Designing subscription menu for software products: Whether to release a long-length option

An increasing number of information product vendors adopt a subscription-based business model and offer a menu of options with different subscription lengths for the same information product. This study adopts a horizontal differentiation model, wherein subscription options are differentiated only in the renewal lengths to make a comparison between the single- and two-option menus. The former offers one option only, whereas the latter offers both the short- and long-length options. Analytical results show that the basic value of the product and the unit misfit cost, which measures consumers’ disutility per unit distance between the actual and ideal subscription lengths, are critical factors in determining the optimal design of the subscription menu. The two-option menu dominates the single-option menu when the basic value and the unit misfit cost exceed certain thresholds. The impact of consumer churn rate on the design of the subscription menu is further examined. The two-option menu is more likely to be the dominant choice as the consumer churn rate increases. Moreover, the effect of the increase in the consumer churn rate on the pricing decision depends on the unit misfit cost. Given a higher consumer churn rate, only if the unit misfit cost is sufficiently low, vendors should improve the price for the short-length option and the price discount level for the long-length option; otherwise, the optimal pricing decision remains unchanged. After endogenizing the length of the long-length option, we discuss how the optimal number of periods of the long-length option varies with the product value, consumers’ cognitive cost, and unit misfit cost. The optimality of the multiple-option menu with more than two options is also explored.