Takeaway — Pricing (Ice Cream, Cups App, Classpass)
Pricing subsidies must 1) seem temporary and 2) be credits. The need for a subsidy to be temporary is so that it would not cheapen the brand. Many multinational companies have days in which they offer free goods to get people in the door. 7–11 has free Slurpee day on July 11th, Haagen Dazs has free cone days, and Dunkin Donuts gives away free donuts on National Donut day. However, there needs to be a reason for why the business is giving away the products. This conditions customers to not expect this all the time, hence inhibiting them from purchasing at full price.
The use of credits is important because it keeps money in the company rather than out. Companies such as Uber and Lyft give users free rides when they refer someone to their service. The credits allow users to experience the service a bit more, leaving them with a positive experience and solidifying the habit of using their services.
Unlimited plans must make the numbers work in order for it to make sense. Gyms have a monthly membership that lets you use it as much as possible but there are factors that it takes into consideration. However, for a gym to be successful the operators do the following calculus: at which price point can we get the demand to match the space and pieces of equipment that we have.
ClassPass, the startups which allows you to try out a plethora of boutique gyms, works on a $125/month model. They came to that number based on comparable boutique gym rates and habits of those patrons. In addition, to prevent cannibalisation of the actual gym’s members, ClassPass members can visit any studio in the ClassPass network up to 3 times per membership cycle.
Other unlimited plans must take into consideration people’s other habits. The startup CupsApp.com, which offers unlimited coffee for either $3/day or $4/day understands that if people drank 5 cups of coffee a day, their business model would not be sustainable. People however drink 1 to 2 cups a day, and anyone else drinking more is a bit rare and will be offset by the people missing a day here or there or only drinking one cup a day. In addition, to prevent fraud, on the unlimited plan, they allow users to get one cup per hour, to prevent users from getting coffee for more than just themselves.
The only way commoditized businesses can properly increase prices is by increasing switching costs. If Uber increases their price, it’s not hard to order a Lyft, assuming that it’s cheaper and available. However a company like Bloomberg, which is notorious for increasing costs of their already costly terminals, consistently gets away with it. This is because there are high switching costs; people already invested time and energy in learning the system. In addition, Bloomberg provides constant support and is consistently adding new features.
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