In the midst of inflation: Is now the right time to raise your subscription prices?

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Subscription POV #40

By Morten Suhr Hansen 

The current economic climate is in many ways the perfect storm for many subscription companies. On one hand, we’re experiencing rising costs for raw materials, energy, and paychecks. On the other hand, we’re experiencing customers who hold back spending and are nervous about binding themselves to new subscriptions.

Egentlig burde stigende inflation jo betyde, at man skal hæve sine abonnementspriser, men mange abonnementsvirksomheder holder igen af frygt for, at det så bare bliver endnu sværere at tiltrække og fastholde sine abonnenter.

Actually, rising inflation should mean that you should raise subscription prices, but many subscription companies are holding back in fear that it might get even harder to attract and retain their subscribers.

So what should you do in a climate like this? Raise prices with the market or hold back before hiking prices? This is one of the questions I get the most lately.

The answer is not completely clear, but let me give it a try anyway!

The short answer: Raise prices now!

In the end of 2022, I participated in the world’s largest subscription conference, The Subscription Show in New York and here, I met Mark Stiving, author of ‘Win, Keep, Grow’ and ‘Impact Pricing’ and one of the leading experts within subscriptions and pricing in America.

The answer from Mark Stiving is:

Raise prices now. You’ve never had a better opportunity!

 

The extended explanation comes here. According to Stiving you should, first and foremost, distinguish between two different aspects: 

  1. Are your product or service necessary to customers or is it a luxury good?
  2. Are your customers in a situation, where they are struggling with their economy or are they relatively unaffected?

It’s important to distinguish because your actions are decided by these parameters.

Are you selling necessary products or services, consider your next step with your pricing

Imagine that you find yourself in a place in the market, where the product or the services you sell are necessary and basic for your customers. If your customers are not affected as heavily by the economy as others, you should raise prices now! You customers will definitely let you know, but the demand will remain unchanged. Especially, if your competitors are following along. Some will complain, but must of your customers will acknowledge that your costs are rising as well. Customer willingness to pay will follow as the prices rise.

Conversely, if your customers are very affected by the current climate, consider keeping prices steady as much as possible. Small price increases will be acceptable, however, and the demand is going to fall no matter what you do. However, it will still fall less than with other products and services.

Luxury goods will take a hit – no matter what you do

It looks quite different if you’re in a market, where the products and services that you offer are perceived as luxury. Not necessarily just luxury goods in a traditional sense (expensive brands) fall in this category, but also streaming services or the monthly surprise box with cosmetics. This is where the challenges are present, because whatever you do, demand is gonna fall drastically.

If your customers generally lies in the group who is not affected as much, you should raise prices. Like I said, demand is gonna fall regardless, all you can do is wait for the market to turn again.

This might seem odd. Why does demand fall, even with customers who can afford your product? Because the times are affecting us all. There comes a form of guilt in consuming in a time where insecurity is high. Even if we have the money!

If your customers are in the heavily affected group and your products are not essential, Mark Stivings laconic advice: Find another business quickly!

Naturally, this is to be funny, however this is where we find the subscription companies that are struggling these months. To be more nuanced – you should raise your prices. Maybe a little less, so your customers won’t feel the crisis as much. But here, you will be met with a lower demand, no matter what.

The right price decisions demand courage, especially right now

As I said in the beginning, the subscription world is standing in front of a tough choice and it is understandable that most of us are holding back. Because, more than everyone else, we live off of our relationship with the customers. And we hear from them, when we raise prices. Either in the form of complaints or actual cancellations. But the opportunity is now. If we hesitate and wait until inflation is falling, the explanation goes away and so goes the acceptance from our customers.

But it takes courage, I will be the first to admit. And only you know your business and your customers. Hopefully, this has given some food for thought. If you’re in doubt about what is right for your subscription business, you’re always welcome to reach out to me.

mha@subscrybe.com

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