Tiered Pricing: How To Create An Irresistible Offer
Your pricing is the culmination of your sales message, yet B2B sellers often settle for boring, lackluster pricing presentations that kill momentum and delay closing the deal. Remember, a purchasing decision is primarily emotional, and as humans, we’re swayed by many psychological pricing influencers— a good pricing strategy factors in both emotional and rational cues.
Fact: one of the top reasons the B2B buying process takes longer is disagreement over price.
Rarely does one price fit all. Yet, in many sales proposals, that’s what we often give buyers— one price, an ultimatum with no options. It’s no wonder pricing slows down B2B deals!
Just like your sales message, the pricing presented in your proposal should be personalized, allowing buyers the option to choose service packages and add or remove product features to purchase exactly what they want. And with the right strategy behind your pricing presentation, you can also influence which option your buyer chooses.
Enter good, better, best, or “tiered” pricing.
The psychology behind tiered pricing
Tiered pricing is the practice of presenting different service levels to buyers, each with incremental value and an increase in cost. The concept of “good, better, best” is familiar to us and is also quite common in the B2B space— you see it all the time on SaaS websites especially. And for a good reason— there’s proven psychology behind it.
Harvard professor Gerald Zaltman studied how consumers think, and his research revealed we aren’t as logical as we might believe. Instead, purchasing decisions are emotional decisions validated by logic. And to best reach that subconscious response, sellers need to be aware of emotional triggers— positive and negative ones.
Emotional triggers are automatic responses to certain situations. In a B2B setting, they can be anything from constantly needing to please or win to not being listened to, to arrogance— it varies greatly by the buyer and their past purchasing experiences. For example, if you sense from sales conversations that you are working with a buyer who doesn’t like to be told what to do or a completely opposite personality of “show me what’s best,” that gives you important cues for presenting your pricing.
Of course, since the pandemic hit, buyers may be even more tense or cautious. Tight or highly scrutinized budgets are causing buyers to seek more reassurance in their purchasing direction— they simply cannot afford to make a mistake. In addition, offering choices gives buyers a sense of control, whereas a single price point feels like an ultimatum, and when faced with a single price, buyers are more likely to ask for discounts or walk away entirely.
In contrast, tiered pricing can give your offer a psychological advantage. Tiered pricing usually has three options— a “good” choice or more basic offering, a “better” selection, an upgrade over basic, and the “best” package, the premium offering. Just the terms alone “good-better-best,” “silver-gold-platinum,” “standard-premium-VIP,” or whatever terminology you use, suggest that one is better than the other, tapping into the emotional subconscious to choose the option that’s perceived to be the best.
Implementing a tiered pricing model
While tiered pricing certainly can be offered based on more than three options, “good, better, best” pricing, by definition, involves just three choices. The concept is simple in theory but can be tricky in practice.
This video by ZoomInfo provides a good overview of how to think about and structure your good, better, best packages:
Start with the “ best “ option when developing your good, better, best tiers. “Best” should reflect an authentic “high-end” service experience with amenities designed to appeal to customers by offering them perks or features that they value.
Again, psychology comes into play. The “best” option should represent premium services in your buyer’s mind— rational and emotional benefits. For example, add-ons that make the buyer’s transition easier, onboarding less stressful, and adopting new tech less taxing on their staff or accelerates ROI. Design the price point to reflect the premium status while, at the same time, still providing value. For instance, a SaaS subscription service might offer a “best” option that includes white-glove onboarding and 24/7/365 concierge customer support.
Leveraging the low end of tiered pricing
The low or “good” end of your tiered pricing is also an opportunity for sales organizations in highly competitive markets to address competitive pressures. Too often, when faced with new competition, an organization’s first tendency is to lower costs—a step that often creates an economic “race to the bottom” and benefits no one.
You never know when a buyer will end up being price sensitive. Without a lower-priced option, they may turn to a competitor for a better deal. Thus, a basic level in your tiered pricing presentation is a good starting point and attractive to signing price-conscious prospects. At the same time, it still leaves the door open to upsell them down the road, as they become more comfortable with, and tied to, your service offering.
Note that your pricing package’s “good” tier should still meet the customer’s base need but exclude the optional frills or “nice-to-have” features to keep the price low. Never offer a package that only partially addresses your customer’s objective, as you risk losing buyer trust for recommending an option that fails to solve their expressed need, challenge, or aspiration.
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Developing your tiered pricing model
Tiered pricing can be structured many different ways, depending on your strategy. Here, we highlight three of the most common approaches.
The Goldilocks Effect
The Goldilocks Effect is the tendency for purchasers to select the middle option in a series of three. If you recall the Goldilocks story, a little girl comes across what she believes is an empty house with three bowls of porridge on the kitchen table. She tastes them and decides that one is “too hot,” and one is “too cold,” but the one in the middle is “just right.”
That same tendency to pick the middle option, especially when the top choice is at a very high price point, is a psychological element of good, better, best, or tiered pricing. It’s also sometimes called the “Center Stage Effect,” as the buyer most often chooses the median option.
In B2B sales, your “good” price point provides an easy entry for price-conscious prospects. Conversely, your “best” price point is set very high with features that hold appeal to top customers but at a price point not likely to appeal to a critical mass.
Your “better” price is the optimum price point you hope to sell most of your products. Prospects see the “good” price but realize there’s not as much value as the other options. However, the “best” price is just beyond their budget, so they look favorably at the “better” price— affordable and good value. And voila— you’ve made a sale that reflects a higher entry point, plus positions these new customers to be upgraded into the “best” category as they gain experience with your service.
The Decoy Effect
The Decoy Effect was first introduced by Duke professor, Joel Huber as a mispriced option to influence buyers to choose a more preferred selection. Dr. Huber found that buyers often had difficulty choosing between two options in his research. So, to offset buyer indecision, he added a third option with less desirable characteristics, to make the other options appear more attractive.
To apply this concept In your B2B pricing, consider adding a middle option that is similarly priced as the third option but offers much less value. Then, the natural choice is to go with the third option at a slightly higher price, as it provides more value for the money.
The Bandwagon Effect
Buyers often look at customer reviews for validation that your product will do as you claim. Reading reviews or talking to other purchasers eases buyer anxiety and builds confidence in their purchasing direction.
The Bandwagon Effect is similar, playing into a social need to know what everyone else is buying— it’s what’s called a groupthink psychological phenomenon, that if everyone is doing it, it must be the right option.
You can easily use the Bandwagon Effect in your pricing presentation by labeling one of your options as “recommended” or “most popular.” As humans, we take verbal, conversational, or purchasing cues from others. Since buyers are new to your product or service, telling them which package is most popular also influences them to choose that one.
Using tiered pricing in your sales proposals
Your pricing is the culmination of your sales message, yet B2B sellers often settle for boring, lackluster pricing presentations that kill momentum and delay closing the deal. Remember, a purchasing decision is primarily emotional, and as humans, we’re swayed by many psychological pricing influencers— a good pricing strategy factors in both emotional and rational cues. Additionally, your pricing presentation should make it easy for buyers to understand your pricing structure, allow buyers to choose options that interest them most, and validate their decision to commit.
So why are bland tables commonly used in sales proposals?
While you may find all of the tiered pricing examples covered in this article on website pricing pages, it’s less common to see them used in sales proposals. Much of the challenge has been PDF, and PowerPoint presentations can’t mirror web pricing formats— the technology doesn’t allow it. On the other hand, web technology offers more outstanding pricing presentation options and enables user interaction.
And that’s the excitement and exclusivity around Qwilr’s new pricing suite: using web technology, Qwilr opens up new capabilities to present your unique offering in an attractive and interactive manner, mirroring your website presentation and removing the speed bumps in your sales process.
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How you communicate your price is important; it can either slow down a deal or be a competitive differentiator and deal accelerator.
Book a demo with our team to see how you can customize a good, better, best pricing model and insert it into your sales proposal. After all, you and your team have worked too hard to have your pricing presentation work against you.