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Paysite Price Positioning

Paysite Price Positioning

June 2, 2007
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" human factors include the perception of quality based on pricing "

One of the common denominators for any business enterprise, adult or mainstream, is the need to set profitable price points for its products and services. This process can be as simple as copying the competition's price points or as smart as evaluating actual expenses and profit expectations, then setting a sensible price.

Although you may not realize it from seeing paysites that keep the same price point for a decade, pricing is not a static thing; when done correctly, it will fluctuate depending on variables such as rising (or lowering) expenses and market demand. Pricing is also a touchy issue that is often based on a variety of human feelings, and as such, the process of determining the best price point can be as much an exercise in psychology as it is an exercise in economics.

Here is a closer look at some of the factors involved in setting price points, as a general business matter, and with a practical focus on paysite pricing.

While there's a lot of psychology behind the human response to pricing, there's an easy example that most customers can relate to — the $19.95 offer. Though it's only a nickel off a rounded-out $20, it's "a good deal," or so consumers perceive it. It's a simple but proven method of enhancing the customer's positive perception of your pricing.

Other human factors include the perception of quality based on pricing. While eyeing something expensive, customers tend to think, "At that price, it has to be good!" Likewise, the opposite occurs when eyeing something at a bargain basement price. "At that price, it can't be any good!"

This leads to the whole issue of lower cost vs. higher volume. Some operators are tempted to drop prices in the hopes that the move will translate into a higher sales volume, which will maintain or increase profits despite the smaller margin. If this was profitable in the real world, we'd all be running $4.95 paysites — but some that have offered discount sites or other too-good-to-be-true "blowout" offers have seen how a low-quality perception can cause a drop in sales instead.

Re-framing how the customer sees your price can also have a profound psychological effect. A perfect example of this is the "pennies per day" strategy. When a site is $19.95 per month, advertise it as being "Less than 67¢ a day!" This allows you to maintain a price that makes the customer feel the offer is one of quality, but is also a bargain. Additionally, look at the cost of your site and the amount of content, and advertise it as "Less than a penny per picture," or other phrases along those lines. It's all about making the customer feel like he's getting a lot for his money.

Recurring vs. Single Billing
Traditionally, adult paysites have adopted a version of the magazine model; you want to see the content, then you need to buy the magazine. One price will get you one issue; a subscription will get you more. Where most paysites diverge from the basic model is in the terms of the subscription: magazine subscriptions tend to be for a set period of time or set number of issues, whereas recurring paysite billing often continues indefinitely until the subscriber cancels his or her membership, regardless of whether or not the paysite has been updated or not.

The problems are easy to see: if you subscribe to a magazine, you expect to receive a new issue every month (or however often it's released), containing new material. Later, you receive a note in the mail asking if you'd like to renew your subscription for another year. Most consumers are familiar with this process. The problems come in when the magazine doesn't change from issue to issue, offering the same content from one month to the next, and to make matters worse, the publisher automatically bills the customer over and over again for the full amount until the customer finds a way to cancel the subscription.

For the webmaster, however, the problem is that most of the profits come from re-bills; which isn't a bad situation as long as it remains fair. For example, the content is always being updated and the cancellation process is easy. After all, if you can make three sales instead of one, isn't that better? And if you can make three sales to each customer, then that level of income can dramatically affect pricing and profits.

The accepted average retention rate for paysite members is two-and-a-half months, which is often rounded out to three months to sound better, but the real number is closer to two months and a few days. It has nothing to do with a particular site's content, design, niche or approach; it is simply the customer's choice.

Surfer Joe finds a site he likes and signs up for a three-day trial. Although he checked the "I read and agree to your terms" box, he missed the part about how he'll be automatically billed for the full subscription amount unless he cancels within the trial period. Now he's already likely forgotten about your site by the time the trial expires and he's billed again – a fee that goes unnoticed until the bill arrives with a mysterious $29.95 charge on top of the $1.99 he expected to see on his VISA statement. He means to call and cancel, but procrastination is all too commonplace and sure enough, there's another $29.95 charge on his next VISA statement, which adds up to $61.89 — enough of a fee to overcome his procrastination and cause the customer to make sure the account is closed — after being billed for two-and-a-half months.

If you retain members longer, then you have a quality site with unique, compelling content. If you retain them for less time, then your site is so horrible that the member was likely upset enough at wasting his money that he made it a point to cancel his membership as soon as possible. Still, making $61.89 (or more) on a $1.99 sale is a good enough reason for many operators to continue offering trial periods followed by recurring billing.

Whether or not you find a business model based on people's laziness, to be "innovative" or "exploitive," the fact remains that recurring billing works and for many operations is the best revenue solution … but for how long?

Today's surfers are much savvier about the abundance of free porn and the number of competing sites in any given niche. Increasingly, the average retention rate described above is dropping, as more and more surfers sign up for the trial and then immediately cancel, using the trial period to vacuum the entire site's content up over a broadband connection. Even if you offer frequent updates, this surfer is more likely to cancel his trial and then return a few months later for another trial membership, grabbing all of your updates since his last visit, rather than paying month after month. Thus, lowering retention rates can indicate either a surfer's savviness or a bad site's low quality.

So how do you deal with this worsening situation from a pricing standpoint? One way is to eliminate trial memberships. Free of the smaller trial sales amounts, your per-member revenue increases, which may allow you to lower pricing and/or increase profits. Another method is to increase membership costs and lengthen terms, or conversely, decrease the cost of a subscription but lower the access time. For example you might offer a one-week membership for $9.95 (without calling it a trial) instead of a one-month membership for $29.95, in the hopes that an increase in sales volume on the sub-$10 offer will offset the higher gross income per-member of the $29.95 offer.

Or, go the opposite way, by increasing subscription price to $69 and dropping both trial and recurring billing options. Offer new members area upsells, and this pricing model won't limit income potential. This may not work for every site.

For many operators, and an increasing number of consumers, offering content à la carte is a preferable stratagem over subscription-based billing methods. Whether a billing model involves pay-per-click, pay-per-view, time-limited access or some other mechanism for offering the consumer either the specific content he or she desires, or a limited glimpse into a site's members area, the use of micro-access as a replacement for, or in addition to, the traditional subscription model, is an increasingly necessary step for maximizing profits.

Assess the Deal
There are several considerations that need addressing before you begin doling out your content piece-by-piece, the least of which is the method by which you get paid for it. Micro-access requires micro-payments, and this is where your options quickly become limited.

The problem is that it's not really feasible to whack a credit card for a single photo that costs a nickel. While offering content at "a penny a pic and a dollar a video" is a great example of "feel good" pricing, adult operators adopt credit card surcharges, and the benefits of micro-payments decline, as that nickel photo now costs 50 cents. This is why most micro-payment schemes are wallet-based, where customers must "pre-fund" their purchases, so that they need to spend $25 first, then pick and choose content.

Time-based access schemes usually require the customer to obtain a password by telephone or via retail pre-paid access cards similar to a phone card, offering anonymous access. Letting users in this way is the same as allowing trial memberships and the same considerations apply.

While à la carte pricing schemes are attractive to cost-conscious consumers, operators risk losing a more lucrative sale in exchange for a few pennies. It may be more profitable to limit these offers to consumers that either do not have a credit card with which they can purchase a subscription, or to premium- level upsells within the member's area.

While there is an endless number of factors that influence pricing, such as salaries and staffing, office space and overhead, brooms and bandwidth (all of which must be taken into account in order to operate profitably), many operators seem to be on the "me too" pricing plan; figuring that if the competitor is charging $29.95 per month, then they will too. There's much more to it than that, and hopefully now you have some insights into pricing considerations beyond what you may have already contemplated.


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