Consumers use many product categories on a continuous basis. These include beauty, grocery, health and baby care, automotive parts, electronics, industrial supplies, lawn and garden, pet supplies, office supplies and sports and toys.
Today websites such as Amazon.com offer customers the option of “One-Time Purchase” versus “Subscribe-And-Save” plans. According to Amazon.com, more than 51% of Amazon Prime members have used subscription-based pricing plans and saved billions of dollars.
Figure 1 shows the two options for a buyer of Sensodyne toothpaste on Amazon.com.
FIGURE 1
One-Time Purchase Versus Subscription Pricing for Sensodyne Toothpaste
OPTION A: ONE-TIME PURCHASE. Customers using this option pay $18.72, without any commitment.
OPTION B: SUBSCRIBE-&-SAVE. Under this option, customers can save 5% and get the 3-pack of Sensodyne delivered every three months at a price of $17.78. Customers use a 3-step process:
– Product. Customers select the Subscribe & Save option for the products they want to receive regularly.
– Frequency. They choose how often they want the products to be delivered (monthly, every two months, etc.)
– Shipping. Amazon automatically ships the product to them on the selected schedule.
– Cancellation. Customers can cancel or modify their subscription at any time.
Subscription-based pricing plans provide many benefits to customers and sellers.
CUSTOMER BENEFITS: Subscription-based pricing benefits:
– Removing the inconvenience of repeat ordering
– Savings on products consumed on a regular basis
– Assurance of receiving the product at predictable intervals
– Reduced stockout concerns
– All these can increase customer satisfaction.
SELLER BENEFITS: Sellers benefits from subscription-based pricing:
– Consistent and fixed cash flow for the duration of the subscription plan
– Inventory management and supply chain optimization
– Increased brand loyalty through consistent and repeated product usage
– Increased opportunities to cross-sell products (e.g., toothbrushes)
CONCLUSION: Subscription-based pricing is a great way for consumers to save money and simplify their lives. Sellers benefit from lower costs while increasing brand loyalty and customer satisfaction. Logistically, ecommerce websites such as Amazon.com and Graninger.com make it easier for customer and sellers to participate in such plans. Therefore, they are very popular and will continue to increase in popularity over time.
Learn more about product positioning in Chapter 9 of Market-Based Management (7 th edition). Chapter 1 can be reviewed online at www.mbm-book.com.