When Less is More. Simplify your pricing.
Are you losing customers? Do you offer many price tiers and options? Here’s the twist: it could be driving potential buyers away. That’s what we call The Paradox of Choice in Pricing, when less is more, simplify your pricing strategy.
You may think that you’re catering to different customers is the best option. But it’s not the only way to achieve this goal. The solution is to simplify your pricing.
“The Paradox of Choice in Pricing”, as it’s known, is a phenomenon that might be costing you conversions. As Barry Schwartz, author of “The Paradox of Choice,” puts it, “With so many options to choose from, people find it very difficult to choose at all.”
You’re trying to make it easy for your customers to say Yes. “You need an Easy button”, says a client of mine in Manufacturing.
Your pricing needs to be easy to understand. It needs to be simple.
The definition of ‘simple’ pricing differs across industries. You need to find the right balance for your specific product and market.
Tier your value proposition and deal head on with The Paradox of Choice in Pricing.
So, how do you build simple pricing that makes sense for customers in your industry? By tiering your value proposition. Tiering your value proposition allows you to tier pricing in a way that makes sense for your customers.
This approach works well in service industries. The software industry does this very well with tiered subscriptions. It also works well in product industries. The automobile industry does this very well with trims above the base model.
Start with your company’s value proposition, and tier it into a “Good, Better, Best” framework.
Three tiers is a good place to start in any industry.
- Good is good enough for some clients, but not the majority. It caters to the price sensitive segment
- Better is what you sell to most clients. It caters to the majority
- Best is where you’ve thrown in everything your customer could value. It caters to the segment of demanding clients who are willing to pay.
You now have three tiers of value that are meaningful to customers against which to anchor your pricing.
Simplifying your company’s pricing doesn’t mean you’re leaving money on the table. Software and automobile vendors certainly aren’t. In fact, companies that embrace this approach often achieve higher conversion rates, increased customer satisfaction, and ultimately, stronger revenue growth.
The next time you’re considering changes to your pricing tier, ask yourself: Could simplifying be the way to go?
And here you can find The 5 things you can do now to increase price transparency and The Psychology of SaaS Pricing: How to design pricing that aligns with customer value.