(This use case shows how SnapStrat can be applied to Subscription Optimization)
How do we optimize pricing and offer management for our existing base of customers? . . .
Many recurring revenue businesses are losing profit or experiencing churn due to sub-optimal pricing for existing customers. SnapStrat’s platform empowers leadership teams to optimize pricing and offer management and align these areas with their strategic priorities. This allows either proactive or reactive retention offers to be made to specific cohorts of customers, for example, a group of customers in a common segment rolling off an expiring promotion.
The Pricing Optimization Process
To feed the optimization engine that drives recommendations, organizations first define the primary customer cohorts where increased value can be leveraged, e.g., unique combinations of product and segment type. In this case there may be different goals for different cohorts. An example of differing primary objectives by segment type might be:
- Plain Loyal – Maximize a combination NPS (low churn) and product contribution margin
- Deal Hunters– Maximize short-term revenue (ignore churn)
- Bundlers– Maximize share of wallet across products
Then, Decision Criteria are defined to maximize value by balancing the objectives of each product/segment category. Example decision criteria would be:
- Near Term Revenue Lift
- Long Term Revenue Lift
- Impact to Churn
In the final part of the setup, all Proposed Product Pricing Changes are represented in the system. Parameters for changes might include measurements of budget, regulatory requirements, potential price tiers, upsell offers, and others.
With all data and criteria in place, the engine models a series of forward-looking scenarios. Executive teams have the ability to increase or decrease the relative importance of each criteria, which then re-balances the system to optimize pricing and products recommendations for those choices.
Today, many leaders in recurring revenue businesses focus mainly on reactive retention with a singular focus on churn reduction or short-term revenue lift. With SnapStrat, organizations create a more structured and strategy-driven approach to their pricing optimization process. The result is a reduction in customer churn, while minimizing dilution of revenue per/customer through utilization of proactive and reactive offers optimized for specific customer cohorts. In addition, the approach allows an organization to balance across multiple criteria, for example carefully managing short vs. long-term revenue and margin impacts.
In addition, changing the pricing process and data collected to support decisions allows organizations to effectively compile data going forward and learn from it for the future. SnapStrat doesn’t just optimize decisions; by digitizing price optimization we establish an ML platform which enables continuous improvement of base customer performance over time.
Key Success Factors
- Many pricing decisions have traditionally been based primarily on one criteria: short-term revenue lift. While short-term lift is important, it can only be optimized when all relevant criteria are simultaneously considered.
- The SnapStrat engine provides insights at a deeper level in the product strategy than most traditional pricing decision processes allow for. With SnapStrat, data can be simultaneously considered at the segment, product, geography, price, and any other desired dimensions. This provides a much more strategic capability than one that strictly tries to optimize short-term revenue lift (which in general just minimizes short-term churn).