Marketing June 1, 2015 Last updated September 18th, 2018 1,344 Reads share

Creative Ways to Leverage Tiered Pricing to Boost Profits

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If I walk into a Honda new car showroom tomorrow just looking for a standard, gasoline-engine family car or commuter, I’ll have options that range from just over $18,000 to around $37,000.

When I walk next door to Honda’s other brand – Acura – the top end pricing for that generic sedan or coupe will start at something like $54,450. All of the prices I’m tossing out here are MSRP figures. Not to go too hard on the auto industry, but your dealer will probably talk you into some magical undercoating and other charges that no one understands…but I digress.

The point I want to make is that automakers are masters of tiered pricing. They hope that no matter what your budget is, they’re going to be able to get you into a car, and probably today! (Maybe I should have used tickets for major league baseball teams as my example, because their tiered pricing relates to tiers, literally.)

As the new car example shows, this strategy has a long history in the brick-and-mortar world, but it’s not used nearly as often in web-based businesses. Many major software as a service providers have tiered pricing plans, although often they seem more related simply to the number of users that will have access to the SaaS.

I’ll look at a few other ways that almost anyone can use to reap the benefits of tiered pricing, even if they don’t have the resources to invest in sophisticated software that “unlocks” features as users buy into more options. We are in a service and information based economy now, and those kinds of businesses will certainly be able to use this advice. If you’re selling widgets – or new cars – you build in more features to create the tiers.

Freemiums

The bargain basement, entry-level of your service is the now-classic “freemium.” Technically I shouldn’t include freemiums in tiered pricing because freemiums have no price. However, it’s important to understand their use and to show you how you already have a freemium, even if you don’t know it.

Freemiums serve two great purposes: they allow you to test and develop your product in the real world and they help you build a market, or at least an “audience.” We are all familiar with the freemium app downloads, but even if you aren’t marketing an app, you can have a freemium. And remember, “free” is powerful.

For most service and information based businesses, your blog – and really all your social media – should be considered your freemium. Videos also make good freemiums. You are giving these away at no charge with the hopes of “upselling” people to a higher tier down the road.

People are always doing a cost-benefit analysis, although sometimes it happens subconsciously. For example, there are probably some blogs that you’ve given up on because they just seemed to get boring or cease to tell you anything new.

When someone takes the time to design an app that will be given away as a freemium, the creator has an idea of which features will be added to take users to the paid levels. However, when your blog or YouTube channel videos are your freemiums, you may not approach their creation with the same amount of intent. But remember, if you have a track record of delivering value via your freemiums, it makes it much easier to take users to the paid tiers.

Entry-level pricing

Do you know what fishermen are doing when they “chum” the water? They’re tossing handfuls of bait into the water to get the attention of the fish. That’s what a freemium does. When the maker of the freemium gets the attention of the user, then it’s time to present the bait with the hook it in and see how many people “bite.”

A great way to translate this for many businesses is to write a short ebook that you will offer for a price. Then draft a series of useful blog posts that relate to the topic. Use the posts to promote the sales of your ebook.

The trick is to sell the usefulness of your ebook by establishing your street cred in the blogs. This means that they can’t be vacuous pieces written solely to tout your ebook. It doesn’t have to be an ebook that you’re promoting. You could use short free videos to promote longer paid videos.

Second-tier pricing

If you listen to AM talk radio, you’ll soon discover that many personalities have premium content that is located behind a paywall. (Newspapers are trying this also, but I don’t think they’re enjoying the same success as talk radio hosts. Alas.)

This is another great option for many businesses. If you are a purveyor of information in any form, perhaps a business or life coach, there’s no reason to give everything away for free. People will pay for quality and they will also pay for the feeling of exclusivity, even in this era when there is so much free content available.

For example, investing advice is published everywhere you look. It’s online, on television, in the newspapers and in the magazines. However, there are still thousands of people who will pay high subscription prices for investing newsletters.

Third-tier pricing

If you’re in a market where it’s possible, or if you have the world-class authority that can demand it, you can sell personal – or semi-personal – access to yourself. This can take a wide range of forms and different pricing levels – from the reasonable to the incredibly expensive.

Group events. Some consultants form cohorts that meet a few times over the course of a year. If you’re an online marketing guru, you might get a group of 10 startup CEOs together four times to discuss strategy and give advice.

Webinars could also be in this category, although they can really fit into every category, from freemium on up. Conference calls are another possibility. There are also several online virtual training platforms that you can use.

One-on-one access. This is the ultimate level. You, or a member of your team, can work directly with an individual. Business coaches get between $200 and $600 an hour. That’s a lot of money, but remember that many individuals get to this point after starting with nothing more than a free blog.

Not everyone will be able to achieve all of the tiers I’ve outlined here, but that doesn’t mean you can’t set yourself a goal to get to the pricey third-tier in your business. The important thing is to find ways to use essentially the same information or service to reach clients and customers with different budget constraints.

Why not sell the Honda Civic, the Honda Accord and the Acura RLX?

Images: “Sale Design/Shutterstock.com

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Megan Wright

Megan Wright

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