Key Takeaways

• Avoid overly frequent pricing increases. Subscribers will be amenable to the occasional price increase if done sparingly and communicated transparently.
• Price transparency can increase purchasing by 20%. Show customers the value that goes into your product that necessitates price increases.
• True growth is in revenue, not necessarily just numbers. Use unit economics to ascertain the most profitable and sustainable pricing strategy for your brand.

Pricing increases may be inevitable, but don’t have to be painful

The past couple of years have been tough on the average consumer. Studies report that amidst what many experts have dubbed a cost of living crisis, consumer packaged goods, or CPG, industries are seeing a decline in sales; with more mindful consumers spending less frequently and more diligently researching price points. This aversion is in part due to the oft-employed tactic of rising price increases to offset inflation and labor and manufacturing costs. In fact, over 50% of retailers planned to raise prices in 2023 to adjust for these costs.

What’s more, the average consumer is no longer fitting neatly into a category of predictable spending patterns. While many consumers have reported budgeting mindfully to reduce spending in even essential categories like food, 40% of consumers have also indicated an intent to splurge in the coming months. Rather than cutting out one category or side of the spectrum, consumers are being more discerning with their dollars and looking for more “bang for their buck.”

eCommerce Direct to Consumer (DTC) storefronts are uniquely positioned vs brick and mortar to provide better deals because they have more efficient cost structures (no rent, fewer employees, lower inventory costs, more efficient logistics), so they can both meet evolving customer needs and make more profit. But rising costs mean brands like yours also have to find ways to do more, with less. Finding the right balance here is tricky. 

With as many as 24% of eCommerce subscribers signing up for a subscription’s financial incentives, DTC eCommerce subscription program managers should be wary of price increases and their impact to their loyal subscriber base. So here’s how to conduct a pricing increase that will actually increase profits, and minimize negative consequences on your subscriber base.

• Avoid increasing prices frequently, which can sour customer relationships. Plan ahead to ensure your prices increase at a reasonable rate and build on consumer trust.
• Run a unit economics analysis on different pricing strategies to maximize profitability while still offering your subscribers the best deal.
• Why legacy pricing can actually inhibit growth despite common misconceptions about it increasing retention. And how to use price transparency during a price increase to actually increase purchasing by up to 20%.
• Communicate your pricing increase plan transparently and as expediently as possible with your subscribers.
• Highlight subscriber-exclusive value adds to stay subscribed through your pricing increase.

We’ll also unpack some results we’ve seen with brands increasing prices - these may surprise you!

Avoid increasing prices too frequently

Subscribers are some of the best and most loyal customers your brand will have. Imagine loving something so much you want it on repeat; today and every day. That level of often emotional attachment can very easily turn sour if the relationship feels distrustful or mishandled. 

To make sure your subscribers continue to trust and love your brand as much as you care about them, avoid implementing overly frequent pricing increases. 

Plan ahead to ensure you budget for a certain, reasonable number of pricing increases over your fiscal year. Candidly, we recommend avoiding more than 1 every couple of years; but understand margins look different for every business. Through our 12+ years of experience in the subscription space, we’ve found that while nobody loves price increases, subscribers will tolerate them up to a certain threshold:

To help avoid increasing prices unnecessarily frequently, let’s run a quick unit economics analysis to find the most profitable and sustainable combination of pricing increase + subscription incentive.

📝 Try it now: Unit Economics analysis of most profitable and sustainable price increase and subscription % off

Depending on the main instigator of your pricing increase (rising inflation impacting SCM costs, product improvements or brand expansion, etc.), you’ll have some different goals in mind with this move. Largely, the goal of a pricing increase is to improve the profit of your company. (aka, make more money to improve your product, company, and brand.)

Like we’ve broken down in our Unit Economics exercise (get your free discount calculator and video tutorial here), your business needs to leverage unit economics to find the most profitable subscription discount to offer. 

It’s a common misconception that offering a subscription discount means saying goodbye to your profit margin. Our research (and the math) proves this wrong - higher discounts will almost always mean higher retention, which boosts your Lifetime Value (LTV) and overall profitability. Customers with no incentive to return will mean a never ending need to generate new traffic; driving up overall marketing costs and lowering your overall profits. Use our unit economics exercise to calculate the best offer for your specific business metrics, like Gross Profit, CAC, and Lifetime Orders.

You can (and should) leverage this same framework to find the best combination of price increase and subscription discount to offer subscribers the best deal while still making an optimal profit. Download our free calculator here and run an analysis for your current Cost of Goods Sold (COGS) and subscription discount, and play around with it. 

Our suggestion? Explore larger discounts in tandem with your price increases that you think will significantly increase the lifetime orders of a customer. We usually find that brands can simultaneously give customers larger discounts and make more lifetime gross profit, after CAC, with a compelling discount. You can run this analysis for your brand using the unit economics template we included above.

On legacy pricing, and breaking down the reasoning behind price increases for your subscribers.

You may have heard the term “legacy pricing” or “grandfathered pricing” before. It’s a price increase tactic that many subscription-first and Software as a Service (SaaS) businesses use to keep existing customers on their older pricing structure while deploying a pricing increase.

It’s less common for Consumer Packaged Goods (CPG) or retail businesses, but as more and more eCommerce CPG companies (like yours!) turn to subscriptions to double down on their Customer Lifetime Value (CLTV), brands are beginning to wonder how to handle pricing increases for their recurring customers; turning the spotlight on legacy pricing and other subscriber retention tactics. Do you charge them your new pricing, or keep them on the price point from their subscription start date (legacy pricing)?

There are certainly pros and cons to legacy pricing; with countless blogs and forums debating the “right” answer. Truthfully, every business will look different and have a different “right” choice for them. 

One of the most compelling reasons to consider legacy pricing structures is your customer retention. It’s true - customer retention is the foundation of sustainable business growth. Repeat customers generate 300% more revenue than first time customers. But many brands misunderstand customer loyalty and consider retention only in terms of subscriber count rather than subscriber spend and revenue. So we’ve done the research on retention, business growth, and customer communication to help you make the most profitable decision for your business. Let’s dive in.

Customer retention, product improvement, and price transparency as a conversion booster

TL;DR - if your main or only reason to justify a legacy pricing strategy is to avoid upsetting customers, you should first consider the reasons for this price increase and apply these learnings to communicate effectively to your subscribers. Price transparency can increase purchasing by 20%.

Many brands assume that customers will be upset if asked to pay more than they did originally for a product or service; or want to reward “OG” or early days customers for their continued loyalty. These notions are actually a bit counterintuitive!

The expectation to keep your pricing flat from your earlier days is based on the notion that your product or service is fundamentally the same as it was when the customer began subscribing. (Nothing has changed, so why should the price?)And the intent to reward customers for their loyalty is based on the expectation that your brand should be and is striving to continually improve your customer experience and product. Early supporters believed in your product and brand before anyone else - one of the core business objectives of every brand is to strive to improve this experience every day

These two things are mutually exclusive - you can’t continue to improve your product and service without some additional investment/cost to your brand.

More than likely, your brand has come some ways since your initial pricing structure. Improving your product and customer experience to reward your customers for their loyalty comes at a cost, and your customers can and will understand this if explained to them.

Consumer research has proven that price transparency, or being honest with customers about the process and costs to create and sell your product, can actually increase purchasing interest by 20%; and increase actual purchasing rates by 20%. So break it down for your most loyal customers: what has your brand already invested in to bring them the best version of your product and brand experience? What can they look forward to?

On company growth and priorities

TL;DR - Growth means more revenue, not more customers. Strategic pricing, including price increases, prioritizes true fiscal growth.

Depending on your business strategy, you may prioritize acquisition or retention in different ways and to different extents. In any case, it’s likely that your brand is prioritizing growth; especially if your brand is debating a price increase.

The biggest perceived threat to growth that brands are wary of when considering a pricing increase is the loss of customers (as detailed above); which is often why businesses even consider legacy pricing in the first place.

This is based on the very common, very understandable misconceptions that: legacy customers will leave if being asked to pay more for your product, and growth means more customers (when in reality, it means more revenue). 

We spoke to the first misconception in the previous section, where we broke down price transparency and customer communication. Even when it comes to subscriber count, price increases can avoid customer loss if communicated transparently.

And the right growth strategy actually depends on a pricing strategy that takes into account product improvements and changes. Keeping customers on a legacy pricing plan; while potentially retaining customers in numbers, may actually hinder your growth by limiting the revenue growth potential of the customers you do have.

On subscription program management

TL;DR - Legacy pricing can complicate the management of your program and requires ongoing complex decision making and maintenance to sustain.

Without waffling on too long, we’re proud to say managing a subscription program through Ordergroove is pretty straightforward. That being said, having multiple cohorts of customers on differing offers and pricing structures will be more complex regardless of what software you use to manage your program. 

You’ll need to create and maintain several offer profiles, and any changes to product prices via your product feed for, say, a flash sale, will not apply to pricelocked/legacy pricing groups unless manually activated. And if a legacy subscription is ever canceled and then reactivated, the reactivated subscription will continue to receive its lower legacy price indefinitely until manually changed.

You’ll also need to make some more complex decisions regarding program maintenance for legacy priced subscriptions. Are your legacy subscribers included in incentives like an additional % off during a flash sale? Will they be included in any future price increases for your brand? 

Conclusion on legacy pricing

Taking into consideration all these factors of business growth, rewarding customer loyalty and increasing retention, and sustainable subscription management, it’s usually in a brand’s best interest to conduct pricing increases sparingly, but holistically. Based on our market research, the most successful growth-oriented brands do not use legacy pricing, but instead explain to their legacy customers the product standards and improvements necessitating this change and roll out pricing increases fairly and transparently.

Communicate price increases quickly and transparently with your subscribers 

In these cases where price increases are unavoidable and are in the best interest of your business’s growth, try to be as proactive as possible when communicating with subscribers. Like we broke down above, price transparency can positively influence purchasing even when costs are increased.

So here are a few guidelines to follow for transparent subscriber communication when increasing your prices.

🌟 Segment customers by product they’re subscribed to. McKinsey research reveals that a near 80% of consumers expect a personalized experience - don’t notify subscribers of a price increase to a product they’re not subscribed to.

🌟 Be clear about the exact change to costs, and which products will be impacted.

🌟 Give customers a couple of order cycles to make adjustments to their subscription order. This makes it clear you’re not trying to be dishonest with them about this price change, and is a sound investment to a long term customer relationship. 

🌟 Give them a hard cutoff date they can expect their price to increase. This leaves no ambiguity as to when this change will impact their subscription.

🌟 Price transparency can actually increase purchasing interest by 20%. Be as transparent as possible about the “why,” or the cause of this increase; and how it ties into an impact on your loyal customers. 

More on this in the next section, but here’s an example of this language:

🌟 Emphasize that being a subscriber still guarantees the best deal from your brand. Highlight subscriber exclusive benefits like your % off incentive structure and/or your shipping costs. 

And for all flash sales or onsite promos, we recommend matching all subscribers receiving an order during this time period. You should underline these policies in your program landing page (more on that here), but call it out again in this price increase communication, like in the example below:

🌟 Give subscribers options or alternatives for lower price points. Is there a smaller quantity of this product that will keep them at a similar price range? Do you offer Prepaid subscriptions with a steeper discount that allows you to offer customers a lower price if paying for multiple orders ahead of time (more on that here)?

🌟 Link to an FAQ landing page dedicated exclusively to this price change. Getting ahead of these questions will alleviate some bandwidth for your support team, and assure subscribers that you’re dedicated to a smooth transition.

🌟 Remind subscribers of their subscription management options, including changing their frequency to receive this product less frequently to save on costs.

Here’s an example of a real subscription price increase email from Ordergroove merchant Bonafide:

And here’s their FAQ page, linked from the email:

📝 Try it now: Implementing a price increase with an active subscription program

We dove into a lot today! Let’s apply these learnings.

Avoid increasing prices too frequently; but when you do enact a pricing increase, Ordergroove obtains product price information through the regular Product Feed transfer. This means any change to the SKU’s price will sync automatically to all subscriptions. 

Run a unit economics analysis to understand what margins you should account for and by how much you should adjust your product prices.

Our research has shown that legacy pricing can actually inhibit healthy business growth. Work with your Ordergroove CSM to ascertain whether legacy pricing makes sense for your business.

When enacting a pricing increase, communicate transparently with your subscribers and highlight your product improvements + other factors that not only have contributed to this increase, but have benefited the customer experience + your product.

Our Klaviyo and Attentive integrations let you segment subscribers by active subscription product. Alert all subscribers with an active subscription to an impacted product and follow our guide for strategic messaging to avoid misinformed churn.