Tiered pricing is commonly used by businesses in all industries and for a good reason—it actually works. When a strategy is regularly employed by various companies, it’s because the strategy has been proven to be effective.
So, if you want to boost conversion rates, learn how to set up tiered pricing.
What is a Tiered Pricing Plan?
A tiered pricing plan simply refers to various price points. This can be applied to virtually any product or service. You can see this pricing structure in use everywhere, including mobile phone plans, internet services, software packages and even electricity/gas companies are using plans.
The purpose of tiered pricing is to give your customers a couple additional options. Instead of purchasing your base product or service, they could choose a more affordable option, such as a trial plan. They would also have the option to purchase a premium package, with additional features.
The reason this pricing strategy is so effective is the psychology behind the process. You’re enticing customers to choose a specific package, by offering a cheaper option and a more expensive option.
When given three or four choices, the majority of customers will choose the package that seems to offer the best value. They’ll skip the cheapest package, deeming it to be too cheap to meet their needs. They’ll also avoid the most expensive, as they’ll believe the extra feature to be an unnecessary purchase.
Obviously, some customers will still go with cheaper or more expensive options. But, you’ll be able to increase your overall conversion rates, while enticing the majority of your customers to purchase your base product or service.
Creating Tiered Pricing for a Service or Membership
Setting up tiered pricing for a service or membership is relatively easy. First, you set your baseline. This is the current service or membership that you want to sell. This will be the option that you’re going to try and get customers to choose.
Once you establish your baseline, you can set your minimum and maximum service or membership. For the minimum, you can remove features or access to certain aspects of the service. If this isn’t possible, you could offer a limited-time trial or demo of the service.
For the maximum, you could come up with additional features that would be provided solely in the premium package.
Again, if you can’t edit the service, software, or membership, then try to come up with something that you could add to the purchase. This could be an inexpensive product or service that you already offer or access to beneficial resources, free eBooks, or other premium content.
You then make all three options available to your customers. It shouldn’t take long to see an increase in your conversion rates.
At the same time, you’ll also notice that the majority of customers choose your baseline product or service. At no extra cost to you, you’re also gaining sales through the other two packages.
Creating Tiered Pricing for a Physical Product
If you sell physical items, creating a tiered pricing plan works a little differently. You can’t physically edit the item to create three separate products. For a physical product, you’ll need to get creative.
The goal of creating multiple price points is to get customers to buy your base product. You don’t want to add items or features that will increase the cost of production. So, you should look into digital products or services that could increase the function of your product.
For example, if you are marketing a weight loss supplement, you could add a digital diet plan eBook, cookbook, or other fitness guides. This adds to the value of the package and allows you to create multiple price points.
This same concept can be applied to just about any physical product. You could add guides, tutorials, or access to a members-only forum.
These are all options that have a minimal cost to your business, yet give you the option of setting up a tiered pricing structure.
Offering multiple price points is a time-tested strategy for increasing conversion rates. It’s a simple strategy to implement and can be used for almost any product or service.
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