Conjoint Analysis: Using Behavioral Science to Optimize Subscription Service Offerings

By Steve Karlin, SVP Data & Analytics at Material

The subscription economy has redefined the way consumers find entertainment, are productive and live their lives. Today, with so many competing options and services vying for subscribers today, brands have to deliver the best features and the best value at the best price point. Finding that optimal subscription service offering, with the enormous number of possible ways to package and tier them, can be a daunting task for brands to do on their own.

Using a research method called conjoint analysis – which measures how consumers value different product features and their overall price sensitivity by presenting them with various product configurations and analyzing which combination they prefer – subscription providers can drive acquisition and bottom-line growth by tailoring their service offerings to exactly what their consumers want and value.

Building the Optimal Subscription Bundle

It doesn’t matter if your brand’s service has the best content and features available in the marketplace if your subscription bundle options aren’t constructed in a way that aligns and resonates with your customers.

Subscription services often bundle multiple features together within different tiers, priced from lowest to highest – Basic, Standard and Premium, or something similar. Often premium features are only available in the higher price tier, building upon the basic features included in the lower tiers, so consumers are incentivized to choose the more comprehensive package. It’s critical to decide which features are included in each tier so that, even if there’s an incentive for them to upgrade, each tier delivers substantial value.

Conjoint analysis can reveal the consumer’s true motivations and preferences only if it’s simple for the respondent to understand and respond to the questions and options presented. Unfortunately, there are many ways an imprecise approach can skew the results and lead brands astray from the optimal subscription bundle their customers are looking for.

For example, the differences between the tier offerings may be subtle, since the value-add of a higher tier may get obscured by the numerous features included in each option. So, asking respondents in a conjoint study to evaluate multiple tiers simultaneously can be overwhelming, and they may just choose the simpler, less complicated (and less expensive) option rather than carefully evaluating each tier and whether they feel the options are worth the price tag. This can make it difficult to isolate how valuable each feature is to the consumer – and even more difficult to choose the best structure for your tiered bundle offerings.

To optimize their subscription service offerings through conjoint analysis, brands should:

• Limit the number of features to only the most important to avoid overwhelming respondents.

• Create clear, consistent feature descriptions, including usage examples for complex features, to avoid any confusion about what’s included.

• Use visual aids to illustrate the differences between tiers.

• Utilize statistical experimental design to ensure there is enough differentiation between tiers to model the impact of these features and prices.

• Supplement conjoint data with other data from the survey, such as a max-diff exercise of the features, to better understand each feature’s impact.

Finding the Right Price Point

Price is always an enormous factor in consumer decision-making: we check our budgets, weigh the costs and benefits and compare with other available options to choose the right product or service.

Even if you’ve optimized the structure of your subscription service bundle, pricing it correctly can make or break how successful it is. And finding that right price point comes not from trial and error, but from market research studies using conjoint analysis.

Yet getting consumers to give an accurate representation in a conjoint study of their willingness to pay for a subscription service can be a challenge. Since they’re thinking in hypothetical terms, consumers aren’t actually spending their own money and may over- or underestimate certain factors in their responses. For example, some subscription tiers at higher prices may appear more attractive in a hypothetical than they would be in real life.

Their responses are also only a representation of how they feel at the moment of sale, but that doesn’t necessarily mean they’ll feel the same way over time.

Respondents may underestimate long-term costs and focus only on short-term affordability, which can be influenced by free trials and limited-time discounts. They also may not consider the phenomenon of accepting a certain price at sign-up but then experiencing sticker shock later when a higher auto-renewal charge takes place. So, it can be difficult to extrapolate a price that consumers would be willing to pay over the course of the subscription.

Brands using conjoint analysis to find the right price point for their subscription service offerings should:

• Make sure there is a realistic price range to be tested for each tier – prices too good to be true or unreasonably high don’t provide any valuable insights.

• Include subscription length as a factor by including both a monthly and annual subscription option with appropriate pricing.

• Present competitor offerings as choices to have more realistic tradeoffs.

Balancing Subscriber Acquisition and Retention

A successful subscription service needs to deliver value to both new and existing customers. But, just as both groups may value different things about your service – new users may be more price-sensitive, while existing users may prioritize content and feature availability – brands must adapt their approach to conjoint analysis to uncover a deeper understanding of customers’ preferences throughout the lifetime of their subscription.

A different approach doesn’t necessarily need to mean completely different surveys (and a repetition of all the work it takes to prepare, field and analyze them). By designing a unified study that captures perspectives from a large enough base of prospective and existing subscribers, brands can streamline the data collection process, ensuring the moment-in-time snapshot of each conjoint study is consistent between the two groups. The conjoint study can measure acquisition by presenting prospects with different subscription options, including free trials or limited-time discounts, and measure retention by testing different renewal options, price changes or feature modifications among current subscribers.

Then, researchers can parse and analyze the responses from each group separately to gain a clear picture of what is driving acquisition and retention. Brands can also use this data to model prospective subscribers and currents subscribers separately to reveal insights on where to focus on improvement, as well as in a single market simulation tool that gives a robust landscape of how the subscription service is performing as a whole.

To gain valuable insights from conjoint analysis into both new subscriber acquisition and existing subscriber retention, brands should:

• Compare how each group reacts to changes in pricing, features and new tiers.

• Instead of asking current subscribers to select a plan, ask how they would react to hypothetical changes such as price increases or new tiers – would they stay with their current bundle, change tiers or cancel their subscription altogether?

• Use historical acquisition and retention data to calibrate the model results to better reflect real-world consumer behavior.

• Develop a total market impact by weighing together current and prospective subscribers demand by their proportion in the population.

Leveraging Behavioral Science and Data Science to Build Better Subscription Bundles

At Material, we design, collect, unify and analyze data to create a unified view of human behavior. Combined with our holistic data sets, predictive modeling and world-class business intelligence, we build optimized customer experiences – in subscription services and beyond – by forecasting outcomes and prescribing strategies to boost engagement.  We uncover what is happening with customers, trends and media to help our clients make better, faster decisions.

Want to learn more about how Material can help your brand optimize your subscription service offering and delight both new and existing subscribers? Start the conversation.