Subscription pricing psychology: How to influence purchasing decisions

As much as we’d love to pretend we are very rational individuals who think through every choice we make and every dollar we spend, we simply aren’t. And nowhere is this more present than in pricing and purchase decisions.

I eat, sleep, work in growth, yet a discount or a freebie will get me ridiculously excited. Not only that, I will mentally justify spending by comparing it to higher costs or breaking it down, the classic “It’s less than a coffee a day.” 

The other day, my partner dramatically sighed as I confessed to having subscribed to Blinkist for a year. “But they had a great 4th July offer,” I tried to justify—I’m not even Amercian. “You should know better,” he replied with exasperation. He’s right, I should, we all should, but the truth is humans are predictably irrational.

But let’s take this principle away from my [terrible] shopping habits and to your subscription prices. When it comes to bringing across your subscription prices, you can pretend you aren’t using psychological principles in your setup, but you probably are. You might think it’s “just copy” or “marketing tools,” but you’re employing subscription pricing psychology, and you may as well be conscious of it to use them to your advantage.

So let’s take a look at some of the key psychological principles and some examples of how subscription apps use them. But first, I want to challenge you to a little moral discussion.

Is it immoral to use psychological principles for pricing?

When I started working in growth, I loved learning about principles, understanding why I did the most irrational things, how our brains work, System 1 vs System 2 thinking, the impact of social proof, scarcity, and more. 

But I grew slightly uncomfortable when it got into the realm of pricing. While all these principles impacted purchasing decisions, they felt like a step was missing. They encouraged customers to consider buying, but didn’t push them to pull out their credit card (or double-click for Apple Pay these days, let’s be honest). 

The perfect example of this is Booking.com. Years ago, Booking.com became a minefield of “nearly sold out!”, “only 1 room left at this price!” and “rooms like this are usually booked out!”. At one point, all their playing to psychological principles made me refuse to book with them; it was simply too stressful.

Is it immoral to use principles to this extent? To place so much pressure and guilt on your customers to buy your product or service?

I’m not sure it is, if you don’t overdo it. I’m glad Booking.com seems to have balanced it out a bit. Based on conference talks I’ve seen from their designers, this appears to be a conscious decision. They finally realised the same thing: when principles elicit such a negative feeling, it damages the brand. 

So that’s your first question when considering if you should add on one of these principles: 

1. How will they make my customers feel?

If your customers will feel stressed or swindled, then it isn’t working in your favour and won’t produce long-term success for your brand. Expect poor reviews and a low Lifetime Value per customer.

The second concern revolves around the honesty behind it, namely using principles in a dishonest manner, e.g. a fake higher price, indicating something is free when there are secretly added costs. 

A common example I’ve seen of this is brands presenting the price as weekly or monthly but hiding that it is actually billed annually so customers feel they are getting a better deal without realising they are locked in for a year. They probably saw a conversion rate lift in moving the annual billing communications to the background, but I wouldn’t be surprised if complaints and refunds increased too.

Or playing into the psychological principle of the decoy effect: a made-up decoy plan that is more expensive than the rest that makes you feel as if you aren’t going for the most expensive app or it’s worth going one tier higher because you get so much more when no one would actually go for that plan.

And so, my second recommended test is: 

If a company used this principle on one of my grandparents, how would I feel about it? 

If it would make you feel uncomfortable or bad, it’s immediately a no-go. For example, I wouldn’t mind if a company framed a price in a certain way to my grandmother, as long as they were being honest about the price and making it easy for her to understand what she’s being charged. I would be upset if they locked her into a far longer plan than she realised she was signing up for.

As you learn and understand these principles, take a moment to check yourself. Your measure of success isn’t just revenue and conversion rate when A/B testing these principles. 

It’s also important to know if it feels morally correct to implement them. We’re steering away from these kinds of examples, so I expect you’ll feel more comfortable with these principles. But I always believe there is no harm in double-checking.

Principles 1 & 2: The classic anchoring and framing principles

Morals are out of the way, let’s discuss actual psychological principles now – the good stuff!

Price anchoring involves showcasing a higher price point product next to a lower price option to make it more attractive. This can be multiple price packages or even showcasing what competitors usually charge. 

An example is if an app lists family plans alongside standard plans. Family plans tend to be priced higher, so this makes the other options feel cheaper in comparison. We can see this with Spotify’s pricing plan.

Spotify pricing plans

Officially, when we use the principle of a price anchor, we should show the anchor first, which is the higher price first. Interestingly, Spotify doesn’t do this, most likely because most people don’t go for the family plan or because the £0 for 1 month (a form a price framing, more on that in just a minute) works better.. 

However, it’s worth testing the order rather than just assuming what will work. Placing the higher price first can work well in anchoring the price, and if they then feel it’s too high, you can still show a lower price. You can see this in effect for Headspace, the meditation app, who do this with annual vs monthly subscription prices.

Headspace pricing plans

This means that if you find £49.99 expensive, you’ll be more likely to be comfortable with the monthly subscription plan price of £9.99 per month. It also ensures you see the annual price as well, and can note how you save per month. I don’t know about you, but I love the feeling I’m saving money by spending it!

Price framing is very similar to anchoring. With this pricing principle, the main difference is how the information is presented, which is adjusted to make the price feel more attractive, such as by showing a discount or the amount you’re saving to make a price feel more attractive. 

Headspace doesn’t show the exact discount per month for annual vs monthly; instead, they say annual is the best value and show what the price is per month to frame the annual as cheaper. Even without a discount, this type of price framing is very impactful. 

For example, Mojo, the social media content creation app, saw a growth of 60% in ARPU through optimising its monetisation strategy. Part of this success was a simple price framing test where they indicated the monthly pricing for annual billing instead of just showing the annual amount.

Mojo’s A/B test of the pricing page

They still clearly stated that it was billed annually just as before but framed the price to highlight how cheap it worked out per month. This resulted in the following results for them:

• A 45% increase in new revenue per a paywall impression in Brazil
• A 26% increase in Mexico
• An 8% increase in the USA

You can also combine framing and anchoring as the Uber One subscription does. When you look at subscribing to Uber, they state, “Members save £19 on average per month.”

Uber’s in-app pricing page

This frames the subscription as a money-saving opportunity. In our heads, we’re thinking of how we’ll spend that extra money each month—4 iced lattes, anyone? 

It also anchors the price of the subscription in contrast to that amount. Usually, it’s £4.99 per month, so you are saving nearly 4x the monthly subscription price. Not only that, but they also offer the first four weeks free.

Whilst anchoring and price framing are slightly different, the first is more about using a higher price to make subscriptions feel more affordable; the latter is about how you communicate the price, they often go hand-in-hand as you can see from the examples.

Principle 3: The scarcity bias

One day, I’ll clear out my closet. One day, I’ll run a marathon. One day, I’ll try out that app… Most of these things will never happen (just look at my closet if you don’t believe me). 

This is where the scarcity bias comes in,t he less readily available something is, the more likely we are to value it.

In pricing, this comes in the form of limited-time offers to drive new subscribers. Peloton, an exercise equipment and media company, does this regularly. Recently, they offered a discount for your first two months, accompanied by a clear deadline. 

Note the clarity around pricing, how it not only states the price you’re entering on, but how much you’ll pay in the future once the deal ends (making it, in my opinion, a moral use of the scarcity bias). This transparency is usually appreciated by your customers as well. The New York Times does this too on a regular basis and the icing on top is how they communicate that it isn’t just the first six months but the whole year.

Limited-time discounts drive an urgency to subscribe and can also be used to encourage and push towards annual subscribers over monthly.

Principle 4: Endowment effect

Remember how I said you might be using a pricing principle without even realising it? If you are using a free trial or freemium model, you are actually playing perfectly into the endowment effect. This principle gives you a feeling of ownership over a product before you buy it, making you more likely to purchase it.

It’s similar to what is known as the Ikea effect where building something gives us a sense of ownership (the app version is completely customising and putting together your own content). The difference with the endowment effect is that ownership doesn’t have to come from building or putting something together (though it can do!), but the feeling you’ve bought and used it, that the app subscription belongs to you already. 

Free trials aren’t the only way to capture that endowment effect. For example, when you’re pushing someone to subscribe, show them everything they’ve already achieved with you. Strava, the workout tracking app, does this by stating how many kilometres you’ve already run. This makes you want to continue to grow that number and feel like you’ve built something up on the app. You also feel like you have something to lose.

Show users the benefits and value of what they’ve achieved in the free trial. So going back to Uber, they could communicate about the savings in those first four free weeks “You’ve already saved £15.45 using Uber One). My workout app, Fiit, shows me the minutes I’ve been active, the classes I’ve taken, my favourite workouts and achievements. This is all the content I lose if I stop using them.

Another way is also using language like “your plan” and “your benefits,” or even using their name as well as showing them how it is personalised to them when encouraging them to subscribe, which further plays into the endowment effect. 

ClassPass, an app for booking exercise classes, does this when sharing their plans. They start with this in-between screen. 

It gives you the feeling that the plan is personalised to what you need. They then automatically show the location and seven different options for credits.

The five dots underneath make it feel like there are more options so you can choose an option that suits you. Indicating they know your location is another way it feels personalised.

Principle 5: Loss Aversion

Loss aversion is another principle that works well with free trials. We naturally prefer to avoid losses more than the equivalent gains. This can be used with a trial by showing what they will lose when their trial ends, such as no longer getting access to premium features vs saying, “get access to premium features by staying”. 

Rosie Hoggmascall, author of growthdives.com, explains how this can be used to reduce trial cancellations in this article on Canva, the graphic design tool, which highlights all that will be lost when cancelling:

Keep in mind that loss aversion works best when users have already invested in you (so you are playing on the endowment effect) or when there is some sense of urgency. 

For newer users who you are pushing to subscribe for the first time, positive framing can be more impactful as they are in a mindset of enhancement. For example, AllTrails, a hiking app, shows how you are 3x more likely to hike if you get a premium subscription. This takes away the fear of “Will I use it enough?” but also adds an extra benefit, “I’ll do more of what I love if I get the app.”

Using psychological principles for subscription apps

We discussed five different principles today:

1. Anchoring – Using a higher price to anchor customers so they see your price as more affordable
2. Price framing – Framing prices in a certain way to make them feel more affordable, e.g. framing annual prices as a monthly amount
3. Scarcity – Creating a sense of urgency by indicating scarcity in time or amount with pricing offers
4. Endowment effect – Creating a sense of ownership of the app to make them more likely to stay
5. Loss aversion – Framing what will be lost (e.g. with cancelling) to encourage people to stay

The goal isn’t to use every strategy. Honestly, you probably shouldn’t. Instead, think of these as options to explore and see what fits your pricing structure best. Test different formats to determine what works, like in the Mojo example. There’s no one-size-fits-all solution, but when you find the right match, you’ll motivate your customers to subscribe. And always ask yourself: how would you feel if your grandma were one of those users?