Software as a Service (SaaS) is one of the most popular business models employed by businesses today. For those unaware of the term, SaaS is a simple enough concept in itself – the customer pays a set amount each week, month or year in return for an agreed-upon service. As opposed to the software being downloaded locally to use on your PC, the program is hosted by a third-party provider, typically through a web browser interface.
This business model is used in a number of different sectors such as fitness, video streaming services, and utilities such as mobile phone bills and cable companies. Increasingly, the model is finding a place in consumer retail, and, as a result, the model is changing and evolving with the demands of the 21st-century business and customer.
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Premium Pricing Models Proving More Popular Than Ever
Whether the goal is attracting particularly high-value customers or rapidly expanding into a new market, each of the well-known pricing strategies with regards to SaaS is suited to different objectives. Premium pricing (also known as prestige pricing) seems to be a hot trend for many big industry players at the moment.
Streaming services such as Hulu and Amazon Prime now offer high-end packages for customers and industries such as online casinos. For instance, Mr Green’s Club Royale recently launched a VIP-only club which gives subscribers access to bespoke promotions and exclusive entertainment opportunities.
As such, the company’s regulars are provided with more exclusive offers as well as potential holidays. Another example of premium pricing models is Virgin Train’s Red Carpet experience. The option of hiring a private coach targets hen and stag dos as well as birthday parties and anniversaries.
Use Of The Subscription Model Is Growing
A number of new industries are now adopting the subscription model, and this has now expanded beyond the service sector. Retail and grocery companies such as Dollar Shave Club and Blue Apron are now using subscription models to sell goods as opposed to services on a regular basis.
U.S.-based firm Hitwise, a leading specialist in monitoring and analyzing website behavior, found in a study last year that visits to well known subscription “box” sites in the United States has increased by almost 3.000 percent in the last 3 years. To this end, SaaS companies are bound to face increased competition over the coming years and will need to adjust their future plans and strategies accordingly.
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Alternative Models Are Becoming More Viable
In business, it’s vital to keep constantly challenging the accepted wisdom. With this in mind, there are now a number of viable alternatives to the subscription-based model which should certainly attract the interest of SaaS companies who are serious about achieving real growth within the next few years.
Short term contracts (which are already employed by Microsoft for their office packages) allay any fears that customers have regarding commitment and also encourage the business to constantly improve their product. Pay-per-use is also much more common than it used to be, and firms such as the cloud-based tool company Slack endeavor to not bill a user who hasn’t signed in over the course of a month.
Getting It Right
The subscription business model isn’t set in stone, and it can evolve. It has to. Above all else, a business must always challenge itself and strive to improve the product or service that it’s offering and ensure that the pricing plan employed is fair.
In a climate where disposable income is still pretty tight for most people, the approach to billing is more important than ever before. Because of this, SaaS companies need to be aware of how the current models are evolving and changing going forward.
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