Ever since the emergence of early innovations, such as layaway and “buy two, get one free” pricing models, retailers have experimented with new ways to appeal to and meet consumers’ financial needs. One such iteration takes the form of “freemium” subscription models. The pricing strategies typically involving offering basic goods or services for free, then charging a premium for advanced features. 

Mobile applications and games were early and familiar adopters of this model, using free features to attract a broad audience, then encouraging users who had begun to embrace and engage deeply with the offerings to pay for additional functionalities. But other services also have had success with this pricing concept, including streaming services like Spotify and technology providers like Dropbox. In these models, sellers first seek to establish their products’ value, then shift their focus to generating profits from their sales.

As the baby product company Happiest Baby recently learned though, the freemium model also can be risky, because some consumers react negatively when their access to full product functionality is blocked by a paywall. Happiest Baby is best known for its popular SNOO smart bassinet. Buyers can set a specific rocking speed and level or track their baby’s sleep by checking a complimentary app that links to the bassinet. Such functionalities have proved incredibly helpful to new parents and their efforts to sooth their newborns. 

Originally, the bassinets sold with all such features included. But in July 2024, the company introduced a $20 monthly subscription fee for anyone who wanted to access the premium features. The change prompted a rash of negative reactions. The bassinets are relatively expensive to begin with, so having to pay a monthly fee on top of the steep initial investment seemed unreasonable. Furthermore, baby products are innately used for only a short period of time, and a thriving secondhand retail market allows consumer sellers to recoup some costs and consumer buyers to obtain big ticket items for less money. But with the imposition of the monthly fee, the large segment of secondhand buyers noted their sense of being penalized unfairly for not paying the full retail price and purchasing a brand new bassinet from Happiest Baby directly. 

Happiest Baby sought to mitigate consumers’ anger by offering original buyers a nine-month premium subscription for free, but the offer failed to address many of the complaints raised. As a result, brand trust levels took a dive, and some consumers vowed to find alternative options from other companies.

Perhaps Happiest Baby should have been able to predict these outcomes. Other sellers have similarly come under scrutiny for using similar pricing models, as when BMW introduced a subscription fee for features like heated seats or Mazda faced criticism for introducing subscription fees for its Mazda Connected Services, which offer keyless entry and remote start features. Such cases provide a cautionary tale for companies considering whether and how they might adopt a freemium subscription model. 

One alternative approach might involve a tiered subscription model, providing different levels of access at different price points, which then could support a smoother transition to a freemium pricing plan. Even in this case though, transparent communication likely is key. Customers are more likely to accept novel pricing models when companies explain the reasons for introducing them.

Discussion Questions

1. What do you think the long-term impact on revenue and pricing outcomes will be for Happiest Baby?
2. How can Happiest Baby adjust its freemium model, to mitigate further backlash?

Sources: H. Dennis Beaver, Esq., “Automakers’ Added Subscription Fees Raise Legal Questions,” Kiplinger, January 2, 2024; “Mazda Faces Backlash Over New Commercial And Subscription Fees,” The Pinnacle Gazette, August 4, 2024; OpenAI ChatGPT, “Assistance with Research on Freemium Pricing Models and Consumer Reactions,” ChatGPT, August 25, 2024; Sandra E. Garcia and Rachel Sherman, “Want to Avoid a Hit to Your Smart Bassinet’s I.Q.? Better Pay Up.,” The New York Times, August 17, 2024.