What Makes "Better" Better? How to Build True Good, Better, Best Pricing Tiers
Pricing Pointers, Issue #68
One of the easiest ways to increase your company's sales and profits is giving your customers the opportunity to purchase a higher level of quality. One way to do this is to use Good, Better, Best (GBB) pricing. This is the practice of selling progressively better versions of your product or service at progressively higher prices.
Create different levels of quality
The purpose of GBB pricing is to increase sales and profits by identifying differences in buyers’ willingness-to-pay for different levels of quality.
But who determines which version is better than another? Buyers do—through the choices they make. Let me explain. By quality, I mean that if two versions of your product were offered for the same price, and nearly every buyer selected the same version, then that version is better than the other. In other words, the answer to “Which version is better?” doesn’t depend on who you ask. It’s pretty much the same from buyer to buyer.
By offering different versions at different price points, you accomplish two things. First, you give quality-sensitive buyers a path to a better result or experience from their purchase. Second, you provide price-sensitive buyers an economical alternative without cutting prices across the board.
Focus on the right attributes
Think of your product or service as consisting of a collection of different attributes or characteristics. (Its features are just the attributes you choose to emphasize over others.) But when it comes to creating different quality levels, all attributes aren’t equally important. The key to making GBB pricing work is to identify your product or service’s quality attributes. A quality attribute is one where every buyer agrees that more (or less) of it makes the offering better.
Consider, for example, an airplane flight. Using my definition, legroom and the number of connecting flights are quality attributes of a commercial flight. Almost every flyer would prefer more legroom to less, and fewer connecting flights to more.
The in-flight meal (if you’re lucky enough to get one) is not. That’s why the flight crew asks which meal you prefer, because tastes vary from person to person. Swapping a vegetarian meal for chicken isn’t an upgrade or a downgrade for everyone; it depends entirely on the buyer.
Vary quality attributes to build your tiers
You create better (or lesser) quality tiers by varying the amount of a quality attribute. Adding, increasing, decreasing, or removing a quality attribute changes the perceived value of your offer.
A flight with extra legroom or no connecting flights is fundamentally more valuable than one with minimum legroom or two layovers.
When you modify a quality attribute, buyers nearly all agree on which version is superior. What they disagree on (and why you can charge different prices) is how much that extra quality is worth to them.
Build tiers around what everyone agrees on
Before you set up your Good, Better, Best tiers, take a step back and look at what you’re offering. Make sure you aren’t trying to charge a premium for something that’s just a matter of personal taste, such as swapping chicken for a vegetarian meal.
Instead, look for the attributes where all your buyers naturally agree on what’s better (or worse). When you build your tiers around those shared points of agreement, setting your prices becomes much simpler. All that’s left is letting your buyers decide how much that extra quality is worth to them.