Using a subscription pricing model to lay stable foundations
Funda is the top online real estate platform in the Netherlands and one of the largest in Europe. It’s been described as the “Amazon of houses” in its homeland, because it’s said that almost every house that’s sold in the country will have been advertised on its platform first.
The online leader generates revenue by charging realtors to promote residential and commercial inventory on its platform. When there are more homes than buyers, properties are advertised longer and funda sees revenue soar. However, when the market is booming, properties sell quickly, listings come and go on the platform, and revenues dip.
“With property markets around the world strengthening, funda had to reconsider the way it operates,” said Jurriaan van Gent, funda’s product and pricing specialist. A subscription-based model presented a long-term solution to funda’s fluctuating revenue.
Building a more profitable subscription model, brick by brick
Jurriaan carried out extensive interviews with realtors to determine what they wanted from funda and whether there was truly a business case for a subscription-based approach. The feedback was positive, but this wasn’t enough to quantify the decision, so he approached us with a request: “How can we transform and stabilize our business model, so revenue is less reliant on a fluctuating market?”
My team and I have years of experience helping technology companies set and optimize pricing for subscription products and services. We know what works best when embarking on this endeavor and what companies should avoid.
“We felt that SKIM was a really good fit for our research questions because they had a lot of experience with subscription-based models,” said Jurriaan. “We thought it would be really helpful to use that knowledge. They understood our online business challenges and that’s the reason we felt strongly they were the right partners to work with.”
Choosing the right research techniques for subscription-based pricing
We recommended a two-phased approach: first, we had to determine their customers’ willingness to pay, what features the real estate agents would be willing to purchase, and which features could be combined into the most appealing bundles.
Second, we had to determine the optimal pricing strategy for those packages, looking closely at what product assortment and which price would maximize revenue and uptake. This included identifying which subscription model — the Freemium Model, the Multi-Tier Model and the A-La-Carte model — would best address funda’s market challenges and generate the most revenue in the long term.
Neighboring with the decision-making experts
Online leaders like funda frequently ask us to help them optimize their revenue management strategies. We’re able to provide practical recommendations by harnessing our choice-modeling and pricing expertise with creative thinking. Our goal with funda, as with all our clients, was to help them achieve their long-term revenue goals, keep them ahead of the competition and thriving amidst market fluctuations.
With that in mind, we set up a menu-based conjoint study to reflect funda’s potential offerings as closely as possible. We replicated funda’s website environment (lay-out, look and feel), while also introducing the new subscription services in a realistic scenario.
Realtors participating in this choice experiment selected which (or none) of the subscription offerings where most attractive based on what services were included and the corresponding price. Based on their responses, we created a sophisticated model that indicated what the market would look like when offering different options. This research technique allowed us to provide funda with clear recommendations for an optimal pricing strategy, along with a prioritized list of which features they should develop first.
Advice for other pricing pros in the online subscription space
When asked what tips funda could share with other companies transitioning to a subscription model or looking to maximize revenue with existing subscription products or services, Jurriaan shared the following:
- Supplement qualitative with quantitative research. Qual is helpful for identifying why your customers buy from you and what they value in your product or service, but to build an accurate and compelling business case for a subscription model, it’s important that you carry out quantitative research that measures and backs up these insights.
- Emulate the real eCommerce environment whenever possible. Giving your surveys context will increase the accuracy of your findings to better optimize your strategy and maximize revenue.
- Select a flexible market research partner. As the eCommerce space is quickly evolving, you need agility to potentially change course mid-way through the research process and adapt to wider business considerations (this happened to us).
“Conducting this pricing research made the difference between taking a guess based on an incomplete understanding of what our customers value, to adopting a new business strategy with the potential to iron out the volatility in our business model,” he said.
Funda is now in the process of transitioning its strategy, an ongoing task which it expects will last upwards of two years. Realtors can look forward to more flexible subscription options that are easier to select, while funda can expect a steadier, more consistent revenue stream. Once the transition is complete, Jurriaan plans to tweak the pricing structure to see how he can further optimize its new revenue-generating plan.