Pricing a Subscription Based Product

ChrisSmith

I`ve been reading the post regarding how to price your product.  I have a product that I`m selling online through a subscription.  The only hitch that I see in the current formula
Price = cost + margin
is that for every subscriber the cost goes down.  I only have costs in development of the product and fixed costs of hardware to support the product.  Does anyone have any suggestions for coming up with a subscription price?ChrisSmith2006-10-30 16:38:55

InactiveMember

You should get a book on pricing strategy. There`s a book called "The Strategy & Tactics of Pricing". Highly recommended. The "price = cost + margin" formula is called cost-based pricing. The reverse, called price-based costing is more modern. In this model, you determine what the market can/will pay and determine how to produce your product for that price. Price isn`t the same as cost. Keep that in mind.

ChrisSmith

Thank you for your reply.  I have to say that price strategy has been the thing that keeps me up at night.  I will definately be ordering this book. 

enlightDan

Something similar in the consulting world that I found very useful - Value Based Fees . Although it focuses on consulting, it has implications for your business. It challenges you to not think about it from a provider-centric approach, but from the customer-centric approach. Kind of obvious, but also very profound.Briefly - what is the value to customer? How much would a customer be willing to pay? This is a great item to really reflect on. Creating a value statement will help centralize your thoughts. Concentrating on a central, focused need and how you fulfill that need will help get you started.

espeed

Something similar in the consulting world that I found very useful - Value Based Fees . Although it focuses on consulting, it has implications for your business. It challenges you to not think about it from a provider-centric approach, but from the customer-centric approach. Kind of obvious, but also very profound.Briefly - what is the value to customer? How much would a customer be willing to pay? This is a great item to really reflect on. Creating a value statement will help centralize your thoughts. Concentrating on a central, focused need and how you fulfill that need will help get you started.
 
   Great reply!  I am developing this subscription based model for my e commerce store that I am developing.  The first question I asked myself was what is the value of this?  Once I determined how low I could sell my products for I then said ok people will buy at these prices all day long.  So then you have to figure out what is the value in the subscription model.  I have chosen to go w/ a monthly or a yearly membership. $9.99/month or $99 / year.  So I have to prove to potential customers that this is a great value.  So I would have to show that the savings far outweigh the monthly fee`s . I have tried to take in account what will keep customers coming back for more. 
1. Ultra low prices
2. Wide range of products i.e from performance parts and accessories to routine maintenance parts.
3. Content Content Content
just my .02
 
 

InactiveMember

There is a great podcast on pricing available at http://www.deloitte.com</A>.
1. Look for the link bar and find "Insights & Ideas".
2. Click on podcasts.
3. Find the podcast titled "Price Management: The issue executives can`t afford to ignore."
Fantastic and practical information on pricing.