👉 Background: Spotify launched in Sweden in 2008 and is now the world’s largest music streaming service with nearly 700 million total users with 276 million paying subscribers. Last month, Spotify’s shares got whacked after it posted a €86 million quarterly loss as a result of higher costs of staffing, marketing, and payroll taxes.

‍👉 What happened: Now, Spotify will pull the price lever to recover some of those losses and announced plans to raise subscription prices across South Asia, the Middle East, Africa, Europe, Latin America, and Asia-Pacific. The only region saved was he US because they’ve already copped two price rises in the past two years.

‍👉 What else: Investors have been pushing for more price increases for years, but Spotify have held off (until now). So when investors got wind of this news, Spotify’s stock popped up to 8%, mainly because it will help their bottom line...and there isn’t expected to be any impact on its subscriber numbers.

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‍What's the key learning?

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‍💡Pricing power is the ability of a company to increase prices without significantly reducing demand for its product or service.

💡In subscription-based businesses like Spotify, pricing power can be built on a range of factors:

• It might be the playlists or the exclusive podcasts that keep them around despite the price rise
• For others, it’s more of a habit formation because Spotify has become an embedded service their daily life (think: curated playlists or personalised recommendations)

With these sticky features, it means Spotify can lift prices incrementally while retaining most of its base.

💡Although, it can be a real balancing act. If your raise prices too often or too much, you risk losing subscribers to rivals. For example, Nestlé raised prices by around 10.6% on their confectionery goods in the first half of the year and suffered “lower consumer demand” as a result. So investors are hoping that Spotify is striking the right balance.