Subscription models are one of the most effective strategies for the growth of eCommerce brands. The subscription industry has seen rapid growth and innovation in recent years. Shopify tiered subscription models are a key strategy in this eCommerce marketing mix.
That’s because tiered subscriptions offer many benefits, including increasing customer lifetime value (CLV). However, leveraging tiered subscriptions to increase CLV requires thoughtful strategies.
In this blog, we explore some of the most effective strategies for Shopify tiered subscription models along with action points you can easily try for your Shopify store.
Let’s get started!
What are Shopify tiered subscription models?
Shopify tiered subscriptions are pricing models that have different levels or tiers. Subscribers can sign up for their preferred tier to buy products or services on a period basis. Generally, for example, monthly, quarterly, or half yearly, etc.
Each subscription tier has a specific price point and offers specific benefits and perks. Typically, lower tiers get basic benefits, while higher tiers get more attractive and valuable perks.
Shopify tiered subscription models usually have two, three or four tiers. For example, Silver, Gold, and Platinum. The names of tiers change depending on the industry. For example, for the B2B industry, names such as, Starter, Growth, and Scale, are more appropriate.
In Shopify tiered subscription models, each tier has a different name, and different features, benefits, and perks. Customers can choose their preferred tier based on their budget, spending capacity, needs, and the perks, thus enabling brands to cater to different customer segments.
Here’s an example of an eCommerce tiered subscription model.
Ulta Beauty is a cosmetics and beauty products brand that caters to a wide range of audience. Its subscription program offers three tiers based on spending by customers.
How to increase customer lifetime value via tiered subscriptions?
Most eCommerce merchants think setting up a tiered subscription model on Shopify is enough to get recurring income flowing in and keeping customers happy forever. However, that’s not the case. Setting up an attractive subscription business is only the beginning. You will have to set up subscription model strategies to make customers stay and increase customer lifetime value. Here are seven effective ways to increase CLV for tiered subscription plans.
1. Cater to diverse customer segments
The basis of tiered subscription models is multiple levels or tiers; for example, Basic, Pro, Premium. Each tier has its own features and pricing. And each tier is designed for a specific customer segment.
With tiered structures, customers can choose a tier based on their budget. For instance, if it is a paid subscription model, it’s easy for customers to pick a tier based on their budget. Conversely, if it is a free subscription model, customers can do what it takes to progress to higher tiers.
With tiered subscription models, you can cater to various customer segments by offering different tiers. Customers can downgrade or upgrade to different tiers based on their needs, reducing churn, an effective eCommerce retention strategy.
2. Tiered subscriptions encourage upgrades
Another way in which tiered subscription models increase CLV is via plan upgrades. Existing subscribers can be incentivized to move to higher tiers. A strategy that is much more profitable than acquiring new subscribers. Existing subscribers allow you to build revenue over time, increasing customer lifetime value.
Some ways to encourage upgrades:
- Offer incentives to subscribers to upgrade plans
- Keep improving perks in the higher tiers to entice lower level subscribers to want to upgrade to higher tiers
- Introduce gamification in your subscription model to encourage subscribers to engage and spend more
- Offer incentives such as discounts to encourage subscribers to upgrade their levels
- Make it easy for subscribers to upgrade to higher tiers via your Shopify subscription app
3. Improving customer retention through personalization
Personalization can generate 40% more revenue for brands. When you give customers control and choices over their subscription, they feel more satisfied because their needs are met. This leads to loyalty and retention.
Personalizing subscriptions for customers involves making different aspects relevant to their preference. While offering different subscription tiers is a way to personalize, further creating micro segments of subscribers can help improve retention.
Here are some subscription model strategies for personalization:
- Offer curated subscription boxes based on customer preference
- Share personalized product recommendations
- Allow customers to choose delivery frequency
- Use data to personalize experience at multiple touchpoints
- Offer discounts to long-term subscribers encouraging them to commit for longer
4. Use data-driven insights for marketing and product development
It’s essential to conduct multi-layer data analysis of your subscribers. For instance, not only should you track which tiers are more popular, analyzing which type of content gets more engagement can also help you with marketing and product development.
Here are some ways to use data from and for subscriptions:
- To offer personalized and relevant offers and deals
- Use data to understand customer preference and spending capacities, then use these insights to create tiers based on your target audience segments
- Refine perks, features, pricing, and marketing strategies in different tiers to match customer needs
- Align features and perks of each tier to its target audience
5. Optimizing customer acquisition cost
Typically, higher-tier subscribers have a higher customer lifetime value than lower tiers. Hence, your customer acquisition strategy should be tier-specific. Optimize each tier based on the CLV it would generate from those subscribers.
For instance, if the customer acquisition cost of your Premium tier (top most) is $500 while it is just $100 for Starter tier (lower), it would still make sense for you to focus on acquiring more subscribers in the Premium tier as this tier will generate higher revenue. Moreover, this tier values your brand more and hence is more likely to stick with you longer, increasing customer lifetime value.
Now let’s look at some ways to optimize CAC for your tiered subscriptions:
- Allocate a higher budget for higher tier CAC because the higher tiers are going to be more profitable
- Set up predictive analytics for your Shopify subscriptions. This will help you identify high-value potential subscribers in the early stages of their journey
- Higher tier subscribers are more likely to share referrals. Create referral programs for the higher tiers
6. Reduce churn and improve loyalty
Tiered subscription structures provide many reasons subscribers should not cancel their plans. For instance, they can downgrade to a lower tier instead of canceling. And they should have the flexibility to pause their plans for a short term if they wish to.
Moreover, Shopify brands can refine subscription experience by referring to customer data and enhancing offers and perks. Here are some ways to reduce churn to increase CLV in Shopify tiered subscription models.
- Clearly communicate the benefits and perks of the plans so subscribers know its real value
- Ensure the perks and benefits of different tiers do not confuse customers
- Create a proactive and real-time communication set up. For example, if customers are reaching usage limit, inform them beforehand
- Provide flexibility. When customers know they can pause deliveries, change products, make swaps, they feel more comfortable with the subscription
- Continuously measure your retention and churn rate to optimize subscription model strategies
7. Strategic pricing and tier naming
Another effective subscription model strategy is pricing and naming the tiers. One of the most influential factors in subscription models is pricing – the annual or monthly subscription fee, the savings, monetary value of perks, etc. When pricing is competitive, it has a higher perceived value in the market.
Pricing and naming strategies involve factors such as behavioral psychology and market positioning. So how to go about pricing and naming strategy of your subscription plans?
- Name the tiers strategically to communicate value propositions, for example, Starter, Growth, Scale.
- Provide tier comparison tables on your website or subscription page to make decision making easy for potential subscribers
- Your subscription pricing should cover your costs and also provide a profitable margin
- Measure the immediate conversion impact as well as the long-term effectiveness of your naming and pricing strategies
Improve Shopify tiered subscription models with Appstle
Whether you’re launching a fresh Shopify tiered subscription model or in the process of enhancing it to increase CLV, you will need to try different strategies. Your subscription strategies should depend on your specific products, industry, and customer preference.
To set-up and run an efficient tiered subscription model, you will require a smart tool to help automate functions, complement your existing tools and skills, and make your subscription business a seamless journey for you. That’s where Appstle comes in.
Appstle Subscriptions App is designed for Shopify and Shopify Plus brands. The app helps build subscription models of various types, including tiered subscription models. Here are some key features of Appstle:
- Multiple types of subscription plans: Create different types of recurring payment subscription plans, for instance, tiered subscription plans, flat-price subscriptions, usage based plans, curated box subscriptions, and more.
- Customization features: Tailor Shopify subscription plans based on your brand, products, industry, and customer preference.
- Flexible billing: Provide options for one-time purchase or recurring billing for products, improving sales and increasing customer lifetime value.
- Loyalty features: Integrate loyalty features and referral programs within your Shopify tiered subscriptions, reducing cost of acquisition and churn, increasing CLV.
- Scale with data analytics: Make informed business decisions based on in-depth growth analytics and subscriber history data from across different subscription touchpoints.
Install Appstle Subscriptions App to manage and scale your tiered subscription model.
FAQs
What is a tiered subscription model?
A tiered subscription model offers multiple levels with specific features and perks in each level. This type of subscription plan helps eCommerce merchants cater to various customer segments.
What is the difference between subscription and one-time purchase?
Subscriptions involve recurring payments for period product or service deliveries. One-time purchases involve a single payment.
How to calculate customer lifetime value?
To calculate customer lifetime value, multiply your average revenue per customer by average customer lifespan.
How does customer segmentation help in a tiered subscription model?
By segmenting subscribers based on their needs, preferences and other parameters, Shopify brands can cater to their specific needs and build stronger relationships, leading to loyalty and improved CLV.
