Why Good-Better-Best Pricing Works, and How to Implement It

Whether you’ve noticed it or not, good-better-best pricing is everywhere you look. Also known as ‘tiered pricing,’ the good-better-best pricing strategy generally offers customers three options for a product at gradually increasing prices: the ‘good’ option, the ‘better’ option, and the ‘best’ option. Any time you go to a restaurant or a movie theater and they offer you small, medium, and large options, that’s good-better-best pricing. When you book a flight and choose between coach, premium economy, and business class: there’s good-better-best again. Every time you fill your car up with gas, ‘good,’ ‘better,’ and ‘best’ are represented by regular, plus, and premium options. With the prevalence of this pricing strategy, it stands to reason that this is an effective practice, so let’s take a closer look at how it works. 

Understanding the customer mindset

Does anyone like ultimatums? When you offer a single price, that’s effectively what you’re giving to your customer: “Either you buy this product for this price or you don’t buy it at all.” This isn’t an attitude that’s going to inspire your customers when they’re looking at your competitors, who may be more accommodating. With the good-better-best pricing strategy, you’re offering options – saying things like “If the ‘best’ is outside your price range, maybe our ‘good’ version will suffice” or “You may be able to benefit from the features that come with our ‘best’ version.” Without good-better-best pricing, people wouldn’t even have this option.

Establishing the three choices

In the technology industry, the good-better-best pricing strategy appears commonly for software that offers different versions depending on how it is intended to be used. Before you can move forward with offering different versions of your software, you need to determine the unique attributes shared by each product version, as well as what makes each of them different. The ‘good’ version should be your basic offering, with the minimum features your customer might need. As you expand to ‘better’ and ‘best,’ you should include additional features that you know your customers will desire.

You don’t necessarily have to stick to three offerings, but buyers love choices. It makes them feel like the seller is willing to adhere to the needs of a broader variety of customers. If you offer too many different options, it’s more likely that your customer will opt for the choice of walking away entirely, rather than determining which package is right for them.

Appealing to different types of customers

You should also be able to determine what features your customers will value and which version of your product will appeal to varying groups of customers. One example of this is Microsoft’s cloud-based project management platform, Project Online. Microsoft offers three Project Online SKUs: Project Online Essentials, Project Online Professional, and Project Online Premium. Each of these options has features that are geared towards specific customer needs. This practice allows you to market your product to completely different audiences, allowing for more sales opportunities.

If possible, it’s good to provide your customers with the option of upgrading to a higher tier somewhere down the line. When it comes to software – especially cloud-based software – you have the opportunity of increasing your profits by allowing customers who purchase your ‘good’ option to later upgrade to the ‘better’ or ‘best’ option. This increases your customer’s comfort, as they understand which features they are paying for and why the value thy bring to their specific for their business needs.

Finding the ‘perfect price’

Oftentimes, when selecting a price for a product or service, managers will attempt to find a singular ‘perfect price’ that reflects the overall demand for that product. Any higher and the lost sales outweigh the per-unit profit, any lower and the extra sales can’t make up for the lower profit margin. This flawed approach produces inaccurate results and missed opportunities at increased profit, because there will always be customers that would have bought your product at a lower price, just as there are customers that would be willing to buy it at an increased price.

With the good-better-best pricing strategy, you can account for both of these groups of customers. If you’ve put in the work to determine what your ‘perfect price’ may be, you should consider using that price point for your middle-tier option. However, there are a multitude of considerations when picking the actual price points for each tier.

Picking the price points

Choosing specific price points for each tier often requires a bit of trial and error. Your ‘good’ option should be conservatively priced, enough to cover your costs and keep you in business. Take a look at your competitors’ prices to determine a base understanding of how to price your own product. You can even use a lower tier option to compete against discounters without running into the possibility of a price war. As your product tiers increase in features, customers will expect the price to steadily increase as well.

There’s no hard science to how you should price higher tiers. However, your goal should be to attract customers at multiple levels of value, which means the prices should vary to a noticeable degree. For example, HubSpot separated its marketing solution into three tiers – Basic, Pro – which costs 4X as much as Basic, and Premium – which costs 3X as much as Pro. A strong differentiation between each product tier ensures that you can cater to a broader variety of customers and helps to establish a reference value.

 

Marketing your offerings

It’s absolutely essential that you market your different tiers properly and offer customers a way to compare each of the options that you are selling. Whether you’re building a presentation, a flyer, or designing your product website, you want to be telling the correct good-better-best story that applies to your product tiers and appeals to your potential customers. You should be sure that you detail all of your product tiers in the same place, which is often accomplished with a table or chart. You don’t want to force your customers to click on different pages of a website and try to compare features on their own.

Ultimately, the good-better-best price strategy is an effective approach for software, services, and other offerings. Just be sure that your product tiers are different enough to appeal to the needs of different customer groups, that your prices scale appropriately, and that your customers can easily determine the differences between each tier.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *