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Flaws in Spotify's Pricing of Worldwide Student Subscription

Posted by PriceBeam on April 21, 2017

Spotify now offers its services in more than 61 countries on 5 continents, and of course, these countries all face different prices. After all, there is a significant difference between what a user from Argentina is willing to pay to stream the new Ed Sheeran album compared to an American or European user. And so, a US subscription costs $10 and the Argentinean version costs $4.50.

However, a couple of days ago, Spotify launched a worldwide discount offering for students (an enormous customer segment for Spotify), offering 50% discount for all students. Worldwide. So an American student will be paying $5 while an Argentinean student pays $2.25.

Assuming that Spotify's initial pricing was set according to the general willingness-to-pay level of their customer base in the different countries, the new discounting will not be able to maintain this accuracy. Essentially, Spotify is using the willingness-to-pay of the general user base as a benchmark for students' willingness-to-pay. However, using this benchmark assumes that the difference in willingness-to-pay between students and the general userbase is the same across countries. This is unlikely, as student segments have very different characteristics: e.g. the UK and US has many international students, and have a larger population of postgraduate students (such as MBAs, who don't really need a 50% discount).

The lesson here is that if you want to optimize pricing for different segments, this needs to be done for each market. You cannot simply assume that if students' willingness-to-pay in the US is 50% lower than that of the general user base, the same will be true in Chile.

Written by PriceBeam

PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!