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February 15, 2022

What is Tiered Pricing? Proposal Pricing Guide

Tiered Pricing

Product/ services pricing

Pricing strategies are integral to the success of a business. In fact, one third of a company’s profits come from product pricing strategies. The question is not whether or not to use pricing strategies, but rather which pricing strategy will work best for a business’ goals and objectives. Pricing strategies can be used in many different ways depending on what type of products you sell. For example:

Tiered pricing – A form of price discrimination where customers pay more than they would if there were no tiers. This may include discounts based on quantity purchased, customer loyalty programs, etc.

Should you including pricing in your proposal?

When you create a proposal for a potential customer, it is common to include pricing information on the products or services you are offering. In fact, it is downright necessary. But what if your pricing changes? With more and more customers requesting price tiers, including prices in your proposal not only prevents those awkward follow-up questions from customers but also provides an opportunity to win their business. If they don’t know how much something costs, then there’s no way of knowing whether that item will fit into their budget. And when you’re competing with other vendors who have already included this important piece of data, why should they choose yours over theirs? And pricing is one of the most crucial factor for making a decision.

The first thing you have to do if pricing your product or service, is know what your competitors are charging. This article will give a brief overview of the different pricing models out there and their advantages and disadvantages. You don’t want to price yourself too low or too high- it’s important for customers to see value in what you’re offering.

But before we jump into tiered pricing guide or proposal pricing, let’s look at product pricing or services pricing from basic.

Types of pricing models

The way a business prices their products and services is a hugely important decision that can have a huge impact on their bottom line. There are many different ways to price an item, but the most common pricing strategy is tiered pricing. Tiered pricing is where the price of a product or service changes depending on how many units are purchased. In some cases, the more units purchased, the cheaper it gets per unit. This type of pricing model has been around for decades and is still used today by businesses all over the world. It’s also one of the easiest types of pricing to understand because you only need two numbers: The base cost and the number of items sold at each tier.

Types of pricing strategies

  • Value based pricing
  • Competitive Pricing
  • Cost-Plus Pricing
  • Market Penetration Pricing
  • Price Skimming
  • Economy Pricing
  • Dynamic Pricing
  • Premium Pricing
  • Bundle Pricing
  • Tiered Pricing

Value based pricing

Value-based pricing (also called tiered pricing) is an approach to pricing goods and services where the price is based on value. Value-based pricing allows the seller to differentiate the price of goods and services according to their value, quality or utility. It can be used in business sectors ranging from retail to software, and it has also been applied by governments to reduce taxes for low-income earners.

Competitive Pricing

In a competitive economy, price is often a driving force in determining which goods and services are purchased. In order to stay profitable, businesses need to have pricing strategies because different people have different budgets. Tiered pricing allows for business owners to divide their products based on the type of customer they are marketing towards. This way, the more expensive product does not cannibalize sales from the cheaper product.

Cost-Plus Pricing

There are two common pricing strategies that companies use to maximize profitability: cost-plus pricing and tiered pricing. The decision of which strategy to utilize is often based on the type of product or service. Cost-plus pricing uses the total cost of making a product or service as its price, meaning that the company gets to make a profit off of it. Tiered pricing divides the market into different groups, with varying prices for each group.

Market Penetration Pricing

Pricing for market penetration is essentially the opposite of price skimming. Rather than starting out high and lowering prices as you abandon a market, you overtake the market by being the lowest price among your opponents. Though you cannot take high prices immediately, your business will bear the loss as long as you focus on establishing a consistent customer base. A number of factors enter into choosing this strategy, including your business’s ability to incur upfront losses to establish a foothold in the market.

The average cost of a new car in the United States is roughly $35,000. Yet some models are priced at up to $90,000. Why are there such drastic differences in pricing? This is one of the most common methods of pricing known as market penetration pricing. Market penetration pricing is where prices are initially low to entice customers to purchase more expensive items later on down the line.

Price Skimming

Setting a high price when a product is introduced and then lowering the price over time is more characteristic of businesses entering new markets than to companies already established in a market segment. These companies have an opportunity to take advantage of early adopters and then undercut existing competitors who reach an already established market. A business model with a large market is likely to be profitable.

Economy Pricing Strategy

An economy pricing model entails maximizing revenues by targeting consumers who want to pay less for the best item or service they’re likely to purchase. Big-box stores, including Walmart and Costco, are prime examples of economy pricing strategies. Like premium pricing, adopting an economy pricing model is based on your overhead costs and your item’s overall value.

Dynamic Pricing strategy

In this article, we will be discussing dynamic pricing strategy. Dynamic pricing provides a way for companies to adjust their prices depending on the demand for a product at a given time. This can be done by setting different tiers of pricing for different times of the day or days in the year. For example, this may allow companies to offer higher prices when demand is high and lower prices when demand is low.

Premium Pricing

Products that are centered around high-quality design and accessories go well with premium pricing. Premium pricing is particularly effective when companies market to high-income individuals. For this strategy to succeed, you should focus on offering products that are high-quality and customers see as high values. You should design a “luxury” or “lifestyle”-style branding to appeal to the correct crowd.

Bundle Pricing

If companies try to bundle several of their products together and sell them for less as a single entity, it’s called bundle pricing. Bundle pricing is an effective strategy for moving large quantities of inventory quickly. A successful bundle pricing strategy will focus more on profits on lower-value products than the losses resulting from placing higher-value products into a bundle.

Tiered Pricing

Many businesses offer a tiered pricing strategy to their customers. This type of pricing strategy is used to group products and services based on the amount the customer is willing to spend. For example, a restaurant may offer an entrée for $10, entrée and side dish for $19, and entrée and appetizers for $27. Tiers can be used as a way to segment customers into groups that are likely to purchase higher-priced products or services over others.

 

What is tiered pricing?

Tiered Pricing – Definition

The tiered pricing strategy is used by businesses to provide their clients different service choices or products with corresponding varying price points. Tiered pricing typically sets prices that align with the number of goods sold or the number of features within more complex items. Tiered pricing is a pricing strategy businesses use to present customers with several product or service options, with corresponding pricing levels. Tiered pricing sets price points that reflect the total volume of items in a purchase or subsets of features within more complex products or services.

Some people may not understand what tiered pricing is, but it is actually a relatively common type of pricing for clothing and other products. Tiered Pricing is the agreement that makes it so that high-priced items are grouped with low-priced ones in an effort to encourage customers to buy more than they planned to buy. This type of pricing can be seen in many stores and gives customers a variety of price options. For example, if your store sells shirts for $20-$30, then you could have three tiers of prices: $10, $15 or $25. Customers who want to save money will choose the lowest priced option while those looking to spend less would go for the middle one. The higher tier may not sell as well because people don’t like spending too much on something they already own. However, this strategy is also used by retailers when selling expensive products such as cars, boats, etc.

 

Examples of tiered pricing

Let’s look at some of the examples of tiered pricing and how various types of tiered pricing are used in different product/ service providers.

Freshbooks Pricing

Freshbooks Tiered Pricing

 

Zoom Pricing

Zoom Tiered Pricing

 

Frame.io Pricing

Frame.io Tiered Pricing

 

Scoro Pricing

Scoro Tiered Pricing

 

Moz Pro Pricing

Moz Pro - Tiered Pricing Guide

 

Crisp.chat Pricing

Crisp.chat Tiered Pricing

 

Gusto Pricing

Gusto Tiered Pricing

Types of tiered pricing models

A tiered pricing system is a method for setting prices for certain items or services that can be grouped into several different categories. The

  1. Basic or three-tiered
  2. Feature-based tiers
  3. Usage-based tiers

Advantages of tiered pricing

A tiered pricing system is a method for setting prices for certain items or services that can be grouped into several different categories. The idea is to provide the best service possible at the lowest possible cost. Tiered pricing was originally pioneered by grocery stores, who found that they could better serve their customers by offering certain items at discounted prices to those who bought other items, but not everything within the store. This allowed them to offer more variety and selection while still keeping costs down. It has since been adopted in many industries including retailing, travel, telecommunications, insurance, banking, healthcare, education, government, and entertainment.

  • The ability to offer products at different price points
  • Charging less for a bundle of products
  • The ability to sell products individually at higher prices
  • Different price points based on customer demographics
  • Being able to control pricing by limiting the number of items sold in a tier

 

Flip side of tiered pricing

Not every product or service can be tailored as tiered pricing.

If features/ pricing are not formulated correctly and clearly, clients may get confused.

In order to make it work, you will have to ensure you understand your target market, prospects better e.g. bulk buying may not be good option for every product/service.

Normally, to make a tiered pricing offer is not something can be perfected right on the first day. You will have to carefully listen to your customers, learn from their buying experience and tweak the offer.

Why does tiered pricing strategy work?

Many companies use tiered pricing strategies, which are typically based on the quality of the product or service. Tiered pricing can be an effective strategy to help differentiate your offerings and capture more profits by charging different prices for different types of customers. Productivity theory suggests that charging higher prices for premium products creates incentives to produce higher-quality goods. In addition, it is easier to sell high-priced products than low-priced ones because consumers have less bargaining power when buying expensive things. However, there are a few drawbacks with this approach:

1. It’s hard to know what price will maximize sales volume. You may end up selling fewer units at lower prices than you would if you charged higher prices. This problem becomes even worse as demand increases. For example, suppose your product costs $1 per unit and the market demands 10 million units in one year. If you charge $10 per unit, then you’ll make only 9 million units; however, if you raise the price to $20 per unit, you can still make all 10 million units but you’ll lose money on each sale. The reason is that people who buy more of your products have less purchasing power because they’re spending more for them. In this case, raising the price from $10 to $20 actually decreases revenue by about 5 percent.

Elements of an interactive tiered pricing

Interactive Tiered Pricing - in Fresh Proposals Software

There are specific aspects of tiered pricing that helps prospect in quickly understanding the offer and make the decision. These elements are

  1. Distinct tiers (plans)
    • Tier Name
    • Price
    • Type of fees (recurring of fixed)
  2. Features included in each tier
  3. Call Out
  4. Optional Fees item applicable to each tier
  5. Summary calculations
    • Selected tier price
    • Taxes
    • Discounts
    • Final total

 

Advantages of Tiered Pricing in Proposal

It makes easier for client to decide

  1. Client can clearly see different offers and pricing for each
  2. Client can compare product/service offers in terms of value offered, features, pricing
  3. Client can identify & select the product/service plan suitable for him
  4. Client can select optional fees/ add-on by himself, increase/decrease quantities by himself

 

It makes easier for you to promote

  1. You can propose service/product such that different clients can relate to different offers
  2. You can provide choices for your clients
  3. With right combination of features, pricing, you can upsell client to next tier
  4. You can promote specific offer/tier with call-out, pre-selection and design

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