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 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.
Pricing plays a pivotal role in convincing users to take the plunge and subscribe to your app. Image: Liftoff
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%.)
Dig deeper into the data, and it’s a clear confirmation that the Goldilocks principle that governs product success also holds true for mobile app pricing. The *right* price is the desirable middle between the two extremes, a range that doesn’t move users out of their comfort zone.
Be brave and charge more?
The report 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.
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?
Overall, it takes users of all subscription apps an average of 3 hours to decide whether or not to open up their wallets and pay a monthly fee. Unsurprisingly, the decision to subscribe to an app at the low end of the scale takes minutes (15 minutes to be exact). It’s not a huge investment, so it follows that users are quick to make a decision.
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?
The jury may be out on what works, but knowing how long it takes a typical user to convert is an important benchmark as you plan campaigns and evaluate timelines. And, if you’re worried about charging more for your subscription app, then consider the latest figures from app market data provider App Annie. It calls out the subscription app category as one poised for massive growth, stating in a recent blog that “in-app subscription revenue from non-game apps, particularly within the media streaming, news and dating categories, is rapidly increasing,” and on track to grow 25% in the year alone.
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.
Peggy Anne Salz is an analyst, author and content strategist in Europe, where she tracks mobile trends shaping our data-driven digital economy. Follow her on Twitter or connect on LinkedIn.