platform for Subscription Billing
No matter which price segmentation strategies you decide to employ in your business, it’s important to do so with a quality billing platform and subscription management solution. That’s where Revolv3 comes in.
Revolv3’s platform simplifies including custom subscriptions like free trials, discounted, and combined subscriptions into your sales funnel. Find out how Revolv3 can help you retain and expand your customer base today.