On Tuesday, Spotify CEO Daniel Ek confirmed the long-rumored launch of a Deluxe plan for the streaming service. This plan will offer high-fidelity audio and other premium features.
However, this move isn’t just a one-time event.
Why this matters. The significance of this move lies in the growing trend among technology companies to offer ultra-premium versions of their products and services to cater to their most demanding users, who are willing to pay more.
Some context:
- Spotify announced its HiFi service over two years ago, but its development has been slow.
- Ek has confirmed that the company is working on a Deluxe version, which will cost about $5 more than the current premium subscription.
- This strategy is similar to what other tech companies are doing in their respective markets.
The “ultra-premium” trend follows this pattern:
- A company launches a basic product or service.
- Then, it splits its offering into two: a free or cheaper version alongside a paid or more expensive version.
- It eventually introduces an ultra-premium version that’s better and more expensive in order to monetize the most enthusiastic users.
Some examples. The Apple Watch originally had basic (aluminum) and premium (steel and other materials) versions. In 2022, Apple introduced the Ultra model, which was more expensive than the previous premium version. Besides being geared to people with active lifestyles that practice sports, it aimed to provide a significant improvement in quality for the product’s fan base.
Initially, the tech giant offered the iPhone as a single annual model. Subsequently, it introduced the Plus, Pro, and Pro Max versions. In the broader phone market, there’s a noticeable increase in prices and a growing acceptance of them.
Recently, Microsoft raised the price of Game Pass to establish a new, more affordable version as the standard offering. This move also reflects the trend towards more segmentation and a stronger appeal to the most enthusiastic users.
Business logic. In 2023, Apple CEO Tim Cook confirmed the use of this strategy, anticipating the future launch of an even more expensive iPhone than the Pro Max. “I think people are willing to really stretch to get the best they can afford in that category,” he said. If a company sees an opportunity to raise prices or offer more expensive versions that will continue to be popular, it should do so.
This strategy can be likened to an economic cocktail:
- Base: the standard product, accessible to most or all users.
- Body: the premium version, targeting those looking for something more.
Cherry on top: the ultra-premium option, designed for true enthusiasts or those in a privileged financial position.
Why it works. The strategy segments the market and enables catering to different levels of purchasing power and enthusiasm for the product. In other words, the most loyal customers are willing to pay more.
This approach not only increases revenue but also enhances the company’s brand image, reinforcing perceptions of quality and exclusivity.
The challenge is to balance exclusivity with inclusivity, offering additional benefits to loyal fans without alienating the broader user base, many of whom may not view these changes favorably.
The launch of Spotify Deluxe exemplifies how tech companies are redefining premium services. In a highly competitive market, the message is clear: If you’re willing to pay more, you’ll get more.
This article was written by Javier Lacort and originally published in Spanish on Xataka.
Image | Fábio Alves
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