The Profit Killer: Why One Price is Never Enough
Pricing Pointers, Issue #42
Issue #42 of Pricing Pointers curates a collection of my past LinkedIn posts (similar to Substack notes) that explored choice architecture and vertical versioning.
They explain why offering a single price is a “profit killer” and how to use tiered pricing to allow customers to self-sort based on their own subjective valuation of a product.
Here they are:
1️⃣ The most costly pricing mistake small businesses make is settling on a single number.
Stop trying to find the “perfect” price for your product. It doesn’t exist.
This approach assumes every customer values your offer the same way, and they don’t.
Price segmentation isn’t about unnecessary complexity; it’s about capturing all the revenue you leave on the table when you offer only one price.
You need to design a menu of choices so customers choose how much they pay.
2️⃣ One of the most powerful mental models in pricing is the Value Ladder.
Give up the idea of settling on a single offering at a fixed price point. Instead, think of your offerings as rungs on a ladder.
Everyone knows which rung is higher in value, even if they cannot afford to climb all the way up.
The value ladder framework uses a principle called self-sorting. Buyers reveal their true willingness to pay by the choices they make.
When you structure a price menu so paying more guarantees receiving more value, customers naturally select the tier that reflects the price-value trade-off they’re willing to make.
This is how you harvest more of the value you’re creating in the marketplace.
3️⃣ Tired of leaving money on the table or losing sales to price wars?
Many small business owners overlook this strategy, but its impact can be immediate and substantial.
Vertical versioning, also known as Good, Better, Best Pricing, allows your business to offer multiple product versions at different price points.
This strategy captures value from two different groups of customers. It appeals to quality-sensitive buyers who want the best products and price-sensitive buyers who are looking for economical options.
By clearly differentiating value through features and pricing, customers self-select the option that best fits their needs and budget.
Embrace vertical versioning to escape the “either-or” pricing dilemma, satisfying more customers while securing higher profits.
4️⃣ Most of us are wired to pick the middle option.
Most people avoid extremes.
The cheapest option feels too risky (“You get what you pay for”), and the most expensive feels like an unnecessary splurge.
This leaves the middle option feeling like the smart, safe choice.
This is the hidden power of the good, better, best pricing model: you’re not just selling a product; you’re selling a solution to a psychological dilemma.
5️⃣ Want to simplify your tiered pricing and stop confusing your customers?
You only need two or three options. Anything more complicates the decision process and often costs you the sale entirely.
When potential customers feel overwhelmed, they default to the easiest choice: buying nothing. That fear of making the wrong commitment is a powerful barrier.
By limiting yourself to two or three price points, you make the decision simpler for them and easier for you to manage.
This structure also offers two major negotiation advantages:
The Pivot (2 Options): If a customer balks at your price, you can instantly pivot: “I can’t offer you the Better tier for that price, but I can give you the Good tier.”
The Safe Choice (3 Options): A third option establishes a “safe” middle choice for buyers who worry they’re either overpaying for your upper tier or risking disappointment with your lower tier.