UCL School of Management is delighted to welcome Daniela Schmitt, NOVA SBE, to host a research seminar discussing: Pricing and Consumption in Subscription Settings.

Abstract:

This paper examines how subscription pricing impacts usage intensity, a critical factor for firms relying on subscription business models. Our analysis focuses on data from an online news publisher, a context where promotional pricing is widely used as a way to attract new customers, although its overall impact is unclear. Traditional analyses suggest that lower prices reduce per capita consumption levels, as lower-paying customers are presumed to place lower value on product consumption. In contrast, our analysis reveals that promotional subscribers may consume significantly more than those who pay regular prices, even after controlling for churn behaviors. This phenomenon may occur due to multiple reasons, including switching and/or multihoming costs. From the firm’s (partial equilibrium) point of view, this pattern corresponds to a negative correlation between subscribers’ consumption values and their willingness to pay. We develop and estimate a model that allows for a flexible relationship between subscription prices and consumption, and use it to recover the fundamental parameters and to investigate the impact of different pricing policies through their effect on revenues from subscriptions (via new customers) and from subsequent consumption (via advertising). Our analysis finds that understanding the impact of subscription pricing on future consumption can unlock significant economic value for firms.