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  • Writer's pictureNikhil Kotcharlakota

Subscription vs Traditional Pricing

Updated: Jul 7, 2023

Subscription Pricing is on the rise as more companies get into the "as-a-service" space such as SaaS, IaaS, etc. It has resulted in a greater need for pricing expertise.

But, is there any difference between traditional and Subscription Pricing? To answer that, we need to understand the pricing process.

Know your value proposition

Customers care only about what you can deliver, so understanding your value proposition is crucial. It should be easy for your customers to understand and measure your value, and you should be able to communicate it clearly to them.

Market or customer segmentation

Market segmentation is also very important. Even though you could focus on the entire market, it's always better to target one specific segment and capture it to the fullest degree possible.

To paraphrase Peter Theil in Zero to One, the best way to become a successful organization is to dominate a large share of a small market and gradually expand into related and slightly broader markets.

Define a Pricing Strategy

There are multiple pricing strategies to choose from. Some of the common ones are mentioned below.

Pricing Strategies

  • Competition pricing

  • Cost plus pricing

  • Dynamic Pricing

  • Freemium pricing

  • High - Low Pricing

  • Hourly

  • Skimming

  • Penetration

  • Premium Pricing

  • Value based

  • Project based

  • Psychological pricing

  • Geographical pricing

Pricing model and Pricing metrics

This is the major differentiation step between subscription and traditional pricing. In traditional business models, such as manufacturing or retail, Pricing metric is per unit. SaaS companies can price based on different metrics such per user or usage-based, or feature based etc.

Some of the common Pricing models are listed below.

  1. Per Unit

  2. Flat rate

  3. Subscription based

  4. Usage based

  5. Tiered

  6. Per User Pricing

  7. Per Active User pricing

  8. Per feature pricing

  9. Freemium business model

Price Execution

Executing the pricing strategy is as important as choosing the right pricing strategy. If you do not have the tools and capabilities to execute the strategy, you will not be able to capture any value, resulting in lost profits and prices.

Pricing skills

Pricing skills are highly transferrable. The majority of the process is the same regardless of whether the business is traditional or subscription. Experience in any pricing role can help you develop a pricing mindset. Regardless of the company, Pricing members must work closely with Marketing, Sales, and Finance teams to maximize value capture.



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