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What Is a Tiered Pricing Strategy?

4 minutes read
Tiered pricing strategy

Navigating e-commerce pricing strategies is like exploring a hectic marketplace, with each corner revealing a new possibility for engaging customers and driving sales. One option that stands out for its versatility and effectiveness is a tiered pricing strategy. Website On Demand delves into the art and science of tiered pricing and how it can revolutionize your e-commerce game. 

Understanding the Tiered Pricing Strategy

Online business owners can offer their products or services at different price points based on quantity or predefined tiers with tiered pricing. Because the per-unit decreases the more product a customer puts in their cart, the pricing strategy encourages buying in larger quantities.

The higher the tier, the more premium or better the features. With less-expensive tiers, shoppers have fundamental features at a lower cost. Customers decide which tier fits their needs best based on each option’s features and cost. By giving customers different options, the tiered discount structure converts new shoppers and simplifies upselling to loyal shoppers.

Types of Tiered Pricing 

The tiered pricing strategy falls into three models: pricing by users, pricing by features, and pricing by usage.

Tiered Pricing by Users

Say you sell software or something similar that individuals and groups use. You could offer tiered pricing by users.

For instance, the free tier could be suited for one person who only needs the basic version of your product or service. The pro tier could be geared toward a small group needing a few more benefits and features than the free tier offers. The highest and most expensive tier could be the business option, which is for a mid- or large-size company using your service or product with complete access to every feature.

Tiered Pricing by Features

Perhaps you sell smartphones, tablets, or home appliances. Online stores that sell products with a range of features are ideally suited for the tiered pricing by features model. Customers decide which features they desire most and which they’re willing to forego if it means paying less.

The most common options for this tiered pricing strategy are basic, standard, and advanced. Basic versions are the least expensive and only have essential features. Mid-priced standard versions have a few more features, like the ability to stream movies and shows on multiple screens. The advanced tier is the most expensive but also has the widest range of features and options.

Tiered Pricing by Usage

Subscription, hosting, and virtual private network services are designed for repeat use. If this applies to your online store, the tiered pricing by usage model could work best for you. 

You can create different tiers for low, moderate, and high usage and set prices accordingly. You can offer pay-as-you-go pricing for customers who prefer flexibility or monthly/annual subscriptions for those who want predictable billing. 

Pros and Cons of Tiered Pricing

Before implementing a tiered pricing strategy, learn the pros and cons

Before implementing a tiered pricing strategy for your online store, learn the benefits and drawbacks.

Pros

One smart reason to set up tiered pricing is its upselling potential. Because you have established price points for pre-made bundles or quantities, it’s easier to upsell customers a higher tier or more products. 

Another advantage of the pricing strategy is it simplifies highlighting the most favorable products, services, and features. For example, if you sell product bundles, you can spotlight your most popular inventory (or items you want to become bestsellers) or features with every transaction. 

You can also showcase your service’s or product’s overall value with tiered pricing. Emphasizing the potential savings of higher-tier purchases can increase customers’ perceived value.

Cons

One major drawback of the tiered pricing strategy is the potential for customer confusion. Visitors may not understand how pricing, potential savings, or pricing works if you aren’t clear. If a competitor offers simpler tiers, a potential buyer may switch to them. 

Shoppers making high-quantity purchases may also scrutinize a tier’s or product’s actual value. Make higher-tier savings significant enough that customers feel justified in buying multiple products. Even then, the savings shouldn’t be so substantial that someone buying fewer products questions the per-unit price.

Buyer’s remorse is another potential pitfall. Say someone selects a tier that doesn’t work for them or buys features they don’t want or don’t use. Their overall satisfaction with your company, services, and products could suffer.

Best Practices for a Tiered Pricing Strategy

What is the tiered pricing method that fits your company best? What’s the most important information to share about different tiers? How do you decide the best price for different tiers? Here are some best practices.

Do Some Customer & Pricing Research

Consumer research can help implement a tiered discount structure

Before offering tiered pricing, find out whether it’s something customers want. You can ask your most loyal shoppers’ opinions on what kind of pricing model they want and if they’re interested in the pricing strategy. Research competitors to see what kind of pricing and tiers they offer. Also, research your industry to determine common pricing structures and why they’re the most popular.

Fine-tune Pricing

We recommend experimenting with different prices for different tiers while testing this strategy. After all, it’s important to know the best way to price tiers so you make a profit. It’s also helpful to know customer perception of specific products or services. Learning which items shoppers want to be bundled is also an important part of honing pricing.

Communicate Price Tiers Clearly

To avoid customer confusion, shoppers need to understand tier pricing. Shared pricing details should cover everything from individual tier prices and products or services included in each bundle to customer savings at each level and what’s excluded from bundles.

Incorporate Tiered Pricing Into Your Marketing Strategy

After implementing tiered pricing, highlight it in your marketing strategy. You can feature tiers on your social media accounts and create special landing pages for tiers. If customers have positive reviews about your tiers, share them.

Maximize Your Tiered Pricing Strategy With Website On Demand

Ready to elevate your e-commerce store with a tiered pricing strategy? Website On Demand specializes in Shopify apps for bulk discounts, pre-orders, and more. Contact us today for more information and to start your 14-day trial. 

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