More than you might think.
New data suggests companies may be leaving money on the table with pricing strategies that either undersell the value of the app they offer or underestimate how much money users are willing to pay – or both.
This is the surprise finding in the 2017 Subscription Mobile Apps report. The report released today by Liftoff, a performance-based app marketing and retargeting platform, is the first to track engagement trends and activities impacting user acquisition and conversion among subscription apps. In addition to breaking down engagement metrics by platform, user demographics and app category, the report also breaks new ground, highlighting the “ideal price range” that is highly likely to turn a user into a loyal subscriber.
To do this the Liftoff report breaks subscription apps down into three distinct groups based on the subscription cost per month (low: $6.99 and below; medium: $7-$20; and high: $20-$50). It compares this to the conversion rates, defined as a measure of how app users view and value the app.
At first glance, the graph shows us what we might expect: apps in the medium price range have the highest conversion rate. (In fact, the conversion rate is a whopping 5X higher than the high-cost category, where the conversion rate was a mere 0.73%, and nearly 6X higher than the low-cost category, where the conversion rate was under 1%.)
Be brave and charge more?
Or is it?
The report doesn’t let us off that easily. It challenges us to see the bigger picture with scenarios that spell out the risk and the reward for apps in each price range. Take the high-cost apps. Yes, they have high user acquisition costs – but campaigns that succeed in catching these “whales” also make it worth every penny.
Low-cost apps are a different story. The low conversion rates could be a sign that user acquisition efforts are off the mark. (In which case marketers are advised to use better audience targeting and messaging – including email, push notifications and above the line advertising – to communicate the high value these apps provide at a low cost.) But conversion rates might also be low because the price is too low.
It all goes back to a concept known as Sunk Cost Fallacy, an inherent cognitive bias that makes us stay the course, even if it runs counter to our interests. This is what kicks in when we eat all the food we order in a restaurant – even if we don’t enjoy it – because we paid for it and want to get our money’s worth. Think this through, and subscription apps may have a behavioral ace in the hand that allows them to play on our collective sense of commitment. As the Liftoff report puts it: “It may be you can win more users by asking for more.”
Countdown to conversion
Pricing plays a pivotal role in convincing users to take the plunge and subscribe to your app. But how long is *too* long to wait for that all-important conversion? The Liftoff report combines two data sets – conversion rates for low, medium and high-cost apps and the install-to-subscription times for each group – to offer some answers.
As you would expect, users take more time to weigh the pros and cons of subscribing to apps with a high price tag. (It takes 22 hours for users to commit to recurring costs, by the way.) The medium price range, a price range we learned users intuitively “get” and accept, isn’t as straightforward as you would think. At 26 minutes, the install-to-conversion rate is more than that of low-cost apps. It begs the question: could better targeting and messaging reduce the time frame to bring it in line – or even ahead – of low-cost apps?
When Apple and Google introduced the subscription app model last summer, allowing app developers to charge users recurring fees, it was considered the one of “the most significant changes to the App Store since its launch.” Fast forward, and research shows users will pay for your app – and their numbers are rising. Get your pricing right, and remember the decision to subscribe to an app – and time to make it – depends on how well you convince your users that your app is worth their money and deserves their loyalty.