In a highly competitive market flooded with brand name goods and services, companies are constantly jockeying for primacy in their consumers’ affections. Pricing, as much as a quality product and an established reputation, has been known to play a pivotal role in attracting and retaining customers.
While price wars between brands are one way in which this bid for supremacy often expresses itself, tiered pricing—a pricing hierarchy within the same brand and product category—is another.
What is tiered pricing?
Tiered pricing is a tool that allows companies to leverage consumer interest and brand loyalty, particularly in emerging economies like India where the income disparities are huge.
Tiered pricing—also known as flexible pricing—allows the same brand and its products to cater to and gain a foothold across markets, as well as within market segments. Some examples include the Software as a Service or SaaS pricing models that employ this particular approach.
The appeal of tiered pricing
Flexible and market-sensitive pricing can prove beneficial to small and medium businesses. The appeal and utility of this approach help your business, not only in scale—reaching as many customers as possible—but entail a variety of other benefits as well.
- The chance to choose. Even if it’s an illusion, customers love the idea of bargain-buying, or getting more ‘bang for their buck’. Stands selling Kaati rolls exemplify this particular sleight of hand. Say, for example, that your neighborhood Kaati shop offers customers a ‘chicken tikka roll’ for 89 rupees and a ‘double chicken tikka roll’ for 120 rupees. Here the customer feels like they can enjoy a snack for less than 100 rupees, and something more substantial for less than 150 rupees (if they’re in the mood). Having a range of options and prices gives customers the impression that they are exercising freedom of choice.
- Give them a taste. Tiered pricing allows new customers to sample what a particular brand has to offer, without having to spend a lot of money in the process. I may not want to pay 120 rupees for a ‘double Kati roll’ (how do I know if it’s good?), but I might be willing to part with 89 rupees to try a lighter and less expensive version of the same item.
- Wallet-wise. When you offer up a range of products at different prices, you’re opening the brand experience up to a variety of consumers. This way, it’s not just the high-flyers who can claim ‘right of way’ to your brand, but middle and perhaps lower-income people as well.
- Customary curiosity. When the same brand offers both low and high-priced products, customers find themselves both curious and desirous. They want to know why the pricier product is as expensive as it is, and may even begin to aspire to buy the higher-end products.
Tiered pricing has worked wonders for large, global businesses while also boosting the revenues of mid-size firms. It thus favours all types of markets, customers, and businesses.