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Shopify Shakes Up Pricing: Is It Justified?
Why did Shopify raise its prices after 12 years?
In this article, we explore the recent pricing changes by Shopify after 12 years and examine whether they are justified. Is Shopify making a smart move, or is it alienating its loyal customer base? Read on to find out.
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When the pandemic disrupted our normal, it changed how we do business. However, Shopify experienced accelerated adoption (for obvious reasons). But when the pandemic slowed, the world was ready to return back to the old normal. That meant shoppers preferred to shop in stores, thus slowing the growth of digital retailers like Shopify. That’s when Shopify announced that they are hiking their prices for the first time in 12 years. Is it a genius move? Or one made out of desperation? I did a bit of digging around and here’s what I found about why they made such a pricing change and how it might impact them and their customers.
The first question that came to my mind “Why did they wait for 12 years to iterate with their pricing”. Followed up with “Should they have experimented with pricing and made small changes along the way?”
Why did they make these changes now?
Here are my findings:
Current changes in consumer behavior (After the pandemic, people preferred to go out rather than order online)
When Covid disrupted everyone's normal, it positively impacted Shopify. They had to keep up the growth trajectory
Proactively prepare for the recession
Revenues need to keep up with the innovation brought to the table by the Shopify team.
The only way Shopify could keep this momentum is by activating a growth lever that makes an impact immediately. “Pricing” as a growth lever (4Ps of Marketing, remember?) has been untouched by Shopify. Not a single change in 12 years, remember?
Shopify's new pricing
Monthly plan changes:
Basic plan -- increasing from $29 per month to $39 per month -- up 34%
Shopify plan -- increasing from $79 per month to $105 per month -- up 33%
Advanced plan -- increasing from $299 per month to $399 per month -- up 33%
Yearly plan changes:
Basic plan -- increasing from $14.44 per month to $29 per month
Shopify plan -- increasing from $39.44 per month to $79 per month
Advanced plan -- increasing from $147.78 per month to $299 per month
Shopify+ plan remains unchanged at $2000 (Fun fact: Shopify Plus stores account for 3% of the top one million internet sites)
Inevitably, all hell broke loose after these changes were announced.
Considering Shopify is a publicly traded company, I looked into the balance sheet of Shopify for the last 6 years. This is what it looked like:
Also, I took a look into the annual report and found this!
Only 26.6% of Shopify’s revenue comes from subscription services!
73.4% of their revenue comes from Merchant Solutions!
(Annual report of Shopify 22)
And Shopify is not making any changes to the pricing of its Merchant Solution services.
What can you learn from this pricing change?
Shopify cleverly nudges its current users to upgrade to a yearly plan (helping them save them a bunch of $). Thus, it increases retention and goodwill.
They didn’t make changes to Shopify+ as their biggest customers were there.
Clarity in communicating to their users via a blog post explaining the reason for the increase + emphasizing the fact that they have not made a change in the last 12 years. Read the blog here
Putting it into perspective
The bottom 20% of the merchants use 80% of the support resources. If the prices were increased, they could churn. Or Shopify will now be able to allocate necessary resources for support.
It was no longer about how many companies used the platform. What mattered was the $ value processed via Shopify stores.
Shopify is way ahead of its competitors with the integrations, ease of use, free tools, and apps that they offer. With a $10 increase in their basic plan, they would still be one of the best tools out there at the said price.
Why I think this price increase is justified
They need to prepare for inflation
They would need to keep the momentum up
Big commerce is their biggest competition But Big-commerce is now more focused on mid-level to enterprise customers. They are not targeting small-size companies. Ultimately, there are no direct alternatives at the said price.
While I empathize with small businesses who may feel the pinch, I believe Shopify needs to do what’s best for them.
When you look at this from a value perspective—users will still be “willing to pay" to use Shopify.
I predict churn will be minimal and so will new customer acquisitions.
But who am I to make such predictions!? I will add to this article after the next quarter's results are out.
What do you think? How do YOU think they should have gone about this?