MasterClass -- the online e-learning platform where celebrity actors, directors, authors, chefs, business leaders, athletes, and other well-known experts will teach you their methods via a series of online videos -- is currently repeating a great promotion they ran during which holidays: a "buy one, get one" (BOGO) deal where new subscribers who sign up for a year's subscription get a free membership to give to a friend.
The cost of an annual MasterClass subscription isn't cheap: it's $240 Canadian, or more than double what a standard Netflix plan will cost you with a lot less content.
But... if you can find a friend who's also interested in the type of specialized content that MasterClass offers, you can split the cost between the two of you. And then (at least for the first year), the cost to each person would only be $120, or a much more Netflix-like $10 per month.
So why wouldn't MasterClass simply offer a "limited time" price of $120 to everyone?
Because they're smart.
Think about it.
If you were already planning to buy MasterClass (at full price), then offering you a discounted rate is simply lost profit for them. Not a great idea.
And if MasterClass were to offer everyone a rate of $120, then that's the amount that people would think the service is worth; MasterClass would have anchored the $120 price in the minds of these new consumers. Then next year, when the subscription renewed at the full rate of $240, most subscribers would be unhappy at what they would perceive as a 100% price increase, and would likely not renew.
But by offering a BOGO instead of a straightforward price reduction, MasterClass wins in a few important ways:
1) The people who were going to subscribe anyway get a great deal to share with their friends. They were already prepared to pay the $240, so gifting a free subscription of a service they already think is great to a friend gives them the opportunity to be generous... which fosters loyalty to the service that allowed the opportunity for them to showcase their generosity. Furthermore, the promotion enables early adopters with a way to promote the service to the people they feel would most likely appreciate it... and would be most likely to renew their subscription (at full price) after the free year has ended.
2) The people who purchase the BOGO clearly know the cost of a subscription is $240/year, because that's the amount charged on the subscriber's credit card. So how does the "other person" get their free subscription? Simple: when the sign-up process is complete, the new subscriber is sent an email link to share with a friend, and the friend can then register for a free year of the service. Here's the thing: the friend may not have to pay anything for their first year, but they know that's because of the promotion; "free" isn't likely to serve as a pricing anchor.
3) If a friend invites you to try the service for free, they might also suggest you both take the same courses so that you can discuss them together; a "celebrity-video book club", if you will. If you're asked to join a video-lesson club by a friend who gave you a free subscription to the service, you're likely to take them up on the offer... which gives you a strong reason to sample the content and increases the likelihood you'll see the value of the lessons offered. In fact, it's very possible you won't be willing to give up the service when it's time to renew... which is exactly what MasterClass wants.
4) If MasterClass offered a blanket "limited-time price", they'd have a certain percentage of their target audience take advantage of it. I don't know exactly what that percentage would be, but it definitely isn't going to be close to 100%. However, 100% of people who purchase a BOGO subscription are going to share it with someone else, thus increasing the number of people giving the service a try.
MasterClass got creative with how they use "price" as a lever to encourage sales, and I suspect it worked beautifully. (I don't have any insider information, but the fact they're repeating the same offer they made during the holiday season suggests it was an effective approach.)
During these uncertain times, many businesses are going to be very tempted to use price as a lever to drum up more business.
But leveraging price as a lever doesn't always have to mean "dropping your price", as MasterClass clearly demonstrated.
If you're a business that's thinking about dropping your prices, ask yourself these questions before you do:
If I drop my price now, how willing will my consumers be to pay my full price later when the economy recovers?
Are there other ways I can add value -- such as free delivery to local addresses, or "share with a friend" offers -- without having to lower the price?
Is there a way that I can encourage (and perhaps even reward) my loyal consumers to promote my business on my behalf?
Price is a very effective piece of the marketing mix.
But use it wisely.
P.S. If you need some ideas about how you might leverage price effectively in the short-term without impacting your long-term perceived value, let's talk.
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