Is This the Pricing Strategy to Use in 2024?

Pricing can be a challenge when it comes to new products or services. The video Matt reacts to explains the idea of a three-tiered pricing strategy.

There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!

Video Transcript: 

Business Advice Video:

Here’s a secret pricing strategy that you can use for your business. So if you analyze the pricing strategy for most businesses they actually use a three-tier pricing strategy. This consists of basic pricing, intermediate pricing, as well as advanced pricing. We can easily see these happening to companies like Starbucks or even software companies. So why does this work is that people actually don’t really know what kind of product or service that they need let alone the price that they’re willing to pay? So what this gives is an illusion of choice. So usually the goal is to get the customer to choose the intermediate pricing because basic is just a foot to the door, intermediate seems just alright, and advanced may be too much for the customer. 

Matt’s Review:

Okay well, yes there is some validity that giving people some choices is better than one or no choice. But too many choices is also problematic. There’s been a lot of studies on this not just around pricing but just around general product selection and customer satisfaction. And most studies come up with three as the optimal number. I don’t know if Starbucks is the right example because there the price directly correlates to size, right? You have tall, grande, and venti and those have different prices but they’re obviously you know immediately differentiated by size. And some people wanna have a more of the drink and some people less. But other ones, other products, it’s less clear that they need as you know they need three options or four or five or two options. 

A lot of times the extras that they add on to get the higher-priced ones aren’t really very valuable or don’t add much to the actual product. But it makes it seem like there’s a reason to have a higher-priced option and then sort of drive people to focus on the middle. I would not start with the idea that we need to come up with three of anything and then three different prices. I would really sit down and think about what are you offering, and what are the natural breaks in services or add-ons that make sense and then let that kind of dictate how many choices you have. And it may just be two, maybe four is what makes sense but there should be some logic and a reason behind it. And if somebody comes to you and says I’m not sure which one to pick, you should be able to help them navigate that decision. And there are some people who get by just fine with just one option. That’s the one thing that everybody wants, that’s the one size that fits everyone, or the one set of features that everybody is looking for. And that can work too. So I think theories like these can help someone but you also don’t wanna overthink it or feel like you suddenly need to comply with this way of doing things. It can work in a lot of situations but it’s not an absolute. And don’t let it make your decisions for you just, let it help you inform your decisions.