Practical Subscription Pricing Strategies for Your Podcast with Steven Forth - S2E10
Subscription pricing expert Steven Forth reveals the market principles and buyer psychology you need to know to set a podcast price that will have people clicking to subscribe.
Jennifer Tribe, host: Today on the show I’m excited to be talking to pricing expert Steven Forth. As the co-founder and CEO of Ibbaka Performance, he spends his days helping companies position and price their products for optimum revenue. He has 10 years of experience pricing specifically in the SaaS area and has worked with media companies like the Financial Times on their content subscription plans. So he has tons of great insights into the mechanics of subscription pricing, buyer psychology, and the levers you can pull to affect the conversion rates on your podcast.
You do not want to miss the extended interview for this episode. Because during that conversation, Steven reveals the magic numbers that will boost your conversions when you use them in your prices, whether it’s better to go dollars and cents or whole dollars, and whether free trials of your paid podcast are a good idea.
The extended interview is for Premium subscribers only but it’s free to join. Just head over to premium.supercast.com, and click the free sign up button.
All right, let’s jump in.
Jennifer: Hi Steven, welcome to Supercasters.
Steven Forth, guest: I am delighted to be here, thank you.
“What should I charge for my subscription plans?”
Jennifer: We are delighted to have you because pricing is a question that we get asked about a lot from our podcasters, and so I know everyone's going to be eager to hear your insights. So let's start things off with just a very broad question, which is the question that we get most often. I'm a podcaster. What do I charge for my subscription plans? How do we start thinking about unpacking that question?
Steven: So to begin with, there is, of course, no one answer. The answer will be different for different podcasters. And for a podcaster, I think this speaks very much to your personal brand or the brand for the podcast and the value that you want people to attach to the brand. So, for example, if your brand positioning is you are a person of the people, you are doing a podcast of broad interest, you probably want to skew towards a lower price point and bring in as many people as you can. On the other hand, if your positioning is that you are extremely high end, that you appeal only to a small group of people, but you create tremendous value for those people, then you will want to price much, much higher. It's not really that different from newsletter pricing.
Steven: Some of you probably know Esther Dyson, one of the most fascinating people from the most fascinating families of the last 30 years. Her father was Freeman Dyson, the famous scientist and designer of starships, and her brother is George Dyson, who lives in an island in remote British Columbia and builds kayaks and writes some of the best books on technology. And Esther Dyson is someone that people who were interested in investing in new technologies and new companies went to for advice. And she charged a very high price for her newsletter because people were getting extraordinary value and they wanted that exclusivity. So it really depends a lot on your personal brand or the brand that you're establishing for the podcast and who you are creating value for and how you are trying to create that value.
Jennifer: Is it helpful to think in terms of B2C business to consumer and B2B business to business? Would there be a difference in how you would price for those audiences?
The components of value-based pricing
Steven: Absolutely. And one might want to even throw in B2G, business to government. So in business to business pricing, there is a fairly well-established process called value-based pricing that takes you through a set of steps on how you price. It begins by understanding how your market perceives value and identifying the different value drivers for a market and structuring that market around those value drivers. You then pick a target segment or, perhaps more than one, but generally a target segment. And then you design your product and your pricing for that segment. And there's two really important concepts here: Value metric and pricing metric. So your value metric is the unit of consumption by which your audience gets value.
Jennifer: Can you give us an example.
Steven: I'll just do pricing metric first and then I'll put the two of them together. The pricing metric is the unit of consumption for which you charge. And in B2B, good pricing connects the value metric and the pricing metric and brings them together. That is the key to B2B pricing is to connect the value metric and the pricing metric. Let's take a famous story from pricing to give you a really concrete example. A long time ago, new jet engines were being introduced by Rolls-Royce, and the value promised there was that these engines would require far less maintenance. And Rolls Royce wanted to get a premium on the engine because they were going to require less maintenance. And the buyers, the airlines said, well, maybe. But how do we know? You say they're going to require less maintenance, but we don't really know that. So Rolls Royce came up with a very new approach to pricing engines.
Steven: It won't sound new today, but it was very new back in the ‘70s when it was introduced called Power by the Hour. And they said, you know, you're right. You don't know that our value claim is true. So what we're going to do is we are not going to sell you the engine, we are going to lease you the engine and you only need to pay for it when it is powering an airplane. Because if you think about it for an airline, they don't care if they own engines. They don't want to own lots of engines. They really only care if the engine is pushing the plane through the air. And so what Rolls-Royce did was it identified the critical value metric. Is the engine powering an airplane? And then they use that to price on. And that's a brilliant example of connecting the value metric and the pricing metric.
Understanding your audience’s value drivers
Jennifer: You said in value-based pricing, one of the first things that you have to learn is how does your market perceive value? How do you figure that out?
Steven: It helps to have a framework where you understand the different ways that value is created. And there are really three dimensions to value. There is economic value, emotional value and community value. Economic value is fairly straightforward. It basically boils down to how do I help you make more money? How do I help you reduce costs? How do I help you reduce risk? There's more to it than that, but that's the basics. And emotional value, then, is how does using my product or service make you feel? And there's a lot of controversy about how emotional value drivers work, it's an active area of research. But my point of view is that, do you know Maslow's hierarchy of needs?
Jennifer Yes, at the bottom of the pyramid are physical, physiological needs like food & shelter. Above those are safety needs and so on through a couple of other levels, and then right at the top you have self-actualization needs.
Steven: So the higher you are supporting Maslow's hierarchy of needs, the more pricing power you have. Let me give you an example of that. One of the world's most successful companies is Apple. And Apple sells very high into Maslow's hierarchy of needs. Think of their be creative ads the way they say, if you use an Apple, you will be more creative, you will be more successful. Apple was...it was, I think they still are, but they certainly were the masters at selling high on Maslow's hierarchy of human needs.
Steven: Another company recently that's been very good at this is the yoga clothing manufacturer Lululemon. If you've ever seen the tote bags that they give out, they're full of aspirational slogans, and Lululemon has worked very hard to sell its emotional value drivers. And then the newer one, which I think is going to be incredibly important to many of us over the next 20 to 30 years, is community value drivers. So technically, a community value driver is an economic externality. And an economic externality is value that neither the buyer nor the seller get but third parties get. And it can be positive or negative. So pollution is a classic example of a negative externality. But there are lots of positive externalities too where, when, when two people do something, they create value for a third party. And given the need to address climate change, the need to address nutrition and poverty, for many of us, the community value drivers are also important and depending on the market you're serving, they can actually be among the most important.
Steven: So this is an even more recent way of thinking about value and pricing than emotional, but it's really important. And I think, by the way, that this applies for B2C as well. So in B2C, people still have economic needs. Emotional is incredibly important for us, and many podcasts appeal to our emotions. Some podcasts, you know, listen to this and you will be a better informed person. My self-image is I'm a well-informed person. If I'm the kind of person who wants to be informed and the podcast promises to inform me, that's a great deal of value for me. So anyone who is building a podcast and trying to build their audience needs to have a good understanding of how the audience gets value.
Different parts of your audience can get value in different ways
Jennifer: So can we take a few podcasts and sort of examine where they deliver on value. So let's take Breaking Points, for example. They're a Supercast podcaster. They have a political show, and their premise is that one of their hosts is on the left of the political spectrum, and one of their hosts is on the right of the political spectrum. And they sort of bring together the two viewpoints. So I have my guesses about the values and which categories they fall into, but I would like to hear what you think.
Steven: So here's the trick here, right? Different parts of their audience are probably getting value in different ways. And that is important for them to understand. So, for example, part of their audience may be getting value because they really want to see a resolution of the extreme partisanship in our society and a coming together. And that may even be on an emotional level. It may even be as high as self-fulfillment, it's probably more community and self-realization. It has a powerful emotional dimension to it. It also has some community value drivers for that segment of their audience because we also feel that this extreme partisanship is hurting the world that we live in. Even if it doesn't affect us personally. So they have a very strong set of emotional and community value drivers for that segment. But is that the only segment of people that are engaged, I wonder. There are other people who engage with Breaking Points because they like the tension and the disagreement. And they may be very strong partisans, and they're there to cheer for their side. The value that they're getting out of it is quite different from the value that a, you know, we'd have to come up with names for these segments, but the unifier segment.
You have to talk to your audience
Jennifer: That would still be an emotional value, that idea of I'm going to back my side?
Steven: It would still be an emotional value. Probably more community value driver, then a self-actualization value driver. But we can't sit here and answer this question talking to each other, except to the extent that we are part of the audience. You have to go out and talk to the audience. And I think that there are three steps in this. The first one, and the most important one is you need to go out and spend lots of time talking to your audience and listening to what they have to say and not trying to prejudge the issue. The skill of active listening is really important to this.
Steven: Then, because you can only talk to so many people, you take the insights that you've gotten from those interviews and you need to do some form of survey. Especially in podcasts. But you need to do some kind of survey where you can go out and validate and extend what you've learned from the interviews and get enough data points that you can then cluster the audience, see if it clusters. It may not. It may be that you only speak to one segment. That's kind of good, right, it makes your job easier. But I suspect that in most cases, especially for any large podcast, you are going to find that they have multiple segments. And they need to think about those segments differently. Does that make sense?
Jennifer: Absolutely. So you are going to do some one on one interviews with a smaller number of people and what you're looking for there is what matters to them. So you're trying to dig for those values that they're getting from it? Is that right?
Jennifer: Then you're going to take those findings and you're going to put them into a survey to try and go out to more people to validate those value drivers and also see where people fall into segments.
What’s your winning aspiration?
Jennifer: Now, if you find that you have two or three distinct segments, would you have different plans at different prices? Or how do the segments come into how you think about packaging and pricing your plans?
Steven: So you may. You may have different plans for different prices. Then you start getting into what your strategy is. Understanding the audience structure, how they get value, how much value they're getting, how they cluster or segment, that's an input into your strategy. But it doesn't determine your strategy. Your strategy is very much based on your goals and aspirations. There's a framework from a guy called Roger Martin, who was a very important guy in the design thinking world, called the strategic choice cascade. And he starts with What are your winning aspirations? What are you trying to do with your podcast? What does success look like for you? And it looks very different to different people.
Steven: Not everyone has the same view of success for their podcast. So you start with your winning aspirations. Then given those and your information about your potential audience, you need to decide, where do I want to play? Once you have those, then you can start thinking, OK, what do I need to do to win? It may be that you only care about one part of your audience, and all of your pricing is going to be focused on that part of your audience. Or it may be that you have a group of people who are professional podcasters who are willing to pay for more information and deeper information about podcasting. And then you have a larger, perhaps more amorphous group of people who are podcasting, but they're not doing it as professionally because they have different winning aspirations. And then it goes down from there. You have winning aspirations, where to play, how to win, what capabilities do you need? What’s the skill set you need? And then what systems do you need to support it? But the first thing is to understand your winning aspirations, what are you trying to achieve.
Jennifer: In the case of a podcaster, would that be a revenue goal, for example?
Steven: It could be. Yeah. It could be a revenue goal. It could be an influence goal. It could be that the podcast is meant to promote some other thing. So certain authors do podcasts in order to support sales of their books and certain people write books in order to support their podcasts. There's no one size fits all here. But your pricing has to be aligned with these two things, your goals and your audience. And if you don't consider both of these things, you're going to mess up your pricing.
Value is always relative to the alternative
Jennifer: You mentioned that if you're going for volume, you would tend to skew on the lower end of the scale, and if you were going for something very niche and high value, you would go for the higher end of the scale. We see podcasters typically pricing in five to $15 per month. So does it make sense if 90 percent of the market is pricing in that range that you also want to fit within that range? Or should you not pay attention to what other people are doing and just price according to the value that you think you have?
Steven: One part of values, as we've discussed, is it has more than one dimension right, it has the different economic aspects, emotional, and community aspects. Another thing to understand about value is that it is always relative to the alternative. So you cannot think about value without thinking about what the alternatives are. So technically, what we're talking about here is price elasticity and price elasticity curves. But it's important to understand that there are actually two different types of price elasticity. One we'll call price elasticity of demand, and that's what we've been talking about. In most cases, the lower the price, the higher the demand. In terms of volume. So that's one form of price elasticity.
Steven: It's important to understand, though, that that curve is not usually a straight line. It flattens off at both ends. There's a great Japanese saying, “tada hodo takai mono wa nai.” Nothing is as expensive as what you get for free. So if you're a podcaster, you would think that. Well, I want to get the maximum audience, I should be free. But no, that does not follow. Doesn't follow for two reasons. One is at the bottom of the price elasticity of demand curve, if something is free, it is perceived to have less value. The lower the price, the lower the perception of value in most cases, you can shape that and influence that, but that's generally true.
Jennifer: So that would also apply to like $1 and $2 per month, right—a very low end of the scale and people perceive less value.
People value what the pay for
Steven: That's right. And the other reason you may price is that when a person has paid for something, they have more of a commitment to use it. So if I paid for a subscription to a podcast, in most cases, I am more likely to actually listen to it. So there are lots of reasons to have a price. Now, you have to pay attention to what other people are pricing, both in general, because that sets the general frame. So most people expect podcasts to cost between three and $15. If I want to make a very strong statement, I may say my podcast costs you a thousand dollars a month. Not very many people are going to sign up for that. But some people would happily pay $1000 a month for a podcast from someone who they thought could solve some incredibly important problem for them. They might even pay more. If someone said I do podcasts for venture capital and what I do is identify the next unicorn, unicorn being a private company worth more than a billion dollars. And let's just say, I have a proven track record of doing this. If you were a VC, you might pay $10,000 a month for those insights.
Steven: But then there is the other side of price elasticity, which is called cross price elasticity. Now, cross price elasticity is the price at which you would switch vendors. There's the overall price elasticity of demand, which determines the demand of the whole market. And then there is cross price elasticity, which is your switching price. So let's take a simple example: Coca-Cola and Pepsi. Most people prefer Coca-Cola. I believe that the market statistics show that. There is a group and there are certain markets where Pepsi is far preferred over Coke. Each has its loyal base of followers. As long as the price is within a certain range, the overall demand does not change that much. There's a sort of flat part in their price elasticity of demand curve, where bringing the price down a little bit or up a little bit does not change overall demand for cola-based drinks.
Steven: However, Coca-Cola and Pepsi have to keep an eye on the other's pricing, because if Pepsi Cola were suddenly to be 50 percent cheaper than Coke, there are some Coke drinkers who would switch. There are some people who say I would never switch. OK, maybe. But if Coca-Cola was five times as expensive as Pepsi, would you switch? Well, I bet quite a few people would. So there are these two different concepts, right? Price elasticity of demand and cross price elasticity, and you have to keep your eye on both. Because I have lots of choice. There are lots of podcasts for me to listen to. In the sort of three to $15 range, I'm not price sensitive, I don't care very much. But let's say we're talking about a more expensive podcast. Say, $100 a month. If I have a choice between one that's $20 a month, one that's $100 a month, I have to really believe I'm getting more value from the one that's $100. The price is not going to have much impact on my total consumption of podcasts, but cross price elasticity will lead me to switch.
What makes you different?
Jennifer: Let's say you're a newer, less established podcaster, and, you know there's a very established, successful podcast in your niche. And let's say their price for subscription is $10 per month. Would you use this cross price elasticity concept to go under them and, say, charge $7 per month?
Steven: Not necessarily, because the first thing I would do is I would ask, How am I different? What is it about my voice, my podcast that is different from the established podcaster? Are there people that I am going to appeal to that perhaps are not fully satisfied by the current podcast? So I think you need to start by asking that question first. If you're just duplicating what already exists in the market, then you have relatively little pricing power. But you should always start, though, by understanding what am I bringing? What's the unique value that I am bringing to the market or to the audience? And it may well be that for an initially small group of people that you bring really clear and different value and you may want to emphasize that value by charging a bit more. So that $10 is still the reference price, you can't ignore it. By pricing less than that, you're sending this message that, well, I may not be quite as valuable.
Steven: So I think what a better strategy for this new podcaster is to do that initial work on talking to the audience, surveying the audience, getting a really good understanding of the audience and then saying, What can I do that's different? How do I bring in value that's unique to me? And then price based on that. Now maybe you find that there's a section of the market that you should be pricing at $7 to and that they're going to go after that segment. But it may just as well be that there is a small section of the market that you can provide more value to and that you're actually better off pricing at $12. Again, I don't think there is one canned answer here. I think you need to look again, what's your strategy? Is your strategy to attract a very broad general market? Which is actually a tough strategy. Niche strategies tend to be more successful than broad market strategies for most podcasters.
One plan or more?
Jennifer: Let's talk a little bit about number of plans, because we get this question fairly often as well, which is should I have one plan and package that has these benefits for one price? Or should I have small, medium, large with increasing numbers of benefits for increasing prices?
Steven: So again, I I think that the way to answer that question is to do this initial research into your market and see if there are clusters, natural clusters within your audience where it makes sense to offer a two tiered or three tiered pricing plans. It may be that the way that people get value and the amount of value they get is fairly consistent across the whole audience. In that case, then the answer is no, you shouldn't. You should only have one plan. Or you may find that there are clearly different tiers within the market and that you can create value for them in different ways. So in that case, yes, you should have either two or three tiers. I would almost never go beyond three tiers. So I think your options are one, two or three. There are very, very few cases in which you want to have four or five tiers. So you're really talking about one, two or three tiers. When you can get three tiers, that's often the best case if the market structure is there to support it.
Jennifer: So deciding whether to go with tiers is really tied very strongly to this idea of segments and whether you have segments, and so if you don't have segments in your audience, don't have tiers. Is that what I'm hearing?
Steven: That's exactly right. Yes.
Keep it simple
Jennifer: Why not go more than three? What are the disadvantages or problems with going with more than three plans?
Steven: Complexity is the enemy of good pricing. Good pricing is fair pricing and fair pricing is pricing that is transparent and consistent. And once you get beyond three, it becomes more and more difficult to maintain that transparency and consistency. And human psychology, we're very good at putting things in the middle and on the left and on the right. We are less good at dividing things into gradations of five. Or gradations of 10. It becomes much fuzzier and much more difficult to do. One reason not to have tiers is because you're giving a person a choice, and as soon as you give people a choice, you introduce another choice, which is the choice not to buy at all. You know the famous old story of the goat that starved to death because it was in between two piles of hay that were both equally attractive and it couldn't decide which one to go to? We have to support and respect human psychology and how people make choices and giving people too many choices often results in them making no choice at all.
Jennifer: In terms of plans, let's say you have one package, but you offer people the choice of paying monthly or paying annually or a one time payment for a lifetime subscription. Is that bringing choice in like the equivalent of having three plans or is that something different?
Steven: I think that's something different. People have been trained by the market to expect the option of monthly or annual subscriptions. Or a one off. There's another one, right, which is I'll just pay for the one that I'm going to listen to. So there's actually yet another option. I think one has to be careful of these lifetime subscriptions. They need to be packaged and thought about quite differently. These lifetime subscriptions... People buy them in order to help the podcaster in many cases, so they almost become like a form of sponsorship. Art galleries are very good at this. They raise money, you get your name on the wall and so on. But I think it's quite common for people now to be offered monthly versus annual subscriptions. And for there to be a meaningful discount on the annual subscription and by meaningful, I mean between 10 and 30 percent. And I've seen significant improvements to revenue when people start offering annual subscriptions, even with as much as a 30 percent discount off the monthly price.
Jennifer: So conversion goes higher, you get more people signing up and choosing the annual option when that discount is a little deeper.
Steven: Yes. But again this is an area where I think you need to experiment and look at the data because each audience can be different. I don't believe we should A/B test pricing in general, but I do believe we can successfully A/B test discounts for monthly versus annual.
Jennifer This seems like a great place to close off the main interview. Thank you so much for joining us today, Steven. This has been really enlightening.
Steven: I enjoy talking about pricing. Pricing is really an area where so many different parts of business and psychology and strategy come together, and it's very important to the success of people's podcasts. So thinking about who you're trying to reach, what value you give them, how you're going to get back enough of that value so that you can continue to create your podcasts and serve your audience. This is an important part of being a podcaster.
Jennifer: Absolutely. Thank you so much.
Alright, Steven & I are now heading over to the private interview room for Premium subscribers to this podcast where we’re going to talk about the magic numbers that will boost your conversions when you use them, whether it’s better to go dollars and cents or whole dollars, and whether free trials of your paid podcast are a good idea.
It’s free to become a Premium subscriber and access that private interview. Head over to premium.supercast.com, click the free sign up button, and in just a couple of taps, you'll have the extra content in your favorite podcast player.
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‘Til next time, stay super out there.
Steven Forth (Twitter)