Pricing remains a critical but often overlooked component of the marketing mix that relates directly to your business’ profitability, market position, market share, brand image, and product/service demand. To be successful, it is critically important to understand pricing and how to price products and services effectively.
Pricing is also a complex topic, one in which we’ll address through several blog posts. But today we’d like to discuss the Good/Better/Best (GBB) pricing/packaging model and how you might use it to facilitate growth in your local business.
The GBB pricing model is a tiered pricing strategy that offers customers three or more product or service options at different price points. The options are typically:
- Good: A basic option that’s satisfactory for price-conscious consumers.
- Better: An option with additional features or benefits for customers who want more.
- Best: A premium option with multiple features and exclusive benefits.
GBB is not a new concept. Nearly 100 years ago GMC introduced the “price ladder” to differentiate Chevrolets and Buicks from Oldsmobiles and Cadillacs, creating “a car for every purse and purpose.”
And today you see it in use often. Each time you stop by a service station to fill your gas tank you’re faced with the choice of regular, plus, and super at varying price levels.
The GBB model can help companies attract new customers, outperform competitors, encourage customers to spend more, and meet the needs of different consumer segments and demographic groups. By appealing to both high spending and price conscious customers simultaneously, you can expand your market and dramatically boost your local business’ revenue and profits.
The Good/Better/Best model is effective because it:
- Focuses on value, shifting customers’ focus from cost to value.
- Provides customers options. Provides choices that encourage them to think about the value of the product or service.
- Includes aspects of consumer psychology and consumer behavior. Research indicates that customers prefer to have choices.
- Strikes the balance in the number of choices. Research indicates that too many consumer choices can have a negative impact via choice overload. Consumers faced with too many options are more likely to walk away than select among too many choices.
When developing your GBB pricing structure, it is important to recognize these key factors:
- When developing your tiers, be certain that each step adds value that is recognizable to the consumer.
- Find names for your tiers that are immediately recognized by customers for their differentiation. Gold/Silver/Bronze might be an over-used tactic, but it serves as an effective example.
- It is easy to offer a multitude of offers, but the effectiveness in GBB pricing is in limiting those choices to three. Offering too many choices can overwhelm consumers and lead to confusion and apathy. Do the work to find the three best choices for your customers and your business.
- Find those key attributes between the offerings that customers value the most. These offerings can serve as gatekeepers preventing consumers from trading down to cheaper offers.
- To optimize your margin on the higher-level offerings, add features that are relatively low cost yet add recognizable value for the customer.
In addition, expertly crafting your tiers can lead to increased revenue and profits from what is known as the ‘Goldilocks Effect’ recognizing people’s propensity to choose the middle option among three. Moving many of the ‘Good’-level shoppers to the ‘Better’ level can lead to improved revenue and profit performance and higher customer satisfaction.
As well, this pricing strategy removes your sales staff from the pressure of manually upselling customers. Through GBB pricing you outline all the add-ons and additional services available and enable your customer to make the choice. This avoids putting your customer in an uncomfortable high-pressure situation and empowers them to decide based on their own needs.
The Good/Better/Best pricing and packaging model can be an effective tool to leverage your current products and services into a boost in revenue for your business. Offering consumers options based on value enables to you to appeal to more customer segments and grow your revenue and profitability.
Sentinel Solutions are marketing experts who can work with you to ensure the pricing component of your marketing mix is effective and contributing to the ROI on your marketing investments.
Give us a call if we can help at 603-352-5896 or e-mail to Advertising@SentinelDigitalSolutions.com. We’re here to help you succeed.
