Tiered pricing strategy: Tips and best practices

For brands looking to enhance value, highlight best-selling services or increase their upselling opportunities, transitioning to a tiered pricing strategy might be worth considering.

With the looming threat of a recession at the front of consumers’ minds, they’re being more mindful of spending habits and looking for products and services that deliver exceptional value in 2023.¹ Trends are similar in B2B—early data suggests that purchasing managers want value propositions to be at the heart of sales conversations heading into Q2.²

Enter: A tiered pricing strategy.

Tiered pricing models emphasize cost savings (among other functions)—making them a perfect avenue for showcasing value to existing and potential clients in the year ahead. If you want to become a recession-proof business with the help of tiered pricing, read on to learn more about the tiered pricing structure, its best practices and more.

What is tiered pricing?

Tiered pricing is one of many popular pricing models (especially among SaaS and B2B brands) and primarily highlights how customers can save on high-quality or multi-service purchases.³

There are generally two kinds of tiered pricing:

• Bundle-based tiered pricing – In bundle-based pricing, brands create multiple tiers , and each one features a number of “bundled” services. Spa packages are a useful example. They offer multiple services in one transaction, and the number (and value) of services roughly correlates to the price of each package.
• Unit-based tiered pricing – In unit-based pricing, customers’ unit prices are based on the number of units they buy. This model is especially common in SaaS, where brands sell “seats” or licenses to commercial users. As customers’ desired quantity increases, their unit price decreases.

Bundle-based tiered pricing strategies often include three or more tiers. Internet service providers often use this strategy, and their different pricing tiers usually look something like this:

• Essential package – 100 Mbps download speeds and home phone service for $50/month.
• Premium package – 500 Mbps download speeds, home phone service and basic cable for $250/month.
• Executive package – 1 Gbps download speeds, home phone, basic cable and premium cable for $500/month.

Software companies, on the other hand, might use a unit-based tiered pricing strategy to offer lower prices on high-quantity purchases. Take a look at this hypothetical tiered pricing example for a SaaS brand:

If a client were to purchase 60 seats from this hypothetical brand, they’d pay $120 per seat, or $7,200 total.

Is tiered pricing right for your brand?

While a tiered pricing strategy certainly offers potential advantages, it’s not right for every business. Let’s break down some advantages and shortcomings of this popular model.

The benefits of tiered pricing

Tiered pricing offers:

• Upselling potential – With established price points in place for premade bundles or quantity ranges, tiered pricing can make it easier for sales associates to upsell a more expensive package or additional units.
• A simple way to highlight best-selling features – In the case of bundle-based tiered pricing, offering multiple services during one transaction is an excellent way to showcase the most popular products—or the ones brands want to become their most popular.
• An opportunity to showcase value – By specifically highlighting the potential savings of purchasing at higher tiers, brands can emphasize customers’ value for their purchase (we’ll talk about how to do this below)

The drawbacks of tiered pricing

Brands face one of two major drawbacks depending on the type of tiered pricing structure they implement:

1. Brands could risk customer confusion with bundle-based models if pricing, potential savings or the services included in each pricing tier are unclear. Luckily, this is relatively easy to avoid or fix.
2. Depending on the prices of each tier, customers might begin to question the true value of products sold using a unit-based method. Discounts for purchasing at a higher tier need to be significant enough to justify a high-quantity purchase, but not substantial enough to make lower-quantity purchasers question their higher unit price.

7 tiered pricing best practices

Businesses considering a tiered pricing plan should keep a few best practices in mind to prevent customer confusion, optimize their pricing and showcase the value of their model. Let’s dig deeper into seven things businesses should keep in mind if they want to maintain customer loyalty.

#1 Provide the pricing model customers want

Before investing the time and resources it takes to develop a high-fidelity pricing model, brands should determine whether or not their customers actually want tiered pricing. Businesses should try to find out:

• The pricing models their clients respond well to

• What kind of pricing their competitors offer
• What pricing is common in their industry and why

#2 Hone pricing

We briefly mentioned the relationship between value and price, but it’s one of the most important elements of a tiered pricing model. In pursuit of optimal pricing, brands should determine:

• How much they need to charge to make a profit on their products or services
• How much customers think the product is worth
• Which bulk or bundle discount amounts play best with consumers (i.e., the price point that attracts them to higher tiers without raising suspicions about overall value)
• The worth of the product for the end user—a dollar amount describing how much businesses or consumers stand to make or save by using the product

#3 Clearly communicate price tiers

To prevent customer confusion about pricing (particularly for bundle-based tiered pricing models), it’s critical that brands make their different pricing tiers as easy to understand as possible.

Published information about a brand’s bundled pricing should include:

• The price of each tier
• The services or products included in each bundle
• The services or products excluded from each bundle
• How much customers can save in each pricing tier

Similarly, unit-based pricing tiers should clearly show both:

1. The unit ranges for each price tier, and
2. How much customers stand to save by purchasing at a higher tier

By showcasing as much information as possible, brands can prevent confusion and draw attention to customers’ potential savings. This is guaranteed to lead to repeat customers.

#4 Stay informed on customers’ needs

After launching a tiered pricing strategy, businesses should keep their ears to the ground for customer responses.

As they learn more about how their clients feel about the model, brands shouldn’t hesitate to occasionally tweak their strategy to better meet clients’ needs. That might look like:

• Adding another tier at a lower price with fewer services included
• Creating more detailed quantity ranges for unit-based models
• Including more clarifying information on their website or socials about the pricing model

#5 Fit promotions into the tiered model

If a brand launches a seasonal sale, it should consider tiering its discounts too. In other words, more expensive bundles and higher-quantity unit tiers should receive progressively larger discounts than the base tier.

This tactic could encourage new customers to purchase a higher-priced bundle than they would have without the promotional price or purchase a higher quantity to save as much as possible. It might also encourage existing customers to move up to the next price tier (especially if the promotional price of the next tier is the same as the standard price of their current tier).

#6 Incorporate tiered pricing into marketing efforts

Once brands have a tiered pricing plan in place, they should consider leveraging it for marketing purposes. That could include:

• Posting infographics about tiered pricing on their social media accounts
• Highlighting the potential savings of moving to the next tier in content designed to upsell
• Creating landing pages for PPC ads that include information about tiered pricing
• Developing case studies showcasing how clients harnessed savings opportunities

Highlighting the value of products or services is critical to brands’ marketing efforts in 2023, and advertising a new tiered pricing model is an excellent opportunity to do just that. If you need assistance with your social media advertisements, our social media agency can help.

#7 Transition existing customers to tiered pricing gracefully

Perhaps most importantly, companies should pay extra attention to their existing customers during a tiered pricing rollout. Transitioning customers who used to pay based on flat-rate pricing to tiered pricing requires careful consideration and an emphasis on support.

Here are some tips for introducing new pricing to your existing clientele:

• Explain changes in detail – Explain why the brand is transitioning to tier-based pricing (and emphasize how it will add value to their existing services). Make note of any billing changes in detail, especially if their price is going to increase.
• Offer a reward – Consider offering a gift to loyal customers as a reward for their patience during the transition—a discount code for their next purchase, perhaps.
• Accommodate customers’ questions – Offer to schedule a one-on-one info session, host a webinar or simply make customer service more accessible to give customers plenty of opportunities to ask questions.

Leverage tiered pricing for growth in 2023

A tiered pricing strategy could help businesses showcase value to customers, promote their most profitable services or harness unique upselling opportunities. While tiered pricing isn’t the best model for every brand, it’s one potential route for revenue growth in 2023.

Brands looking to increase revenue in Q2 and beyond need powerful, high-fidelity growth strategies and experienced support partners—enter Power Digital, a digital marketing agency with the tech and know-how to take today’s businesses to the next level.

If you’re ready to reach your full potential, partner with Power Digital for your next growth campaign.

Sources:

1. Harvard Business Review. What Do Your Customers Want in 2023?. https://hbr.org/2023/01/what-do-your-customers-want-in-2023
2. Forbes. 2023 Will Be the Year of Business Enablement for B2B Sales. https://www.forbes.com/sites/forbesbusinesscouncil/2023/01/20/2023-will-be-the-year-of-business-enablement-for-b2b-sales/?sh=644f72657a16
3. US Chamber of Commerce. What Are Tiered Pricing Models?. https://www.uschamber.com/co/start/strategy/tiered-pricing-models