What can B2B Subscription Commerce Learn from Buy Now Pay Later?
15 Sep 2021Simplicity and convenience are very powerful ideas
It seems like subscriptions are essentially recurring payment arrangements. Because, as consumers, they often just mean you automatically pay for something monthly and you can cancel whenever you want. Stripe and Square exemplify this way of thinking about subscriptions.
Then there are buy now pay later (BNPL) solutions such as Afterpay, Klarna and Affirm. These allow you to spread out equal payments over a period of time - usually a year - in the form of an installment plan.
They both spread out payments, they both amount to some manner of recurring payment solutions. So what is the difference? It is that with BNPL you are truly buying (ie taking ownership of the product), using a type of debt to finance the purchase. But with subscriptions, you are not taking ownership of anything. Your payments give you continuous access to something that does not endure. This is why we see BNPL for Peloton bikes, but subscriptions to the Peloton app.
Despite the obvious difference, the recent BNPL craze does raise an interesting question when compared to subscriptions. Particularly B2B ones. If BNPL is gaining so much traction with extremely simple installment plans, why is it that B2B subscriptions involve so much more complicated pricing options: pricing tiers, usage rates, overage rates, volume discounts, etc? Wouldn’t businesses benefit from greatly simplified subscription pricing the way consumers already do in the BNPL space?
It depends. Simplicity in offering price may help with spontaneous personal decisions, but businesses are not usually spontaneous nor are the decisions they make very personal. It’s uncertain whether simple pricing would induce more business customers. Secondly, there is a justification for complexity. Business subscriptions are frequently priced to motivate a certain kind of behavior that aligns with the design of the underlying product. If the economics of the underlying product are complicated (eg, how it scales, how limitations of capacity are rationed among various subscriber demands, etc) then you may see that in the way it is priced. A good example exists with AWS. EC2 spot instances are priced according to supply and demand conditions. Its a way to purchase ad hoc capacity at the moment of need, without having to plan ahead.
So there are good reasons why business subscriptions are priced the way they are. It’s not always as simple to separate the financing of a product subscription as it is for an e-commerce purchase using BNPL. But I’m not sure enough effort has been placed in attempting to do something along these lines. What we are left with is pricing complexity that often exists for its own sake and which doesn’t factor in the costs of its own untangling.