If you offer products and services that generate recurring revenue through subscriptions (including software, music, games, media or wireless plans), remarketing to your existing customers is the most important part of your business – as they say, it costs 5 times more to acquire a new customer than to satisfy an existing one.

An upgrade or renewal email is an effective way to keep the customer “in the fold.” Some businesses bank on existing customers taking action directly from these emails, even charging the existing customer segment higher prices than resellers or their own website. This works if consumers are content to purchase without comparison shopping – but Elastic Path’s research into the buyer trends of software consumers shows this is not the case. Sign up for our September webinar Selling software to Consumers, Upgrade Now! to get a free copy of the research).

We found that 79% of software consumers actively look for a better price when renewing or upgrading their software. This makes sense – for years software publishers have been trying to generate high yields from upgrades, with little attempt to compete with the low prices available via their retail distribution channel. This example highlights the issue:

McAfee would like me to auto renew my subscription  for $79.99

which seams okay, because that’s what I’ve always paid since I purchased 3 years ago

but the retail price is now only $69.99 and today it’s on sale on McAfee’s site for $49.99 !

but a bit of comparison shopping finds that I can buy from BestBuy for $39.99

and finally I find the cheapest price in the Amazon Marketplace at $34.95

Shopping around and buying a new copy of McAfee Internet Security 2010 from a reseller (Amazon) would have saved me $45.04. In the end using the online chat feature on McAfee’s site I was instructed to do a manually renewal via my account, which enabled me to get McAfee’s current online offer price of $49.99. However I suspect had I just let the auto-renewal do it’s magic my credit card would have been charged $79.99.

Inflating the price may drive a significant percentage of customers to purchase from other selling channels, eroding your margins and potentially cutting off opportunity to remarket to them in the future (the reseller will send competing renewal notice or other cross-selling tactics).

The Threat of “Free” Alternatives

46% of the software consumers we surveyed reported that the availability of an alternative free version that they considered as good their existing software prompted them to switch. Charging higher prices than other sales channels increases the likelihood the shopper will switch to a competitor’s product or a free / open source alternative.

Perhaps a way to reduce consumers’ fear that they are not getting a fair deal when upgrading would be to show prices offered by resellers and ensure the renewal / upgrade is competitively priced against reseller offers. Also, offering a price guarantee like JourneyEd builds consumer confidence and increases the likeliness of a prompt renewal from an existing customer.

The takeaway is that publishers and service providers should think carefully when pricing upgrades and renewals for existing customers of non tangible goods. Consumers these days are wiser and have an arsenal of price comparison tools at their disposal to go hunting for a better deal. Not only do your customers feel like they are being taken for a ride, but many of them find an alternative product along the way. Although highly profitable, over charging for upgrades and renewals may be seriously affecting your attrition rate.

To find out more about the buying trends of software consumers sign up for our September webinar Selling Software to Consumers, Upgrade Now! where we will explore the findings of the online survey and look at actionable advice for software retailers to improve the online shopping experience. All registrants will receive a complimentary copy of the research “Consumer Software Buying Trends 2010″.

As ecommerce marketers, often our opinions about our customers’ shopping behavior clouds our judgment and leads us to make decisions that may harm our conversion rate. It’s easy to make incorrect assumptions based on web analytics data, or worse, to presume that our customers think and behave the same way we do.

Research into the real attitudes and behavior of our customers can provide insights that contradict our assumptions. Here at Elastic Path, our research team recently conducted a study on the buying trends of software consumers (sign up to our September webinar Selling Software to Consumers, Upgrade Now! to get a copy of the research).

Use consumer research to shape your personas and persuasive messaging to address the preferences, fears, uncertainties and doubts about your purchase. This post will use the software industry as an example of this application.

Example Business Issue: Software Delivery

A pertinent business issue for the software industry is the delivery of its product, which can be digital (download), physical (CD/DVD) or a combination of the two. The COGS (cost of goods sold) is obviously much lower for digital goods, and it’s in the vendor’s best interest to offer only downloads, saving inventory (or print-on-demand costs), warehouse and fulfillment costs. The customer also benefits, with instant access to their purchase and no garbage CD lying around. Makes sense to us tech savvy folk to offer only digital product, but is that what customers want?

Our research found that 41% of US software consumers stated a preference to have a physical CD or DVD of their software shipped to them rather than download their purchase. In today’s digital world this may seem high, but considering software installed on consumers PCs, laptops and mobile phones may have a longer shelf life than the devices themselves, it makes sense. We also discovered that 69% of US software consumers use the same software on multiple machines in their home – for example, a desktop and laptop computer. For these consumers, owning a physical copy of their software purchase both offers convenience and protection should they change, damage or corrupt their PC or laptop.

Many software publishers offer a backup CD/DVD or download insurance as an upsell for customers who decide to download their purchase. Of the 59% of US software consumers who preferred to digitally download their purchase or had no preference, 40% would be prepared to pay extra for a backup copy on CD/DVD and 30% would be prepared to pay for extended download insurance.

Practical application

For software sellers that sell digital products exclusively, the segment of customers that desire physical copies need extra persuasion to download rather than seek out an alternative seller. “Instant gratification” of enjoying the purchase immediately is important to communicate.

Microsoft and Intuit both promote the green credentials of downloading software vs shipping it. This approach encourages consumer to change their attitudes about digital, and cuts warehousing, fulfillment and distribution costs.

If only download protection (insurance) is offered in lieu of a physical backup, the messaging must be very clear that the same protection is offered to address the FUDs (fears, uncertainties and doubts) this segment holds. The backup insurance option should be offered on the product page, it may encourage more people to add to cart.

For sellers that auto-apply optional download insurance to the cart, messaging should clearly convey the value proposition of the upsell – don’t just list it as a line item. Many sellers simply add the upsell to the cart, with no explanation of why the customer should not opt out of it.

Symantec uses a tool tip in the cart to highlight the value proposition of download insurance in a pop up window.

For vendors that offer some products physically and some digitally, available formats should be clearly shown. 80% of Electronic Arts’ PC games are available only as a download, yet they force the customer to select “digital” from a single option drop down box.

Save users a click by showing the single option with a pre-selected radio button:

The takeaway is that research can identify consumer preferences that can help you analyze your site and look for opportunities to persuade different types of customers – no matter what product you are selling.

To find out more about the buying trends of software consumers sign up for our September webinar Selling Software to Consumers, Upgrade Now! where we will explore the findings of the online survey and look at actionable advice for software retailers to improve the online shopping experience. All registrants will receive a complimentary copy of the research “Consumer Software Buying Trends 2010″.