Hey — it’s Nico.

This is Behind Tactics 🧠, the Failory newsletter where I share the strategies behind the best startups.

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Now, let’s dive into this issue. On it:

• JetBrains is leveraging an innovative pricing model: the longer you stay, the less you pay.

• This strategy helps reduce churn and builds strong user loyalty.

• Discounts can also be given as certain milestones are achieved.

• This flexible pricing model is versatile and can be applied across various industries, from online courses to gyms.

This issue is brought to you by Pilot — get their free Annual Planning Playbook here.

Let’s get into it!

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The Strategy

Rewarding Loyalty

This week, I went to Verizon to get my US phone number after moving to SF last week. I asked about their plans, and they told me it’s $60/mo for the first month, then $50/mo for the second month, then $40/mo in 4 months, and then $35/mo in month 10.

This got me thinking about the pricing strategy of reducing subscription prices the longer a user stays on the platform. Is this only something that works for massive B2C, high-competitive industries like mobile data plans, or something that can also be applied by other SaaS companies?

My curiosity led me down a rabbit hole, and that’s when I stumbled upon JetBrains, a startup that’s been using a similar approach with its software subscriptions.

How JetBrains Does It

JetBrains is a company that many developers know well. They’re behind some of the most popular IDEs out there, like IntelliJ IDEA, WebStorm, and Rider. But what really caught my eye was how they price their subscriptions.

For instance, subscribing to IntelliJ IDEA costs $599 for the first year. But if you stay for the second year, the price drops to $479, and in the third year, it further reduces to $359 annually. WebStorm follows a similar pattern—$69 for the first year, $55 for the second, and $41 per year afterward.

This isn’t just a simple discount; it’s a well-thought-out strategy to encourage users to stay loyal. Instead of charging the same amount every year, JetBrains is saying, “We value your loyalty, so we’ll make it cheaper for you the longer you stay.”

It’s a refreshing take on subscription pricing, especially when compared to the usual model, where the price stays the same year after year. By offering these ongoing discounts, JetBrains creates a strong incentive for users to stick with their products, which ultimately helps build a loyal customer base.

Could This Work in Other Businesses?

Seeing how JetBrains has implemented this strategy got me thinking—could it work in other areas besides software? I believe it absolutely can.

Take an online course, for example. Imagine paying $500 upfront, but if you complete all the modules, you get $250 back. This setup would make you more likely to finish the course, wouldn’t it? It’s a smart way to keep people engaged and ensure they get the most out of what they’ve paid for.

The idea can also extend to physical businesses, like gyms. In the Netherlands, the gym chain Trainmore offers a unique incentive: for every workout you complete in a month, they deduct 1 euro from your membership fee.

The more you commit, the less you pay. This strategy is a win-win: customers feel rewarded for their dedication, and the business retains loyal members.

Should I?

Why This Works

• Reduces Churn: By lowering the price over time, the strategy encourages customers to stay with the product or service longer. This gradual reduction makes the user feel rewarded for their loyalty, reducing the likelihood of them switching to a competitor. Customers are less likely to cancel their subscriptions when they know they’ll save more money by sticking around.

• Builds Stronger Customer Relationships: This strategy creates a better bond between the company and its customers. When customers are acknowledged and rewarded for their loyalty, they feel appreciated, resulting in greater satisfaction and willingness to recommend the service to others.

• Encourages Upfront Commitment: Customers may be more willing to commit to a subscription knowing that their costs will decrease in the future. This can help businesses secure long-term customers from the start, providing more predictable revenue streams. The promise of future savings can be a powerful motivator for new customers to sign up.

• Boosts Customer Engagement: This pricing strategy can be a powerful tool for increasing customer engagement. Think of the online course or gym examples. When users know that they’ll receive a discount simply by engaging more with your product—whether it’s completing course modules or consistently attending gym sessions—they’re more motivated to stay involved. This increased usage not only helps customers achieve their goals but also deepens their appreciation for the value your product provides.

How to Apply It

• Use Milestones to Trigger Discounts: Instead of simply lowering prices over time, tie the discounts to specific milestones that reflect customer engagement or progress. For example, offer a discount after completing X tasks or reaching a certain usage level. This is an extension of the “Onboarding Discounts” strategy I previously wrote about.

• Create a Loyalty Program Around It: Build a formal loyalty program where customers can see the potential savings they can unlock over time. This program could include a dashboard showing their progress toward the next price reduction or exclusive rewards for long-term subscribers. Making the benefits of loyalty visible adds an extra layer of motivation for customers to stick around.

• Gamify: Incorporate elements of gamification to make the process of earning discounts more fun and engaging. For instance, users could earn points or badges for regular use, which can then be redeemed for price reductions. This not only encourages continued usage but also makes the experience more enjoyable, fostering a deeper connection to your product.

• Communicate the Long-Term Savings Early: Make sure potential customers understand the long-term savings they can achieve by staying with your service. Highlight this in your marketing materials, onboarding process, and customer communications. When users see the financial benefits of sticking around from the start, they’re more likely to commit long-term.

Yes, But

• Risk of Undermining Perceived Value: By continually lowering prices, there’s a risk that customers might start to perceive your product as less valuable over time. If users expect prices to keep dropping, they may question whether the initial price was too high or if the product is worth its full value. This could make it harder to justify your pricing to new customers.

• Potential Revenue Loss: While the strategy can increase retention, it also means you’re making less money from long-term customers compared to a fixed-price model. This reduction in revenue needs to be balanced with the increased customer lifetime value. If not managed carefully, the reduced prices could cut into your profitability, especially if customer acquisition costs remain high.

• Difficulty in Raising Prices Later: Once customers are accustomed to paying lower prices, it can be challenging to raise prices in the future, even if your costs increase or you introduce new features. Customers who have been rewarded for loyalty might feel betrayed by price hikes, leading to dissatisfaction and potential churn.

• Locking Prices Might Be More Effective: Instead of gradually lowering prices, it could be more beneficial to lock in the current price for existing customers as you improve your product and raise prices for new users. This approach rewards early adopters without reducing revenue from long-term customers. It also allows you to increase your prices as the value of your product grows, ensuring that you can cover rising costs and continue to invest in product development.

Keep Learning

Others Playing It

Some insurance companies like the NFU Mutual in the UK use this strategy to decrease their churn rate.

The Australian fintech Athena is using the same strategy to reward loyal customers.

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That’s all for this edition.

Cheers,

Nico