When Deception Drives Revenue: The Case of Superhuman's Pricing Strategy
In a tech marketplace where the barriers to entry have never been lower in the history of capitalism, a marketplace where innovation often outpaces regulation, some (probably way more than we’d like to admit) companies resort to practices that prioritize profit over transparency. That prioritize profit over respect for customers. That prioritize profit over ethics.
While these strategies often result in short-term revenue gains, they do so at the cost of long-term customer trust and brand reputation.
One recent example of this is the email software company Superhuman, which has informed current customers that they have implemented a new pricing strategy that raises some serious ethical questions.
Superhuman, known for its sleek design and productivity-boosting features, has historically offered a single pricing plan at $30 per month, expensive for an email app but the company built a product and a brand that customers became fanatical about and we’re more than happy to pay a premium price for an elegant email app.
However, in an email sent to all customers on August 12, 2024, the company announced the introduction of three new pricing tiers: Starter, Business, and Enterprise. While on the surface, this seems like a move to cater to different customer needs, as their CEO claims in his email to customers, upon closer look the email reveals a strategy that relies on deceptive practices to drive an increase in revenue.
Overview of Superhuman’s New Pricing Strategy
As mentioned, the email from Superhuman’s CEO outlined the introduction of three new pricing plans:
Starter plan at $30 per month
Business plan at $40 per month
Enterprise plan with custom pricing
In reviewing the email, it appears as if the Starter plan is equivalent to the existing plan in both price and features, while the Business plan includes additional features such as advanced AI tools, integrations with HubSpot and Salesforce, and 1:1 productivity coaching.
However, the problem lies in how Superhuman is implementing these changes. It seems like all existing customers are being automatically moved to the Business plan —the more expensive option— under the guise that it’s what they “currently have” as the email clearly states, “You are on the Business plan, which includes our most powerful features.”
Users are then given the option to “downgrade” to the Starter plan if they prefer to stay on their original $30 plan.
Breaking Down the Deceptive Practices
Deceptive Practice #1: Automatic Upgrade Without Consent
The first red flag in Superhuman’s strategy is the automatic upgrade of all users to the Business plan. This move is presented as a natural progression, suggesting that users are merely being shifted to a plan that reflects the current service they’ve been receiving. In reality, users are being placed on a more expensive plan without their explicit consent. This practice is not only deceptive but also disregards the principles of customer choice and transparency.
Deceptive Practice #2: Misleading Terminology
Another aspect of Superhuman’s approach is the use of misleading terminology. By framing the option to revert to the original plan as a “downgrade,” the company creates the illusion that users will be losing value by sticking with what they initially signed up for. This tactic leverages psychological manipulation, nudging users to believe that the Business plan offers superior value, even if it doesn’t align with their needs.
Deceptive Practice #3: Forced Annual Billing for Retaining the Current Price
Superhuman further compounds the issue by offering users the option to “lock in” their current price by switching to an annual plan. This means that to retain the $30 per month rate, users must commit to a full year of service, effectively reducing their flexibility and securing more revenue for Superhuman upfront. This approach preys on users’ desire to avoid price increases, pushing them into a financial commitment they may not have otherwise made.
Ethical Implications of Superhuman’s Business Practices
These tactics deployed by Superhuman raise significant ethical concerns. While it’s not uncommon for businesses to adjust pricing or introduce new plans, i think within the past year my subscription rates at Amazon, Netflix, Hulu, Xfinity, and i’m sure others have increased, but the way these changes are communicated and implemented matters.
Deceptive practices like those employed by Superhuman undermine trust, a crucial element of any customer relationship. When companies prioritize short-term revenue gains over transparent communication, they risk damaging their reputation and alienating their user base, even a fanatical user-base like Superhuman has built.
For Superhuman, the long-term consequences could be significant. Customers who feel tricked or manipulated are more likely to cancel their subscriptions, share negative feedback, and switch to competitors. In a competitive marketplace like we have today, where consumers have more choices than ever, maintaining trust is essential for sustaining customer loyalty.
Financial Analysis of the Strategy
Sadly, despite the ethical concerns, it’s likely that Superhuman’s strategy will be highly profitable, increasing the value of the company, making it more attractive for a high-end exit, affording their CEO the luxury to purchase a $20,000,000 beach house in Malibu (if he doesn’t own a couple already).
By automatically moving users to a more expensive plan and encouraging them to lock in the current rate with an annual commitment, the company stands to significantly increase its revenue, even with some customers being turned off by their deceptive, i’d argue unethical business practices, and cancelling their subscriptions. =
Let's assume Superhuman has 50,000 paid users on the original $30 plan.
Let’s also assume that the majority of customers stay on the Business plan, either because they see value in the newly added features or they are tricked by the strategy of deception.
Some back of the napkin math:
75% stay on the Business plan at $40/month.
20% downgrade to the Starter plan at $30/month.
5% cancel their subscriptions.
Assumptions:
Total Customers: 50,000
Pre Plan Annual Revenue: All customers on the $30/month plan
Pre Plan Annual Revenue Calculation:
Monthly revenue = 50,000 customers * $30/month = $1,500,000
Annual revenue = $1,500,000 * 12 = $18,000,000
Post Plan Annual Revenue Calculation:
Business Plan: 75% of 50,000 customers = 37,500 customers
Monthly revenue from Business Plan = 37,500 * $40 = $1,500,000
Annual revenue from Business Plan = $1,500,000 * 12 = $18,000,000
Starter Plan: 20% of 50,000 customers = 10,000 customers
Monthly revenue from Starter Plan = 10,000 * $30 = $300,000
Annual revenue from Starter Plan = $300,000 * 12 = $3,600,000
Cancelled: 5% of 50,000 customers = 2,500 customers
No revenue from cancelled customers.
Total Post Plan Annual Revenue:
Annual revenue from Business Plan + Starter Plan
$18,000,000 (Business Plan) + $3,600,000 (Starter Plan) = $21,600,000
Percentage Increase in Annual Revenue:
Increase = Post Plan Annual Revenue - Pre Plan Annual Revenue
$21,600,000 - $18,000,000 = $3,600,000
Percentage Increase = ($3,600,000 / $18,000,000) * 100 = 20%
Alternative Strategies Superhuman Could Have Used
Superhuman could have approached this pricing change in a way that respected its users and maintained trust and also resulted in an increase in revenue.
Here are a few alternative strategies:
Transparent Pricing Communication
Superhuman could have communicated the new pricing plans clearly, explaining the value of each tier without automatically upgrading customers.
Opt-In Upgrades
Rather than automatically moving customers to a more expensive plan, Superhuman could have invited users to upgrade, highlighting the additional features and benefits.
Free Temporary Upgrade
Superhuman could have upgraded all customers to the Business plan, for free, for a couple of months, giving them an opportunity to prove the value of their new features, at which time customers would be offered an invite to upgrade to the Business plan and if no action is taken the customer is automatically moved back to their “current” Starter plan.
Incentives for Loyalty
To encourage customers to upgrade voluntarily, Superhuman could have offered incentives, such as a discounted rate for early adopters or additional features for those who commit to an annual plan.
While Superhuman will more than likely come out ahead financially from this move, making their founder and investors really happy, it’s still really important to understand that customers have more choices than ever and trust is a valuable currency.
Superhuman’s recent pricing strategy will drive revenue in the short term, but it may come at the cost of customer trust and brand loyalty.
i still hold out hope that companies that prioritize transparent communication and ethical business practices are more likely to build lasting relationships with their customers, leading to sustainable growth and success.
As consumers, it’s important that we remain vigilant and hold companies accountable for their practices. After all, it is up to each of us to ensure that in the long run, businesses that operate with integrity are the ones that truly succeed.
