a couple arguing to symbolize what it might be like to get married without dating first, an analogy use for bad annual pricing strategies.
Marketing 101

Annual Pricing is like Getting Married without Dating First!?!

Annual pricing Schemes aren’t right for everyone

Annual pricing schemes have become a popular way for online businesses to create cash flow.  However, annual pricing isn’t right for every potential client.  If you are structuring them in a way that may discourage people from doing business with your company, you are losing potential clients. If you don’t get this, you probably shouldn’t be in business.

For most products and services, there are thousands of options. Because of this, most products and services have become commodities. If you are lucky enough to have a product or service that isn’t in this category, you can stop reading now. For the rest of you, read on. Take notes. Hopefully you will learn a thing or two about this topic that may be killing your business.

Don’t make potential clients feel stupid with an unbalanced annual pricing scheme

Creating a sales and marketing strategy that assumes that they are is the beginning of the end of your business. Annual pricing strategies are part of doing business but they should be structured so that both parties win. While this seem like common sense, there seems to be a new trend circulating about that makes annual pricing absurd. For example, an online video production service spent a great deal of time and energy marketing their service to me. At first glance it looked like something I would be interested in, so I visited their website.

The first button I clicked on was pricing.  I was upset to find a huge difference between the monthly and annual subscription fees. As I mentioned before, I expected a difference, but their’s was absurd.  Before I delve into this further, let me share a previous annual pricing story.

Satisfaction NOT guaranteed

I signed up with a large marketing company website that promised to deliver a certain amount of leads each month. They sold me on the annual package because they had a “satisfaction guarantee.” If I was not satisfied for any reason, I could cancel my subscription and get the balance of my money back. The savings was substantial, so I went with it.

Three months down the road, I had received exactly one lead. I called to cancel and was given the run around. The customer service rep I spoke with informed me that I had signed an annual contract. Because of this I would be charged the difference between the annual and monthly pricing which was substantial. What about their “satisfaction guarantee”, I asked.  They told me to “read the fine print.” That is when things got ugly.

Contracts and annual pricing are a two-way street

I wrote an email to the company reminding them that contracts are a two-way street and they had violated the terms of the contract.  Further, I promised him that if my money wasn’t refunded in full, I would make sure that everyone I know and everyone I meet in the future will hear my story. I went on to say that I would spend the rest of the year (it was February) leaving negative feedback on every citation site that would allow me to. There were other threats, but I think you get the gist of our conversation.

Three weeks after leaving the ball in their court, I got a phone call from one of their vice presidents. He told me that they would be refunding my money in full. About two weeks after that, I got the credit (several thousand dollars) on my credit card  minus an additional month of service. Instead of fighting for the extra money they stole from me, I let it be and swore to myself that I would never pay for another annual contract ever again, and I haven’t and won’t.

An exception to every annual pricing rule

Of course, there is an exception to every rule. If I have used a service for 3-4 months and it is what I expected, I will pay for the annual plan. But even still, as rapidly as things change, I don’t like signing annual plans in case something better comes along.

So, back to the present and the online video production company. I looked over their packages.  The “Ultimate” which was priced at $149 per month if paid annually. Because most companies price their services similarly, I expected a price of $169-$179 per month for their monthly plan. I was blown away to discover their price was a jaw-dropping $239 per month for their monthly plan. This $90 difference per month is, by most standards, ridiculous. It infuriated me and made me feel like they didn’t want my business if I wasn’t going to go with the annual plan.  On top of that, it is not a great way to encourage people to do business with you. In fact, it is punishing those who want to try you out for a few months first.

I understand what their goal was. By making the pricing difference between the two options absurdly high, any reasonably intelligent person will go with the annual package. Seems logical, but because the price difference was so substantial and I (and anyone else that has done business on the Internet) have been hosed by an annual package before, it had the opposite effect on me – it pissed me off beyond words and I am confident I am not alone.

Reality TV makes for BAD Marketing

There is a reality show on TV with a similarly stupid premise. Two people get matched up and then get married having never met one another until they are walking down the aisle. The show’s producer say they go to great lengths matching the couples up but after seven seasons and twenty-one couples, only five couples are still married. That is a 75% failure rate.  I am certain of the five couples still married, two or three of them will end up divorced in the long run. The numbers are against them.

Signing up for an annual plan without a reasonable amount of time to try out the product or service first, is tantamount to getting married without dating first. It is most certainly going to end badly. It should also be a big RED flag that the company does not believe in their product or service. If they did, they wouldn’t have to offer a discount to begin with. Can you see Mercedes Benz offering something similar as far as a promotion is concerned? Why not? Because it would cheapen their brand. Mercedes has the reputation for being one of the best automobiles in the world. If you want one, you pay the price. Mercedes doesn’t need to trick customers into buying  their cars with stupid price promotions. They don’t have to.

When it comes to annual pricing plans, consistency is key

Back to Marketing 101 and being easy to do business with. If you are confident in your product or service and it is as good as you say it is, you should have no problem giving a 30-day free trial, an unlimited money-back guarantee and pricing that is consistent for the monthly or annual subscriber. If someone is willing to take a chance and go with an annual subscription, give them a reasonable discount (10% or so), but don’t assume your potential customers are stupid and will go with the annual plan because it is substantially less than your monthly plan. The reality is, they won’t go with either because they aren’t stupid and understand the fundamentals of business and marketing as well or better than you do.

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