Subscription billing models are all the rage. Whether you are subscribing to health care services like Dollar Shave Club, kids activity classes like Pearachute, bike sharing services like Divvy, or even that antiquated service of newspapers, the Subscription Economy is upon us.
I must admit that I was apprehensive about subscribing to monthly billed services. What if I didn’t need the service? Am I not able to manage my own time and resources? What if I forget to cancel that subscription? Even to this day, my reflexes still cause me to pause when presented with a subscription service instead of an purchase option.
However, I think that the real issue has been two-fold:
- Commitment — Long-term or unlimited contracts annoy me to no end because they are predicated on me forgetting to cancel or when the window is to cancel. Nothing frustrates me more than paying for something I don’t want or need only because of a silly contract.
- Value — Am I using the service such that I feel I receive appropriate value for the money that I pay? If I pay $40 for a gym membership but only go once a month, that’s one hell of an expensive gym visit!
Interestingly, I believe that businesses can put both of these concerns to rest by offering value based pricing. Charge me for what I use and if I don’t use it, don’t charge me! Uber and Lyft are exactly examples of this already. You don’t get charged unless you are taking a ride.
Obviously, those businesses are built for this “consumption economy” business model, but how could it apply to other businesses?
Pearachute is a good example. Their service costs $129 per month. No matter how many classes you attend. That’s good for some consumers who attend ten classes and bad for some consumers that attend one or two. There’s no happy medium, but rather an average usage.
Alternatively, I could sign up for a lesser cost plan, but now I’m playing the game of how many classes do I think that I need this month? And what about next month? I’m going on vacation soon so can I put my account on hold?
In a consumption economy, Pearachute could offer a $5 per class attended fee such that those heavy users would be paying for what they use (and they might use less) but the lower usage customers would be paying a much smaller amount and likely be happier about being a Pearachute customer. Not all consumers are the same.
From the Pearachute perspective, this could be problematic for their business metrics and investor class. I agree. However, Pearachute could have a $10 minimum per month to ensure that they are generating something from their customers and I suspect that their NPS score would skyrocket because they’ve just aligned value with cost!
Here’s another good example of a real world situation that mirrors Pearachute. It’s a company called Classpass that had exactly the value aligned with cost problem.
See the problem here? Still leave it up to the customer to play a game of “how many classes do I think that I will take this month?”
Do you know of any other examples like this? See any other categories where these challenges of price alignment with value? I’d love to hear about them from you!