A one-size-fits-all approach is less appealing than a personalized experience. This is true for both the merchant and the consumer. If you’re selling concert tickets, for example, having a cheaper general admission ticket and a more expensive VIP care ticket would probably be a good option.
This is a common example of price tiering, which provides the seller with more opportunities to convert leads and the buyer with more possibilities to fit the experience and price they desire.
What is tiered pricing?
Merchants who offer their prospects a variety of pricing plans or packages are most likely using a tiered pricing model. Tiered pricing provides customers with a range of prices based on specific features, benefits, or services. These tiers allow customers to select the option that best meets their needs and frequently incentivizes them to advance in tiers over time.
Most price tiering models have three distinct tiers that range from “basic” to “plus.” Tiers can sometimes differ so much that they have different target audiences — consider “personal” vs. “business” packages.
Tiered pricing models are particularly effective with memberships, event tickets, and services, but they can also be applied to a much broader range of industries.
Tiered Pricing as a Pricing Strategy
Many SaaS companies have three tiers to differentiate their price points, and some have even more. A tiered pricing strategy is based on the idea that your prices and features should be tailored to the various needs and use cases of the clients you’re selling to.
You must exercise caution when determining the value metric and the cost for the various tiers. Your value metric for pricing can be quantitative, usage, feature sets, or based on how your consumers view the product. The number of tiers should easily capture the market by trying to target different market segments while minimizing revenue loss.
Implementing the Strategy to Improve Revenue and Retention Rate
To implement the tiered pricing strategy for improving revenue and retention rate there are certain other factors such as market research to determine the best practices for every business. Furthermore, Understanding the average customer’s income and motivations is a critical first step. Let’s read about the steps that will help you implement this strategy for improving your business subscription revenue.
Know your customer base.
Finding the best price for your customer base necessitates knowing who that customer base is. You can’t charge premium prices to a customer base that is looking for the best deal possible. Understanding the average income and motivations of your typical customer is thus an important first step.
Recognize the perceived value of your product.
This is related to what we said earlier. Understanding what your customers believe your product is worth is critical to determining the appropriate pricing. You will lose money if you charge less than they believe it is worth. Nobody will buy if you charge more than the perceived value. Tiered pricing complicates the process because you must divide your product into logical segments and analyze each one separately.
Clearly communicate pricing tiers
Many of us have encountered a pricing page that was overly complicated. Breaking things down into tiers is a great way to allow customers to customize how much they pay and what they get in return. However, if you provide too much customization and too little explanation of how things work, things can quickly become confusing.
Implement localized pricing to reach more potential customers.
This isn’t specific to tiered pricing, but it’s a good general strategy. Different parts of the world have varying amounts of disposable income. Furthermore, different cultures place a higher value on certain characteristics than others. By tailoring your pricing to each location where you do business, you can increase the profit-maximizing consequences of tiered pricing.
How Tiered Pricing Can Help You
Price tiering provides your customers with flexible options, allowing them to select what best meets their needs and budget. This allows your company to reach a larger and more diverse audience. However, don’t be rushed into accepting the benefits. Consider your company, your product or service, and how well this pricing model could be implemented.
A Tiered pricing strategy can be a game changer for you if it’s done right. Using the subscription management platform – SubscriptionFlow you can avail it all seamlessly and improve the retention rate. Schedule a demo with SubscriptionFlow and flourish your business without any halt!
