5 Strategic Lenses to Increase Your Sales and Profits by Designing a Tiered Price Menu
Pricing Pointers, Issue #32
Price segmentation (or differential pricing) is the practice of selling the same (or nearly the same) product or service to different people at different prices.
One way to do this is to create a menu of offers at different price points that any buyer can select from.
Use these five lenses to systematically evaluate one of your current offers. This will identify opportunities to segment your market by how price sensitive buyers are (i.e., by differences in their willingness to pay).
The lenses are ordered by how much they would require you to modify your product or service. The initial lenses (1-3) look at ways to sort buyers by modifying the purchase situation without changing your underlying product or service. The last lenses (4-5) look at ways that modifying your product can be used to sort buyers by their willingness to pay.
1. Quantity Lens
This lens looks for opportunities to sort buyers based on the quantity that is purchased.
Volume: Offer different prices based on the amount or size that is purchased. Offer a lower price to buyers who purchase a larger amount.
Frequency: Offer different prices based on how often a customer purchases your product or service. Offer a lower price to buyers who purchase more frequently.
Duration: Offer different prices based on how long your service or product is purchased for. Offer a lower price to buyers who commit to purchase your service or product for a longer period of time.
2. Time Lens
This lens looks for opportunities to sort buyers based on the time of purchase, delivery, or use. Depending on your product or service, these times may differ or coincide.
Purchase: Offer different prices based on when the product or service is purchased. Charge a lower price for less desirable times.
Delivery: Offer different prices based on when the product or service is delivered. Charge a lower price for less desirable times.
Usage: Offer different prices based on when the service or product is consumed or used. Charge a lower price for less desirable times.
3. Location Lens
This lens looks for opportunities to sort buyers based on the location of purchase, delivery, or use. Depending on your product or service, these locations may differ or coincide.
Purchase: Offer different prices based on where the service or product is purchased. Charge a lower price for less desirable locations.
Delivery: Offer different prices based on where the product or service is delivered. Charge a lower price for less desirable locations.
Usage: Offer different prices based on where the service or product is consumed or used. Charge a lower price for less desirable locations.
4. Product Combinations Lens
This lens looks for opportunities to sort buyers based on which combination of products and/or services they purchase.
Product Bundles: Look for ways to offer logically related products and services together as a single discounted purchase. Continue to offer the bundled components at their regular, non-discounted prices.
Add-on Products: Look for products or services that can be unbundled and/or sold separately. Sell the core product at a relatively low price, and give buyers the opportunity to upgrade their purchase by adding optional products and/or services.
5. Quality Lens
This lens looks for opportunities to sort buyers based on the level of quality they purchase.
Positive Attributes: Create another version of your product or service by varying an attribute where more of that attribute is better than less. Charge a lower price for your lower quality version.
Negative Attributes: Create another version of your product or service by varying an attribute where less of that attribute is more desirable. Charge a lower price for your lower quality version.
From a Uniform Price to a Price Segmentation Strategy
Pricing strategically is less about settling on a single number and more about designing a range of choices. Use these five strategic lenses to systematically evaluate your product and build a tiered price menu that increases your sales and profits.