Good-better-best pricing allows organizations to market to multiple customer segments and maximize revenue. In our previous article about good-better-best pricing, we deep-dived into the key strategic benefits of this pricing strategy, which include:
- Deliver specialized offers for premium customers to realize higher transaction value
- Defend against low-prices competitors with new value-oriented offers
- Boost brand reputation and unlock new customer segments through the introduction of premium offerings
Good-better-best pricing allows customers to make the trade-off between value and price. Some key factors as you build your good-better-best pricing structure are:
- The 3 Tiers: As the name good-better-best pricing strategy implies, companies are inclined to segregate their offering into three tiers. They often start by building an all-in offer, then a completely stripped-down base offer, and lastly something in the middle. Keep in mind that while creating tiers each version should add value for the customer, otherwise, companies should forgo the idea of 3 offers.
- The Paradox of Choice: The name good-better-best implies 3 offers but sometimes companies go overboard with a multitude of offers. Too many choices make it complicated for sales teams to sell and for customers to understand. While designing offers, you need to ensure that different customer needs are met without flooding the customers with needless choices.
- Define ‘Fence’ Attributes: Fence attributes can be defined as the key attributes between the offerings that the customers really want and serve as the gatekeeper of the offering, preventing customers from trading down to cheaper offers. For example, the base tier of SalesForce does not include workflow automation, and if this is the key feature required, customers will be pushed to upgrade to the next tier.
- High Appeal & Low-Cost Benefits: To gain high-profit margins, companies need to add features that are relatively low in cost yet add value for the customer. For example, offering early boarding to first class passengers in the airline industry is a perk that costs nothing but adds substantial value for the customer.
Key Customer Insights Required
Good-better-best pricing strategies need to be driven by customer insights to equip your business with the right pricing strategy. Here are some key areas to consider for acquiring customer insights:
- Undertake Market Research: Relying on data-driven decisions is always better than educated guesses, hence the best way to determine the pricing structure is to do extensive market research. It will help you understand customer perception, customer pain points, common requirements, and price elasticity. These insights help you in drafting tentative good-better-best bundles tailored to serve different customer segments.
- Look At Your Competition: Evaluating the prices of your competitors helps you in getting a general idea of how they are pricing, packaging, and how are they meeting customers’ needs. You can also gauge what strengths they are playing to and the best way for you to compete. Simply copying your competitors’ selling model is not a great idea but studying them can prove to be valuable in the long run.
- Conjoint Analysis: Conjoint analysis is a survey-based research tool used to determine how customers value different attributes in a product/service. This is done by presenting customers with iterations of different pricing offers, enabling your business to optimize feature and price packages.
- Test & Learn: At times undertaking research is not feasible, in such a scenario it is best to test out multiple offers and compare their performances. The goal is to understand where the value truly lies for the customer and zero down on the offer structures that work best.
Ultimately, good-better-best pricing is a powerful tool to leverage current offerings and boost revenue for your business. Our team at Revenue Management Labs can help you formulate a good-better-best pricing strategy with product/service tiers that appeal to the needs of different customer segments at scaling price points and setting you up for sustainable success.
ABOUT THE AUTHOR Michael Stanisz is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Michael at [email protected]