Subscription Pricing Strategy

Solution & Explanation

Experiment Design

1. Define Objective:

   • The primary objective is to determine if increasing the price of subscription plans will lead to higher overall revenue without significantly increasing the churn rate.

2. Select Customer Segment:

   • Identify a segment of customers that are less sensitive to price changes. This could be determined by analyzing historical data or through customer surveys.
   • Start with the segment that is most likely to remain unaffected by price increases.

3. Avoid A/B Testing for Pricing:

   • Traditional A/B testing for pricing can lead to customer dissatisfaction and brand image issues if customers discover they are paying more than others for the same service.
   • Instead, consider a before-and-after approach where the price change is implemented for a specific segment and compared to historical data.

4. Pre and Post-Period Analysis:

   • Announce the price increase at the beginning of a month.
   • Use the first two weeks as a baseline (pre-period) and the last two weeks as the post-period to measure the impact.

5. Synthetic Control Group:

   • Use propensity score matching to create a synthetic control group from other customer segments that are not affected by the price change.
   • This allows for comparison of key performance indicators (KPIs) such as revenue and churn rate.

Key Performance Indicators (KPIs)

1. Revenue from Subscription:

   • Measure the total revenue generated from the affected customer segment before and after the price change.

2. Cancellation Rate:

   • Calculate the number of customers who cancel their subscriptions post-price increase.
   • Cancellation Rate = (Number of Cancellations / Total Subscriptions) * 100

3. Customer Lifetime Value (CLV):

   • Assess if the increase in price has led to an increase in the average CLV of the customers who remain subscribed.

Measure Success

1. Analyze Results:

   • Compare the revenue and cancellation rate of the test segment to the synthetic control group.
   • Calculate the statistical significance of any observed changes using appropriate statistical tests (e.g., t-test or z-test).

2. Decision Making:

   • If the increase in revenue outweighs the loss from cancellations, and the CLV is positively impacted, consider rolling out the price increase to other segments.
   • If the test results in a net loss, reconsider the pricing strategy and possibly test a price decrease to see if it encourages customer retention and growth.

Considerations for Future Testing

1. Iterative Testing:

   • Develop a process to reduce the overhead of testing pricing changes, allowing for more frequent and less disruptive tests.

2. Continuous Monitoring:

   • Continuously monitor the impact of price changes on customer satisfaction and brand perception.

3. Long-term Strategy:

   • Consider using surveys and customer feedback to guide future pricing strategies and ensure alignment with customer expectations and market trends.

By following this structured approach, the B2B SAAS company can effectively evaluate the impact of pricing changes and make informed decisions that align with their business goals.