Are you entitled to Grandfathered pricing?
It goes without saying that the last 5 years has resulted in an explosion of pay as you go services on the Internet. My company, Spreedly, provides a subscription billing service. So we are both one of these services and an enabler to many other services.
Last year we raised our prices. Substantially. Our base rate when from $20 to $49. We did not offer any grandfathering to our customers. The best we offered was to keep you at your current price for 90 days to give you a chance to move to a new service. People from more than 5000 miles away suspected something was “severely wrong” at Spreedly HQ. Well, if we’d kept our prices at $20 something eventually would have been severely wrong.
This re-emerged this week when Chargify pushed through some new pricing changes without grandfathering. (It should be noted that Chargify’s community outreach around new pricing earned them a lot of positive feedback - check the comments in that blog link for more details) However, this is not about Spreedly or Chargify or Recurly. This is about the concept of grandfathered pricing in general. Enough time has passed since our experience that I wanted to loop back and write this post. Why do customers expect to be grandfathered in under old pricing? I suspect it’s a hangover from when customers had one and two year contracts so had a time buffer from new pricing. However, it’s probably not that simple.
Ask yourself this simple question: If the vendor lowers their pricing as they scale how would you feel if you were “grandfathered in” and kept at the old pricing? More than a little upset! So why is it different if they realized they underpriced their offering and need to raise the pricing?
Important things to keep in mind as it relates to the concept of grandfathered pricing:
- You may have been an early loyal customer. However, the product has probably therefore evolved substantially from those early days. So the value to price ratio has gotten out of line. You, deservedly so, have reaped the benefit of a more valuable service for the same fixed fee. Now it’s time to move back to equilibrium again.
- You are not always the small customer being victimized by the large corporate entity. A lot of services are from 2 - 20 person companies. You may be peers or even larger (better resourced) than they are.
- Be careful what you wish for. Grandfathered accounts aren’t as valuable as non grandfathered accounts. You could find that features are suddenly kept from you (passive/aggressive to force you to “upgrade”). Perhaps support seems a little less responsive than it used to be. Will your requests for new features get an equal hearing to the “higher paying” customers?
- You loved the idea of paying “as you go” and “month to month”. Well that lack of commitment should be a two way street. Before you get up in arms re-read the second bullet point again. Or opt in for the yearly plan. (We introduced one in February and already around 20% of our customer base is on them)
- A startup needs to evolve its pricing. We all understand that in the abstract. If a startup changes pricing 4 times in their first 36 months that can become a heck of a lot of financial overhead to model every time they think about how to run their business. That’s a real world drag on further product and pricing innovation.
I’m open to arguments to the contrary and I’m sure there are a couple of good ones. I think there are gentle ramps too that can help folks manage to the change. I just struggle to think it’s a good idea, for either party, to create the grandfathered expectation.