The eCommerce space has noticed an uptick in subscriptions all through 2023.
Ecommerce brands across industries — from grocery to fashion to liquor — are offering subscriptions to enhance customers’ shopping experience.
Within subscriptions, there’s one model that retailers are talking about a lot — the tiered subscription model.
If you want to learn about what is a tiered subscription model, its benefits, and how it could help your Shopify business grow, this is your go-to guide.
What is a tiered subscription model in eCommerce?
A tiered subscription model is a pricing strategy. This kind of a subscription model involves categorizing the pricing of products or services into multiple levels or tiers. Each tier or level offers different features and benefits at different price points.
Tiered subscriptions allow customers to choose the tier that best matches their budget and needs. This model also offers flexibility to customers and scalability to eCommerce brands.
Typically, SaaS and retail eCommerce brands have three subscription plans. Some have two or four.
A good example of tiered subscription models is Netflix. The streaming platform offers different subscription plans based on the number of users that can use it.
Here’s an image showing Netflix subscription tiers for India:
Benefits of the tiered subscription model for eCommerce
For marketers and retailers, it’s crucial to understand the many benefits of the tiered pricing model for subscription. Understanding the benefits helps know the potential, growth opportunities, and nuances of this subscription model for your Shopify store. Here are some of the benefits:
1. Improves buying experience
Tiered subscription provides customers choices. Customers can choose a tier/pricing they want based on their needs and budget.
Moreover, tiered plans give customers a clear overview of each tier, the benefits, features, and pricing. It simplifies decision-making as customers can assess and compare benefits, features, and prices.
In addition, seeing details about different tiers side by side brings transparency and builds trust with customers. All these factors lead to customers having a good experience with the brand — especially first-time customers.
2. Cost flexibility
Cost is one of the biggest factors that affects customer purchase decisions. The tiered pricing model for subscriptions offers high flexibility to customers. Not just for new customers to sign up but also existing subscribers to upgrade to better plans.
For instance, say a customer has subscribed to a design tool for their office usage. The plan allows 2 team members to use the subscription. Now, the office is growing and there are two more team members that need to use the tool. This customer then decides to upgrade to a better tier that allows four or five team members to use the same subscription. Moreover, if in future, their needs decrease, they can move back to the two-member tier.
Just like customers have the flexibility to change plans, retailers too can enjoy some flexibility. For instance, many retailers start off with low pricing plans, especially in the beta phase. Once they test the waters and assess the market, they increase or decrease the pricing of the plans accordingly. This sort of flexibility allows new businesses to carefully build businesses on strong foundations.
3. Easy entry for new customers
Another benefit of the tiered subscription model is it makes new sign ups a little easier. First-time customers may find it difficult to commit to subscribing to a high-value subscription plan.
For example, say you were offering only one subscription plan that offers various benefits, but it’s highly priced. Many customers may be interested but the pricing may be stopping them from signing up. Then, you introduce one or two more plans that are lower priced and with fewer benefits. Customers who are keen to try your products and services may find it much easier with the low-tier plans.
4. Easy scalability
The same way that tiered subscriptions make it easy for low-value and new customers to make an entry into your brand, customers who are already subscribed to a lower tier can easily upgrade to a higher-value subscription plan. Customers who are satisfied with your service, may want to try a better plan as their needs increase. Conversely, this makes it easy for your brand to maximize potential to increase the average order value and profitability for your business.
Offering multiple choice allows customers to compare pricing and choose the best that fits their needs. However, offering too many pricing options can lead to indecision, and hence, it’s ideal to limit the number of tiers to three for your subscription model on Shopify.
5. Tiered subscription model allows customization
Customers expect their favorite brands and stores to offer curated experiences. And this is where customization comes in.
Retailers can customize different tiers the way they want. Each subscription tier can offer unique features and benefits. This creates a clear distinction between tiers and hence, customer segments.
Customization has its own benefits. For instance, retailers can enhance customer retention with the help of customization. Customers who subscribe to a particular tier are likely to continue their subscription to enjoy the benefits.
One of the biggest advantages of tiered subscription models is it offers enough data and opportunities for personalization. For instance, brands can understand customers in the different tiers based on their purchase capacity, shopping patterns, interests, etc.
These insights on behavior can help brands craft personalized marketing campaigns and content for the specific segments. Personalizing the user experience through different subscription tiers helps build a stronger connection between the user and the service.
As users find value in the personalized features offered at their chosen tier, they are more likely to remain loyal customers over time.
7. Value for money
By offering different tiers at varying price points, a tiered subscription model helps cater to users with different financial capacities. This inclusivity makes the service accessible to a broader audience, ensuring that individuals with varying budgets can find a subscription tier that suits them.
Each tier comes with a clear set of features and benefits, providing users with a transparent understanding of what they are paying for at each level. This transparency helps users make informed decisions based on their priorities, ensuring they perceive the subscription as valuable for the price.
8. Easy to manage
In the absence of subscriptions, retailers have to process and manage individual orders. Each order may have its own variation and require
Subscription models on Shopify can make it easy for you to manage your overall subscription model. The tiered subscription model has a straightforward structure, with distinct levels or tiers, each offering a specific set of features or services.
These clear levels can simplify management tasks as it provides a well-defined framework for organizing and delivering different subscription plans.
Who is the tiered subscription model best suited for?
Tiered pricing can be beneficial to small businesses, start ups, as well as large businesses, provided it is done well. Let’s look at how and why it is suited to different types of businesses.
Small businesses and startups
Small businesses and startups typically operate on limited budgets. In addition, they usually have financial constraints. Tiered pricing provides an entry-level option that is affordable. This allows small businesses and startups to get started without putting excessive strain on their finances.
As small businesses and startups grow, their needs and requirements increase. Tiered subscription models can help scale businesses. How? Companies can increase tiers and introduce high-value tiers. These high-value tiers can also help brands introduce new products and services that carry a higher price tag. This means that as a startup expands, it can easily upgrade to a higher tier that provides more advanced functionalities, aligning with the company’s growing demands.
Companies with a broad customer base
Tiered pricing often allows businesses to choose the level of service that best fits their current needs. Factors such as customization and flexibility are important for startups as they might not require all the features in their tiered subscription model. They can start with a basic tier and upgrade as their business grows and demands more advanced offerings.
Businesses involving risks
Many businesses operate in risky and uncertain environments. Tiered subscription model helps reduce risk by offering a cost-effective entry-level option. This enables businesses to experiment with the product or service, assess its suitability for their needs, and make adjustments without committing to a high-cost solution from the outset.
Businesses in highly competitive markets
Businesses that are starting off, often need to be competitive not only in terms of the quality of their products and services but also in pricing. Tiered pricing allows them to position themselves strategically by offering a cost-effective entry point, attracting price-sensitive customers who may later upgrade to higher tiers as their needs expand.
Businesses that need a quick start
Tiered pricing models for subscriptions are highly suited to small businesses and startups that need to get up and running fast to establish their presence in the market. Tiered pricing facilitates a quick implementation process as they can start with a basic plan that includes essential features, allowing them to initiate operations promptly.
Tiered subscription model examples for eCommerce
Let’s look at some tiered subscription models from different industries to understand how tiered pricing models are being applied across product categories, and grasp inspiration for how you can set up a tiered subscription model on your Shopify store.
1. Rent The Runway
A designer clothes rental online store, Rent The Runway offers three tiers in their subscription model. Each tier is differentiated by the number of items to rent, number of shipments per month, and pricing.
Another example of a tiered subscription model is the graphic design SaaS platform Canva. It offers three subscription tiers differentiated by the features offered, the number of designs and templates that can be used under each tier, storage space available under each level, and other features.
Luxury car brand Porsche too offers subscription plans. Under its single-vehicle and multi-vehicle subscription plans, customers can rent cars, offer services such as car pick up and drop, insurance, vehicle maintenance, roadside assistance, etc.
How to get started with a tiered subscription model in eCommerce?
Getting started with a tiered subscription model for your Shopify business is easy. Appstle Subscription app can help you build a custom subscription model for your business.
The app is designed for Shopify and Shopify Plus stores to provide the ease of setting up different types of subscription programs, including tiered subscriptions.
With built-in loyalty features, flexible billing, advanced analytics, excellent customer support, and assistance from expert teams that help meet business goals, Appstle Subscription is the most preferred subscriptions app for Shopify retailers.