Consumers have become savvy over time, and gimmicks like fake time constraints and discounts aren’t necessarily going to influence anyone to invest in long-term services.
Subscription pricing psychology is nothing short of an art form in today’s SaaS-driven climate. You’re most likely familiar with brick-and-mortar pricing psychology strategies and wondering how this translates to the subscription business model. The short answer is that it doesn’t. Consumers have become savvy over time, and gimmicks like fake time constraints and discounts aren’t necessarily going to influence anyone to invest in long-term services.
So how can SaaS companies offer compelling pricing? Thankfully, psychology still plays a significant role in conversions. It’s possible to embrace the science of decision-making to boost conversions.
In this blog, we explore four different ways to use pricing psychology to increase your subscriptions and revenue.
When it comes to subscription billing models, tiers are almost ubiquitous across SaaS companies. What’s not quite so common is using psychology to determine the pricing for each tier. Pricing experts suggest that this is where The Goldilocks Principle comes into play. Generally, customers will go for the median option. They feel they can afford more than the lowest tier and as if they’ve made a wise choice by avoiding the most expensive option.
Of course, not all consumers will behave the same, some will always choose the most expensive, and some will migrate towards the cheapest, but most will usually settle on the middle option. By ensuring this tier is optimally priced (a clear step-up from the free/cheap tier with a reasonable influx in cost), you will convert more customers at a higher price. You may lose conversions if you focus too much attention on making the lowest/basic tier seem the most attractive.
A recent study showed that only 20% of SaaS companies offer both annual and monthly plans. Part of psychological pricing is putting your subscribers first, and depending on who they are, it’s likely there’s a mix of those that prefer monthly to annual billing or vice versa. Conversions will be noticeably lower if you tie consumers into monthly payments who would rather pay upfront or insist on an annual fee from subscribers who can’t afford the full price upfront.
One benefit of the annual plan is that subscribers tend to be more engaged. They’ve invested more and want to get the full value of their investment. On the flip side, monthly subscribers get a reminder with each payment! For a more in-depth analysis of the pros and cons, please read our blog on annual versus monthly billing.
Our choices often come down to the mood we’re in when we make a decision. For instance, a cranky person under a lot of stress may look at your free subscription tier and see only the locked features, causing them to wonder, “why bother?”
It may feel as if you’ve very little control over how consumers feel when they’re on your pricing page, but this is not true. You won’t cheer up everyone who happens to land on your website, but there are ways to ensure that your website puts most visitors in a good mood.
For instance, in the image below, you can see the impact of mood on two visitors looking at the same pricing plan. instance, a cranky person under a lot of stress may look at your free subscription tier and see only the locked features. This may cause them to wonder “why bother?”
It may feel as if you’ve very little control over how consumers are feeling when they’re on your pricing page, but this is simply not true. Obviously, you won’t be able to cheer up everyone that happens to land on your website (and people may be under a lot of stress) but there are ways to ensure that your website puts the majority of visitors in a good mood.
For instance, in the image below you can see the impact of mood on two visitors looking at the same pricing plan.
When it comes to putting consumers in a better mood, you obviously can’t control how their day is going. There are several ways you can impact how they feel by the time they end up on your pricing page. Below is a list of elements that can make a difference to a visitor’s mood.
Ensure your content is easy to find on your website and pricing is accessible.
Anchoring is our tendency to rely on a single piece of information to make a decision. It can often be the first piece of information we see, and so as with many aspects of life, when it comes to pricing—first impressions count. When someone lands on your pricing page, the first price they see becomes an anchor, the one from which they judge the value of all others. Therefore, the cheapest option may not be the one you want to draw their immediate attention. Consider carefully which price or piece of information should act as the anchor.
The Hedwig Von Restorff effect states that people remember better that which is highlighted or stands out. They retain highlighted or isolated items in their active memory for longer. Clumped information becomes harder to remember as the brain has to make an effort to remember all the elements. We remember what stands out in a long list, so keep that in mind when highlighting individual bits of information.
If you found this blog interesting, we recommend checking some of our other content for SaaS companies looking to scale and grow their subscription models. Here’s just a few that might interest you:
