Dealing with changes in pricing is a significant challenge in any business. The rise of subscription based retailing magnifies the complexity – pricing plans and paradigms proliferate, while individual customers require specific charges and adjustments to their accounts. The result? Vast lists of SKUs, ordering complexity, and confusion.
To understand the value of agility in a subscription billing environment, let’s examine a billing lifecycle from two perspectives. First, we’ll look at the lifecycle of a pricing plan – initiated by a marketing program, introduced for sale, and eventually retired. Then we’ll look at the typical customer lifecycle events that create their own pricing challenges.
As a specific example that is easy to relate to, we’ll use a fictional men’s hygiene subscription box with some a la carte options:
- Razor Blade service $10/month
- Shaving Cream service $10 / month
- Premium Skin Creams $20/month
- Razor handle: $20 one time
- Premium Razor Set: $50 one time
Now, the marketing team goes to work:
- Let’s bundle Blades and Shaving Cream together and give a discount to $15
- Can we sell Skin Creams at a lower price to encourage people to try? Just for those with the bundles?
- There should be more incentive to sign up for an annual contract. Let’s make Razor 1 free with an annual subscription.
- What about the Premium Razor – ok, it should be $30 for an annual plan.
- We should test the bundle at $18 as well.
There are now 96 separate variations of what is, all-in-all, a reasonably simple packaging idea. A customer can order the blade service, or not; the shaving cream service, or not; the extra premium creams, or not; choose one, both or neither razor; commit to an annual plan. Some customers will see one price test, some will be at a higher price point. Over time, more variations are created for further promotions; some are retired; some are grandfathered.
A traditional approach is to translate each one of these variations into a separately identifiable ‘part number’ or SKU. This makes it: difficult to order, track results, and analyze what is working. While it’s easy to tell which individual variant is performing well, even simple questions like “how many customers chose Razor 2” requires aggregating data from multiple SKUs.
Now consider a typical customer experience as seen through the eyes of a CSR (Customer Service Rep)
In coming weeks, a typical customer might upgrade their package; change razors; upgrade to an annual plan, and receive a free month of service to compensate for a service problem. Each transaction involves removing and replacing SKUs, generating a string of confusing entries on the bill that may generate more questions. Manual attempts to pro rate charges to align with the billing cycle are error prone.
This simple example illustrates how complex it can be to implement even straightforward bundles of products and service. This complexity complicates ordering, customer service and reporting. Further on, accounting groups must also decipher events to apply appropriate revenue recognition policies.
A subscription billing system provides agility by structuring pricing catalogs to minimize the proliferation of products, plans and variations, and automated tools for dealing with common customer service issues.
This article is a taste of what Fusebill CEO Steve Adams will be covering in a new, live webcast on March 20th. If you’d like to know more about this topic, register today:
Please Note: This webcast is being presented in partnership with CPA academy and is worth 1.0 CPA credits.
Bonus: As a thanks for attending you’ll get a copy of our popular whitepaper The Impact of Billing on a Subscription World absolutely free!