Is it time for tiers?

Updated On: March 12, 2020
No

Today, we see Walmart threaten the pros over at Amazon Prime with the launch of Walmart+. And Rent the Runway adds a new membership option to amp up its presence in the subscription clothing space. 

 

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Simplicity in pricing doesn't always win

We’ve had our eyes on Rent the Runway on the show before, as one of the more popular clothing subscriptions out there. But since there are so many to choose from—we’re talking Nuuly, Haverdash, Stitch Fix, the list goes on—RTR is looking to a new membership option to convince shoppers to get on board with its platform over others. 

The RTR team is launching a third plan—previously, the options were either "unlimited" or "one-swap"—with a two-swap plan at $135 per month, giving users the ability to swap out four items, twice monthly.

And this may be a good move for them. We’ve dug into the data here to find that simplicity in pricing doesn’t always win

The data that suggests complexity (from a number of tiers perspective) is worse than simplicity, is actually not correct. Less isn’t always more.

Instead, more is actually more: Offering more tiers correlates with higher ARPU. In both B2B and B2C, as you increase the number of plans within a company, you actually see an increase in ARPU.

PWR-RecurNow-tiersARPU

Companies with more than five plans are seeing 40-50% higher ARPU on a relative basis than those companies with less than five plans.

So does this mean you should add a bunch of tiers to your pricing and call it a day? Not exactly. You can find the full data breakdown and benchmarks linked here if you're interested in digging a bit deeper. 

 

(New) Walmart+ vs. Amazon Prime

Looks like Walmart is cooking something up in the membership department, adding its own paid membership model that would directly compete with Amazon Prime—offering perks that Amazon prime allegedly doesn’t, like text messaging to place orders and prescription drug and fuel discounts. They’re calling it Walmart+. (Not the most original name for the service, but we’re here for it nonetheless…)

But Amazon Prime’s numbers and influence continues to grow, ending 2019 with 112 million U.S. users, according to Consumer Intelligence Research Partners. That's up from just over 100 million at the end of 2018 and more than double the 50 million Americans who were using Prime at the end of 2015,” reports Fortune. 

So, as of right now, they’ve got this market on lock. And that means Walmart will have to distinguish itself from the competition with seriously unique offerings and features to its membership. Businesses offering subscriptions need to experiment with different features and offerings, gather actionable user data, and make adjustments in order to optimize their process.

And as we advocate, they may need to take a close look at pricing. Pricing of Walmart+ remains unknown, but it should compete closely with Amazon Prime's cost of $119 per year.

Because we know that standing out in a certain market might mean choosing prices that undercut your competitors—even though those prices might cut into your overall profits. A strong competitor-based pricing strategy is built on research. When you understand how the top competitors in your market are pricing their products and how that pricing might impact customers’ expectations, you have a foundation for setting your product’s or service’s rates.

Click here for more on competitor-based pricing if you're curious.


The competitive side

On Monday, TechCrunch broke the news that Sequoia, the better-known venture capital firm, had parted ways with Finix, over a purported conflict of interest and handed back its board seat, its information rights, its shares, and its full investment.

Sequoia led the $35 million round into the payments infrastructure player, which was the main source of conflict—the reason being, Sequoia is also an investor in Stripe, the payments platform we know and love, worth about $35 billion. 

The firm led its Series A back in 2012, according to Crunchbase, therefore making Sequoia a longtime Stripe associate and major shareholder.

Which has us thinking even more about competition. Although, sure, VC may be a different beast—but should you, like a Stripe or a Finix let's say, place a focus on your own competition? With the influx of SaaS and subscription companies out there, there’s bound to be competitors in your space, whether you break into a totally new market, or enter a preexisting one. 

“Focus on your customers, don’t even think about the competition.”

We’ve heard this piece of advice^ consistently for the past decade. Yet the reasons for it are typically pretty lukewarm and appeal to a time of tech company past when there were only a few companies in existence for each space.

So what does the data actually say?

After exploring the marketing data from 2,500 subscription companies, we found that some level of competitive focus does workCustomer acquisition cost (CAC) is roughly 15% lower for companies with a competitive focus, which includes comparison pages, competitive ads, and the like.

When done well, the data suggests that competitive comparisons can actually help buyers make a decision, because they’re already doing research in a competitive market. So it stands to reason that you should help them with their research and respectfully show the differences between you and your competitors.

However, we haven't approached the question from all appropriate angles yet. Product is a whole different issue, where those companies with a competitive product strategy are actually doing worse from a customer satisfaction perspective, as measured through net promoter score.

PWR-RecurNow-NPSlowercompetitive

These competitive-focused product teams are seeing roughly 50% lower NPS scores compared to their non-competitive focused counterparts, and note that this trend has remained consistent over the past number of years.

So should you focus on your competition?

It’s hard to say. You never want to do anything that sacrifices product quality, and the data suggests that companies who are focused on competition presumably are good at lowering their CAC, but not so great at defending their NPS. Another possible outcome here is that these companies aren’t disciplined enough to focus on competition in the right places and ignore the competition in other places.

Like most clichés, this comes down to your situation and your discipline.

I’m also keen to hear what you think, though. Email me at abby@recurnow.com if you have thoughts about competition (or any story we covered here today). 


That’s it for your March 12 edition of Recur Now. More for you here tomorrow. 

This has been a Recur Studios production—the fastest-growing subscription network out there. If you find use for this show, subscribe for more like it at profitwell.com/recur.

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