The Strange Case for Using Decoy Pricing in Membership Sites

As the magazine media industry has evolved, we’ve witnessed a variety of revenue models, including the rise of subscription-based websites. And it calls for a whole new approach toward pricing strategy, says Kim Mateus in Mequoda.

“While the challenge of choosing the right subscription pricing and single-copy pricing strategy is not new to magazine publishers, it’s virgin territory for most subscription website publishers and for many publishers exploring the digital newsstand landscape,” Mateus writes. “Even magazine publishers are faced with new economic realities when pricing publications online.”

One of the common challenges, Mateus believes, is pricing a subscription versus single copy access, especially when bundling subscription products into a membership model.

“It would be nice if there were a one-size-fits-all solution to this problem. There’s not. Depending upon your brand, delivery channels, and publishing economics (user, sponsor, or some hybrid of the two), one of these three solutions might be best for you,” she continues.

In a traditional print model, publishers aim to set a price ratio of about 4:1 for single-issue versus subscription. For example, $20/year or $5/monthly issue. Of course, you may want to vary that a bit if you want to encourage sampling (Mateus notes that consumers balk at commitment and often want to try a single copy first.)

“If you want to encourage this behavior and thus maximize your single copy or monthly access sales, price your annual subscription at $19.97 and price monthly access or single copies at $2.97. This pricing strategy still provides a powerful incentive to take the annual option, but will result in a much higher percentage of people that take the single copy or monthly access price,” she notes.

On the other hand, you may want to push the value of the subscription with “no-brainer pricing,” which Mateus says would be a ratio of about 2:1.

Either of these work in a traditional publishing model, but falls apart when trying to price digital and print products together.

“However, as publishers begin to include website access in their long-term publishing strategy, they’re beginning to discover other ways of bundling web access into print and digital packages,” Mateus continues. “The first, Universal Pricing, bundles platforms at a discount, but the second, Contrast Pricing, we’re finding is more profitable and gets consumers to pick higher-priced bundles. “

“Contrast pricing takes advantage of the psychological phenomenon in which human beings, when asked to make a choice, tend to rely on the relative value of things compared and contrasted to other similar things,” Mateus explains. “This theory has been beautifully illustrated in depth by Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University, in his New York Times bestseller Predictably Irrational: The Hidden Forces That Shape Our Decisions.”

We see this in action when a publisher offers three options:

  • Subscription access to the site;
  • Subscription to print publication (a significantly higher price); and
  • Subscription to print publication and the site, for the same price as print.

Who wouldn’t choose both in that case? In a consumer study, it was found that buyers overwhelming chose the website and print combo 84% of the time. Yet if the middle option of print-only was removed, 68% of the consumers studied chose the website only price.

This idea of the “decoy” price is fascinating, and worth a closer look if you are working out your price strategy.

Mequoda is always a good source for advice when it comes to pricing in the magazine industry, and this article is a great one to keep bookmarked. Strategically setting the right price involves far more than simply making a good profit on the product. A good understanding of the things that really drive consumer behavior can make a huge difference in your bottom line.