Even if you do not think you know what good, better best pricing is, you most likely have come into contact with it. This pricing strategy is used just about everywhere. You may have heard it referred to as tiered pricing. This strategy involves giving customers three pricing options, each one gradually increasing. These prices fall into a good, better, and best options.
Often these options are called small, medium, and large. For example, think of any time you have purchased a drink or french fries at a fast food restaurant. You have been offered small, medium, and large options. Another way this pricing strategy is presented might be when purchasing train tickets.
You may be presented with the coach, premium, and business options. When considering these examples when thinking about good, better best pricing, you can see that it has worked effectively for quite some time.
What is Good Better Best Pricing?
Good better best pricing is a pricing structure that is based on a tiered model. Companies implement these pricing strategies to improve sales and attract customers. An effective way for your company to have a good better best strategy is to offer three different packages, services, or products.
There is a price point associated with good, another price point associated with better, and then a third price point associated with best. Each option has a higher cost than the one before, but the higher price comes with a better value.
Each pricing tier is considered an upsell or comes with additional services. Price sensitive customers are able to compare the offers from the same company. This prevents them from looking outside of the company to their competitors. Customer research has shown that this strategy allows customers to focus on value and not price or cost.
Ways to Approach Good Better Best Pricing
When a company is considering using the good better best pricing strategy, there are different approaches that it can use when creating this price structure.
A Defensive Approach
A defensive approach is ideal for a company that is seeking to reduce the attention its customers are paying to the competitors that offer similar products and services. This is also called a fighter brand which sells a less expensive version of the product.
This also keeps the attention of customers focused on their business. This is a great way for a company to react when its competitors have deals that could attract customers. The fighter brand offerings may be a great alternative.
The defensive approach is not focused on seeking new revenue. It is more focused on protecting a vulnerability. When a competitor offers a low cost option, it may force your organization to drop your price. This is not the best response. If you keep your prices stable, you may lose 10% of your customers to the lower priced competition. However, this means that 90% of your customers pay full price. You may lose 10%, but if you cut your price, 100% of your customers are paying a reduced price.
When you have a fighter brand, the items are already at a lower price but with new branding. Many companies have taken this approach, and it works well. As a result, this fighter brand has a solid footing in the good pricing category.
An Offensive Approach
An offensive approach is ideal for businesses that want new customers and promote growth. When it comes to this approach, customers commonly opt for the good option and then potentially upgrade to the better or best offerings. This option can bring growth to a business in as many as four ways.
The first way this helps a business grow is because it increases the margins by providing a high end option in the best category. This encourages customers to spend a little more money. It can also attract a new batch of customers that are willing to spend more money. Often, businesses underestimate their customers' willingness to spend a large sum of money and upgrade to the best category.
Even when the prices seem exceptionally high, there are many customers that are willing to pay the cost.
The next way this may help the business grow is because you can attract price sensitive customers with a good option that is a low price. There are customers that feel that the better option is out of their budget.
These customers feel good about the good option. It also limits the need for additional sales or discounts on services and products. This is essential because when a company offers a large number of sales, it can limit its power in a lower pricing tier.
The third way it can help improve revenue is because bringing a new best option can increase the entire brand. The benefits extend beyond revenue.
The fourth improvement is that having a solid item in the low priced goods platform can encourage related sales from complementary goods and services. Think about when you purchase a new phone. You also have to purchase a case, cord, and other accessories.
Understanding Your Customer
When a business focuses on providing value to the customer above anything else, they are using a customer-centric approach to pricing. This works well for companies that are well-established. This strategy also requires businesses to assume their customers will make decisions about purchases based on negotiation.
This strategy is not focused on gaining new customers or protecting themselves from vulnerabilities. This strategy is based on businesses understanding customer psychology and the way they will respond. As a result, businesses understand that offering a lot of features with a single product may overwhelm customers. It can also confuse them and prevent them from making a purchase.
Offering a good better best strategy to budget conscious customers helps them understand features, so they are able to compare them and determine which ones are valuable to them. This strategy also helps customers determine how much they are willing to pay for those features that are valuable to them.
What to Consider When Creating Good Better Best Pricing
If you want to create a good better best pricing strategy that works for your business, there are a few tips you should consider. If you remember these points, you will be able to create the best pricing strategy that works for your company and customers.
Consider Product and Service Packages
For a good better best pricing option to work for your customers, you have to determine what products and services you want to offer. Once you determine that, you should analyze them by listing them out and grouping them into categories.
When you create these categories, you can determine how each one complements the other. Then, you can curate options for your customers that allow them to see how unique your business is and encourage them to make purchases.
Understand Your Target Audience
This pricing strategy helps your company attract new customers and maintain existing customers. You will be able to attract big spenders and those that are more frugal. When you are able to select your target audience, you can learn more about them.
This allows you to create tiered pricing that caters to the spending habits and needs of your target customer base. Successful companies are able to learn more about their existing customers by asking for feedback and listening to their questions and comments.
Most of the time, companies will look for perfect price points to cover the demand for their products. If the price is too high, you lose sales, but if the price is too low, then you do not make enough money to increase your profit margin.
This could be a flawed thought for businesses because it does not always give you the results you want. Businesses can miss opportunities at a higher profit. You will always have customers that would buy your products if the price was lower.
You will also have customers that are willing to pay more for your products than the current price points. Instead, when you use the good better best pricing strategy, you can cover both groups. With this strategy, your better price group should be the perfect price.
Determine Your Price Points
Once you determine your categories and target audience, you are able to attach prices to the service packages. You want to ensure that you create different prices that have a natural progression which helps customers to see and understand the increased value. One way to create your pricing structure is to research the prices of your competition. This helps you select the appropriate starting point and create better and best categories.
Selecting the right price may take some testing and cost benefit analysis. You want the good option to be conservative. It should be high enough to cover your costs so you can stay in business.
You can use your lowest tier price to be low enough to compete with competitors that offer a significant discount on products. This also keeps you out of a price war with all the competition. As you add features to your products, you can gradually increase the price. Your customers will expect it and also respond well to it.
Marketing Your Options
Once you determine your three pricing options, you have to present them to your new and existing customers. A great way to show your tiered pricing is to list them on your website or advertisement. This gives your customers the ability to see all the options next to each other. When doing this, you want to include detailed descriptions of each option.
It could be helpful to add a picture that represents each package you offer. This gives your customers more information to help with their comparison.
It is essential that you market the pricing tiers to your customers. They want to have a story about the products and services you offer. You want to be effective in your storytelling to appeal to your customers. You also do not want your customers to have to search for information by clicking through multiple pages on the website.
If you are selling your products on Shopify, check out the Ulitmate Guide to Shopify pricing.
How To Help Customers Understand Good Better Best Pricing
Once your business has created the pricing structure based on your target audience, you must explain your tiered pricing options to your customer. It will not be as effective if your customers do not understand it. When they have this understanding, it helps them shift their focus from the idea of buying the products or do not buy the products to incremental spending.
Customers prefer to have choices. Customers do not want to feel like they have to buy your product or go without it. When you provide different price points to your customer, it helps them feel like they are empowered to make their own choices. They are filled with a sense of empowerment.
In addition, having choices helps customers stay with one business instead of shopping around. When customers have many choices, they are able to make decisions faster. Having information laid out for them helps them when making decisions. Customers most often choose the middle of the road option.
This is often referred to as the Goldilocks effect. Customers often feel like they are getting a subpar item when they select the good option. On the other hand, they feel like the best option may be too expensive with unnecessary features. The better option has just enough features at the right price.
The good better best pricing option is simple and easy to implement. It is compelling for executives to implement. For change to be effective, there must be buy-in from upper management. This strategy has proven to be effective, and tiered pricing is how successful companies succeed and grow.