You Need 3 Pricing Plans To Easily Increase Revenue

Written on Sep 21, 2023 by Viktor Nagornyy | 6 mins | No comments yet

If you have ever wondered how many pricing plans you need, the answer is three.

If you’re offering less than or more than three, you’re likely leaving money on the table.

Let me explain.

The “Good, Better, Best” Pricing Strategy

The “Good, Better, Best” pricing strategy will increase revenue! ?

By offering tiered options, you capture a broader customer base. Some opt for the basic, while others go all in for premium. Result? Increased sales, happier customers, and a boost in the bottom line.

I learned about this pricing strategy over a decade ago in an excellent book, Impact Pricing, by Mark Stiving. It’s my go-to book on pricing. In the book, Mark writes (highlights are mine):

Good, Better, Best is an extension of versioning that takes advantage of your customers’ psychological make-up.

Given the options of Good, Better, and Best, people who are unsure of what they want buy Better.

Go back and read that sentence again. It is the crux of the Good, Better, Best tactic.

Customers avoid “Best” because they’re afraid of paying too much. They’re even more afraid of “Good” because they are afraid to purchase a product that might not meet their needs. When uncertain, they buy “Better.” Sears is famous for using this pricing tactic.

Although this might seem funny or strange, there’s rational support for this behavior. Uncertain customers use the options that the sellers make available to them as information to help them make their decision. Without knowing anything else, they can infer that the company selling these products selected them for a reason. The company probably selected the “Good” option for very price-sensitive customers, and the “Best” option for the rich. Most of us are neither of these, so we buy the “Better” option when we are uncertain.

This strategy leverages psychology and human behavior to help customers make the choice.

Psychological Principles At Play

Anchoring: This pricing plan strategy presents the middle option (Better) as the most attractive one by positioning it between the lower (Good) and higher (Best) options. The Good option serves as an anchor, making the Better option seem like a reasonable compromise, and the Best option appears more luxurious but still tempting.
Decoy Effect: The presence of the Good option is often a decoy, designed to make the Better option look more appealing. This can nudge consumers to choose the Better option, increasing the order value.
Perceived Value: With three pricing plans, customers perceive that they have more control and options. They tend to evaluate their needs and budget against these choices, making them more likely to pick one rather than consider alternatives.
Simplicity: The simplicity of choosing between three pricing plans reduces decision fatigue, making it easier to make a choice. This can lead to quicker sign-up decisions.
Loss Aversion: People avoid losses more than they seek equivalent gains. With the “Good, Better, Best” pricing strategy, customers might choose the Better or Best option because they fear missing out on valuable features or benefits.
Social Proof: Seeing three pricing plans suggests that others are making similar choices. When customers see that the Better or Best options are popular, they may be more inclined to select them due to social proof.

Incorporating these psychological principles into pricing strategies can help you guide customers toward higher-value orders, ultimately boosting revenue.

Are Three Pricing Plans For You?

The “Good, Better, Best” pricing strategy is versatile and can be used by various businesses across many industries.

Here are some examples of businesses that can benefit from this pricing strategy:

1. Software and SaaS Companies

Software providers can use this strategy to offer different levels of functionality or support. Customers can choose from basic, standard, or premium software packages based on their needs.

2. Restaurants

Restaurants can implement this strategy by offering different menu options with varying prices and portion sizes. This approach is often seen in prix fixe menus, where customers can choose from a set of courses at different price points.

3. Subscription Services

Subscription-based businesses, such as streaming platforms or gym memberships, can offer pricing plans with different access levels or features. Customers can select the plan that best suits their preferences and budget.

4. Travel and Hospitality

Hotels, airlines, and travel agencies can use this strategy to offer different levels of amenities or services, such as economy, business class, and first-class options.

5. E-commerce

Online retailers can implement “Good, Better, Best” pricing by offering product bundles or variations with different features, warranties, or add-ons.

6. Service Providers

Businesses offering consulting, marketing, or home improvement services can create tiered service packages with varying service levels, support, or deliverables.

7. Automotive Industry

Car manufacturers often offer multiple trim levels for their vehicles, ranging from basic to luxury, which aligns with the “Good, Better, Best” approach.

8. Technology Products

Companies selling electronics and gadgets can offer different versions of their products with varying specifications and features to cater to different customer segments.

9. Online Courses and Education

Educational platforms can provide tiered access to courses, with options for basic content, additional resources, and personalized coaching.

10. Telecommunications

Telecom companies can offer tiered mobile and internet plans with different data limits, speeds, and additional features.

11. Insurance Providers

To meet customer needs, insurance companies can offer tiered coverage options with varying deductibles and coverage limits.

The Takeaway

If you’re not using this pricing strategy, you leave money on the table.

Consider how you can take full advantage of the strategy.

If you charge only one price, you must find a way to add two more plans. You can consider making your existing price “Good” and adding two more higher-priced plans. Can you think of packaging your services and products into multiple plans?
If you have two pricing plans already, consider adding a higher-priced “Best” plan. This will make the other two plans appear more affordable.
If you have more than three pricing plans, consider how to whittle it down to three. You really don’t need that many. Anything past three should be a custom, usage-based Enterprise or Custom plan.

To add a higher-priced tier to a product or service plan, you can include additional features, benefits, or value-added items that justify the increased cost.

These extras should align with the needs and preferences of the target customer segment. Here are a few examples of what can be added to a plan to increase its price:

Enhanced Features: Provide advanced or exclusive features unavailable in lower-priced plans. For instance, a premium streaming service might offer 4K Ultra HD streaming, offline downloads, or ad-free content in its higher-priced plan.
Increased Limits: Expand usage limits or quotas. For example, a cloud storage service could offer more storage space or a higher number of allowed devices in the premium pricing plan.
Priority Support (SLA): Include priority customer support with faster response times. This can be crucial for businesses that rely on a service’s uninterrupted functionality.
Personalization: Offer customization options or personalized recommendations. For instance, a premium subscription box service might allow customers to select specific products or preferences.
Exclusive Content: Provide access to exclusive content or products unavailable to lower-tier customers. This is common in subscription boxes, premium streaming services, and loyalty programs.
Faster Speeds: Higher-priced tiers often come with faster download/upload speeds or lower latency in industries like the internet and telecommunications.
Advanced Analytics: For software or SaaS products, you can offer advanced analytics and reporting tools in the premium plan, allowing businesses to gain deeper insights into their data.
Extended Warranty: Includes extended warranties or enhanced product support for physical products. For instance, electronics manufacturers might offer longer warranties in their premium pricing plans.
Dedicated Account Manager: In B2B services and SaaS, provide a dedicated account manager or consultant to assist customers with their specific needs.
Early Access: Give premium plan customers early access to new features, products, or events. This can create a sense of exclusivity and reward.
Discounts or Rewards: Offer discounts, cashback rewards, or loyalty points for higher-priced plans, encouraging long-term commitment and spending.
Training and Education: Provide access to training materials, courses, or workshops. This is common in software, online learning, and professional services.
Physical Goods: Include physical goods or merchandise in the premium package. Subscription boxes often include exclusive physical products.
Flexible Terms: Allow premium customers to enjoy flexible billing cycles, such as quarterly or annual payments, which can offer cost savings.
Collaborative Tools: In business software, you can offer collaborative tools, integrations, or multi-user licenses in the premium plan.

The key is understanding your target audience’s preferences and pain points to design a higher-priced plan to cater to those needs.

The added value should be perceived as worth the extra cost, encouraging customers to upgrade to the premium plan.

If unsure, start with priority support and a dedicated account manager. These are great benefits that can help you create a higher-priced plan.

Increasing revenue isn’t just about doing more marketing.

A better pricing strategy can help increase the average order value, increasing revenue.