Sales strategies are abundant: which one works more effectively?

There are tons of sales strategies as well as ways to set pricing for your services. Obviously you can not apply one strategy and one pricing to all clients. Different client situations demand a distinct sales approach. More often than not, pricing has always played a crucial role in closing deals. It is important to measure and understand which pricing strategy has worked effectively.

One pricing strategy has gained immense popularity these days is three tiered pricing. These days it is widely used in the professional services sector.

Let’s look at what is three tiered pricing exactly, what are its advantages, how to implement it to close deals faster.

What is three tiered pricing?

The usual way of proposing pricing is either a flat structure or table structure. One end of the spectrum gives you essential or basic pricing and the other end of the continuum gives you a complex, confusing pricing structure.

Three tiered pricing can present complex pricing in an easy-to-understand form and simple to select/ act.

 

Tiered pricing strategy is about presenting your business offer in three distinct options. It is typically presented in ascending order, meaning the next tier (on the right) has better/more features and higher price. Though each tier is designed for (or targeted at) different set of customers, the strategy is to push the customer from lowest tier to higher tiers.The combination of features and price point offered in the next tier are designed & presented to pull customers to the higher tier.

 

Why use a three tiered pricing strategy?

To put it in simple words – to turn a psychological advantage for business growth.

1. Psychological advantage for clients to select right package
2. Psychological advantage for provider to identify & serve the right segment for its services

Prospective customers who want essential service/ feature (and are unlikely to pay for higher tiers), will opt for the lowest tier. Those on the fence to take advantage of features of higher tier and have ability to pay will jump to the next higher tier. And finally those who feel the value of the ultimate tier as something personalized or offering special advantage will opt for the highest tier.

This approach not only helps your customers discover appropriate tier for themselves but also help you discover the right segment, right pricing for them. The discovery part takes a little bit of learning, careful attention to customer satisfaction/dismay.

There are other four main reasons, how three tiered pricing is helping businesses close more deals. Let’s see how.

4 Effective Ways Tiered Pricing Strategy Can Assist in Closing More Sales

Avoid ‘My way or highway’

Pricing is a sensitive topic for most customers. If you are going to send pricing in a standard line by line description or in a tabular structure, customers are left with only one choice.

Okay, you can call it two options. Take our offer or leave it.

This is indeed a problem. There can not be one fit solution or offer for all your customers.

The moment you introduce multiple options using three tiered pricing, you are changing the narrative for your engagement.

Client feels the ‘real decision making’ power resides with him/her.

In a way, three tiered pricing educates clients about three product/service options you provide.

Clients are in a position to make an informed decision, rather than forced to make a decision.

The conversion changes from ‘do you want to go ahead with my proposed pricing’ to ‘which option would you like to go for’.

And there is a huge difference between these two.

Let clients calibrate their ability to pay (& you tweak it)

If you take a look at an example such as Frame.io application; its pricing will help customers decide which tier is appropriate for them.

You should have your own assessment of pricing the products/ services you offer. You should take into account competition, add a premium of uniqueness in your product/service, superior value offered. You may get soft/hard signals from your prospective clients when you pitch your products/services to them.

With trial, error, market conditions and learning through experiences, we decide a fair pricing model for our products & services.

However when we propose our services to our client, we have no idea what the exact budget the client has. You may ask the client directly or call someone in the client’s company to gather information about it, but it is very hard to come by.

You can not get precise price elasticity, budget, readiness information for every client.

It is nearly impossible to know whether & how much a client will pay for your service.

With three tiered pricing, you can reduce this uncertainty to a greater extent. With three tiered pricing, clients have more than one option to select. Each distinct tier with its unique features and pricing enables clients to deliberate & decide which option is more appropriate for them.

As clients go through each tier, they understand the features available in it, the price point at which these services are available, add-on services available and can make an informed decision.

This process of carefully selecting tier from three options is actually empowering clients to come-out and specify products/services they want to receive, price they are willing to pay.

In this case, clients calibrate their ability to pay for your service and put their money on a given pricing tier.

You will be surprised to see conversions for highest tier

Many experts have experimented with pricing strategies, one such experiment was about how to make choices easier. This experiment revealed

Experiment 1: 24 product choices given to consumer

• 60% consumers who passed stopped & checked
  • They Sampled 1.5 products on average • of these 3% purchased

 

Experiment 2: 6 product choices given to consumers:

• 40% consumers who passed stopped & tasted
  • They sampled 1.4 product on average • of these 30% purchased

 

Just one choice can be very limiting for clients but too many choices can spoil the whole buying-selling game.

Another research experiment related to three tiered pricing revealed that if similar items are priced as Low, Medium and High, 66% chose MEDIUM tier and of the remaining 33% chose HIGH tier and the other segment chose LOW tier.

This is a big learning.

Just to put things in perspective and at the risk of loosely using these findings along with simplified assumptions; let’s look at the following calculations.

Let’s assume, you were offering your product/ service at a LOW price point of say $2.

90 customers were paying $180.

With three tier, you introduced $2.5 (MEDIUM) and $3 (HIGH); your service has now become appealing to 100 customers.

Of these 100 customers, now 66% will opt for the MEDIUM tier. It gives you $165

33% of the remaining will opt for the HIGH Tier: It will give you $55

And 66% of the remaining will go for LOW tier: It will give you $44

The new earning is : $264

So yes, there are advantages of implementing tiered pricing if you are pitching your products/ services to prospective or existing clients.

If played right, not only are you able to grow client base or revenue; it can also greatly add to your profitability.

Move up in the value chain, differentiate yourself

Let’s quickly see how to implement 3-tiered pricing for your business & close more deals

1. Review your offer & identify 3 distinct tiers
2. Build features of each tiers using one of the options
   1. Use PPT
   2. Use Table in Excel/ Google Doc
   3. Use tiered pricing software in Fresh Proposals software
3. Distinguish each tier from other two
4. Pricing is very critical; set reference price correctly
5. Present three tiers & add-on options clearly
6. Ask client ‘which one of these options would you prefer’

 

Can you apply it to your business? How would you do it differently?