Customer-Centric Pricing for Subscription Companies
Are flexible pricing options for subscriptions and the back office really at odds with each other?
I sat down with Andrei Rebrov, Chief Technology Officer and Co-founder of Scentbird, and Dan Burkhart, CEO of Recurly to discuss what customer-centric pricing looks like for subscription business models. We also discuss how subscription companies can balance customer flexibility requests and reporting requirements.
What do your subscribers expect from their subscription?
Andrei: That's a good question. When we started our original offering back in 2015, you could 100% customize your subscription. At the time, it was different from other subscription boxes where you would get exactly the same thing as every other subscriber.
Nowadays, customization is the norm. Most subscription boxes offer the ability to personalize your box. I’ve also seen in the past couple of years that customers want responsible products, shipments, operations, and communications.
Ray: I agree. I feel like we’re seeing transformation across the board with both B2C and B2B companies.
From the B2C companies we work with, we hear all the time that their customers want to buy the way they want to buy and want pricing flexibility. Rather than paying a set price, customers want to pay as you go. The problem is that having so much customization creates an operational nightmare for finance and accounting.
Dan: Creating tailored subscriptions for customers is also something that we’re seeing at Recurly. I like to think of it like this: 12 years ago, subscriptions were something you’d charge on an annual basis. But, customers want to create their own subscription experiences and choose not only what they buy but also when they pay.
The notion of value-based pricing is a concept that's gaining popularity. Are you seeing this trend in your businesses?
Andrei: As I mentioned, at first, we only had one monthly subscription plan. Now, we have about six different kinds of plans plus multiple add-ons and configurations.
Yes, it creates a whole lot of complexity for the finance department. But we are here to satisfy customers. If customers want it, why not do it?
Ray: What’s great for customer experience is basically the opposite of what’s great for finance, accounting, and the operational side of the business.
The more flexibility we offer customers, the more complexity for all the various business operations like revenue recognition, order-to-cash reconciliations, etc.
I always joke with a lot of our customers that we absolutely want to offer the best possible experience. At the same time, we need to make sure that we don’t break the back-office functions. Finding the right balance is incredibly challenging but incredibly important as you scale.
Dan: When we started our business, we heard all the time from our customers that they needed to bill on the first of the month because that's what their finance and accounting department wanted.
Why do they want to do that rather than having a rolling anniversary date? Being customer-centric means billing should not encumber the user experience.
How do you balance growing at scale vs. doing so efficiently? Have metrics you've defined changed over time?
Andrei: I would love to have five-set metrics that we always look at and never change, but, unfortunately, it doesn’t work that way. We live in a very dynamic world and we have to adapt. We're always asking ourselves: Do we understand what’s going on?
If the answer is no, then we have to reassess the metrics we’re looking at and find ones that work.
With the advent of the subscription pay-as-you-go model, there are varying degrees of customer-centricity. How important is it when you are offering your service as a subscription?
Andrei: We live in a very transparent and competitive world. It's very easy to cancel your contract from one company to switch to another. 10 years ago, customer centricity was a “nice to have”. Now, it's a constraint: you must be customer-centric.
If I want to sum up what customer-centricity is for D2C subscription companies, it's asking yourself, “Who am I serving?”. If you only think about customer-centricity during your quarterly earnings, that's not good enough.
Ray: I always tell my team that customer success is part of our culture, and is not a job function. Our most important core value is being "obsessed with our customer success."
There are a lot of companies who struggle with customer success and customer-centricity at first because they delegate it to a job function and not a culture.
What should be discussed at the executive level?
Andrei: A question we always ask ourselves is what are the things we want to have vs what we have to have. But the most important question we ask is: What’s the number one thing our customers want in the future?
Because especially in public organizations, we always want to be the first one to have hundreds of thousands of features. But the truth is, usually customers just want one feature.
From my experience, Scentbird was only offering women’s perfumes and we thought, what do we do next? Turns out, what customers wanted most was Scentbird Men.
Ray: Measure the right metrics. Know what they mean. Unless you can measure it, you cannot prove it. For customer centricity, we focus on NPS.
Customer centricity, of course, surfaces up in different metrics for different teams. For product and engineering, they measure downtimes, resolution time, bugs, issues, et cetera. For finance and accounting, it’s net revenue retention rate (NRR), product measure, churn rate, et cetera. But all of this basically boils down and surfaces up in today's total NPS score.