In the digital age, there is more than one way to sell a product. Tiered pricing is a fairly new and popular method. It involves selling at different price points. The service or functionality is limited, with the most basic functions being at the lowest price and all functions available at the highest. We discuss how it may help your business below.
What Is Tiered Pricing?
Tiered pricing does not work for all products. However, it is great for those selling licenses and subscriptions. The most likely place you will have encountered it is with your online streaming services. They will give you a basic service with ads for one price, then allow you to take away the ads for a higher price. Even your home internet will use tiered pricing, giving different speeds depending on how much you pay.
How to Apply Tiered Pricing
At its most basic level, you can offer a product for free in a stripped-back format. The online casino industry has used this to great effect with its provision of slot games. Many of these can be played in demo mode. In these versions, players can experience the game without the opportunity to win real cash prizes until they play with actual money. This allows potential players to become familiar with the game’s mechanics, features, and bonus rounds before committing financially. For game providers, this method can lead to a higher likelihood of players transitioning to paid versions if they enjoy the demo experience.
With more advanced models, you need to break your product down into what the most attractive features are. Most companies then group them in around three to five different tiered models, with different features at each level. For example, it may have a basic plan, an essentials plan, and then a business plan on top.
As an example, imagine you are selling a software package used in music recording studios. The basic plan allows you to record eight different sound sources. It also comes with 100 samples for people to create music. The next tier, the essentials, increases the recording channels to 32 and has 500 different samples for people to use. The business plan has unlimited channels to record music and total access to a changing library of sound samples.
The Drawbacks of Tiered Pricing
The biggest headache when using tiered pricing is working out your costs. You need to make sure you are getting the right payment for each plan. This can often be much easier when you are just selling one model. This also needs to be balanced against giving the customer value for money, but not so much that they don’t need or desire the next step.
Too many tiers can also be confusing for a customer. They should be able to know what is right for them with just a few scans of the page. When more complexity is added, they will tend to feel overwhelmed and may go to competitors who have easier-to-understand systems.
Tiered pricing is a big step. You will need to discuss it with numerous departments, including finance and marketing. However, if done correctly, it could bring in huge amounts of revenue and increase conversions.
