Does your current market price approach drive frequent and profitable shopper purchases?

 

Are customers satisfied with the offers and prices you give them or do they always seem to shop around for better deals and cheaper prices?

 

Do you find yourself giving away large discounts and freebies to either win disloyal customers back or ‘delight’ frequent shoppers?

 

Finding the right market price approach to suit different customer groups isn’t easy, especially when you’ve got:

 

  1. Thousands of products
  2. Add-on-services
  3. pricing approaches in marketing
  4. Fierce market competition
  5. Several types of customer groups

But did you know that, sometimes, offering customers only 1 standard price for your offers encourages them to shop from your competitors, overlooking the value of your offer?

 

 

The no. 1 thing to remember: people love personalised offers and bundle pricing, bid-ask price options that can give them the best deals, and more upgrade options when they are ready to buy them.

When a company guides and nudges their customers with different price points in a range, they are attempting to influence customer perception of price and value by using framing and anchoring techniques. This is called the GBB or the Good, Better, Best pricing approach. It is also known as tiered pricing.

In this article, we will explore the various market price approaches to GBB. We will give a quick snapshot of GBB and key market price approaches and principles. Then, we will close with some tips on integrating GBB within your pricing strategies, structures and operations.

The main contention here is that a one-price-fits all can often mean losing customers. For example, using the one-price-fits all as a high price strategy example in luxury items or points. This will result in cheapening the luxury brand and drive away those who can afford it.

It is our belief that GBB can give consumers the best options to meet their needs. GBB is also a practical way for businesses to start implementing value-based pricing in a very real sense. 

 

market price approach

When GBB was introduced

GBB started almost a hundred years ago when Alfred Sloan used a “price ladder” to gauge people’s response to different prices for automobiles. As a way to test his new car pricing strategy, he first surveyed customers and asked them what they liked about their cars. Contrary to their initial assumptions about their value, he found that people were much more willing to pay more for a comfortable car and upgrade their present car. These findings were a game-changer. In effect, adding price premiums to their cars that were worth billions of dollars for the automotive industry. 

Since then, all automotive pricing strategies have been revised. Car manufacturers have widely adopted basic, middle, and premium scale pricing for both the pricing strategy and price setting.

Willingness to Pay Market Price Approach

Prior to GBB being introduced, many companies did not believe that their customers were willing to pay more money for their goods and services. 

For the majority of business history, the underlying assumption driving pricing decisions was that customers were logical buyers and very price-driven (i.e., they were only interested in the lowest price or large discounts).

Today, however, some businesses realise that they were wrong about their customers on many levels. Some customers buy products based on how they value them, while others are very price sensitive. But again, they can be price sensitive for some items but not others.  

 

 

So what is customer value?

The “value” doesn’t just mean value for money. Customers are prepared to pay much more than most businesses assume they will. However, they’ll only pay higher prices when businesses offer deals that address specific and mostly immediate pain points and needs.

Three approaches to GBB

GBB is a great way to give customers more choices to address their needs. Tiered pricing not only meets a specific budget, but it also gives customers what they want when they understand what they want.

There are 3 ways to apply GBB:

The offensive approach. This approach is suitable when you want to attract new clients and spur capital and business growth. Using this approach, companies tend to offer the best features in their premium packages to lure the present clients. They separate offers into good, better, best to charge a high price premium for the ‘best’ package and to appeal to different segments of the market. 

The underlying assumption of the offensive approach is that customers will first try out the basic option to know more about their products. It is also assumed that customers are more willing to pay higher prices when the premium package is fit-for-purpose. 

The defensive approach. Companies use this approach when they want to protect a brand’s established place in the market (i.e., relative to their competitors). In essence, the business creates a ‘fighter brand’ to compete in an increasingly competitive market. This could translate into pricing a new product cheaper than the previous one to win a share of a competitor. Or, it could be to counter a competitor during a price war.

A customer-focused approach. Companies tend to use this approach when they have a more mature pricing capability. In essence, they have set up a price architecture that is flexible enough to accommodate differentiated price points for their products and services. The underlying assumption of this approach is that consumer buying decisions are influenced by frame and anchor techniques. 

For example, research shows that consumers and shoppers like to have clear options presented to them to help them make a choice. But too many bundles, features, and price points, however, can confuse customers. They’ll lose interest in the offer or become sceptical about the price point. In a way, research indicates that customers have this buy/don’t buy attitude when choosing bundle prices.

It is possible, however, to override customer indecision: put more structure in your price architecture and more flexibility into your discounting and promotions. Sephora and Philip Kingsley websites are both good examples of value-based offers and good, better, and best price points, and personalised care and grooming associated with perennial health care issues. They know their customers pay good money to fix very specific health and beauty issues.

Tips on how to structure your market price approach

Generally, the GBB responds to the psyche of the consumer. According to the latest research, three options is the ideal amount to have in your price structure. Any more is a distraction; any less is too restrictive.

On the good, better, best market price approach scale, the first is the basic option. The basic ‘good’ offer gives customers the standard features (no frills but still good value). It can upgrade to the other scales.

Fence Attribute

Building a price architecture that meets the criteria of a ‘good, better, best approach’ is not easy. 

Just what is in the basic option?

Will it give customers an insight into what’s to come if they upgrade? 

Does it pique their curiosity? 

What is the common complaint when they use the basic option?

A good place to start is to use fence attributes in your price architecture. A well thought through the fence in your price architecture will discourage your customers from downgrading their package options. A fence is basically a way of fencing off the value – either value they used to enjoy or would like to enjoy. Fencing off value helps you segregate additional value to better and best options. 

Never try to give too many freebies away or discount the basic ‘good’ package. In effect, discounting ‘good’ options, even more, will only make shoppers demand more discounts and freebies. You’ll end up depreciating the entire range. When you discount on good options, you’ll devalue the better and best options as well.

 

Another way to improve your price architecture is to explain clearly what customers will be missing out on if they downgrade.  Try spreading the features through all the three packages. The best features should be in the premium level along with the middle and basic level.

 

Using the Market Price Approach Test Pilot

 

Another way to test your price architecture is to use a test pilot pricing approach. Pilot tests help you see what features your customers prefer and categorise offers to specific customer groups according to the value of your products or services (i.e., price-sensitive, average shopper, high-value shopper). 

As the test progresses, use a chart or table to analyse the patterns of their preferences. You should be able to see a more detailed picture to then draft your 3 tiered good, better, and best options. Just remember though to price evenly within the three packages (i.e., the lowest to the highest package) with the premium elements. This is the good, better, best-merchandising strategy retailers use to attract new customers to new brands.

Implications On Market Price Approach

Fixed pricing coupled with blanket promotions can drive consumers away from businesses, even if their offers are very good.

Consumers often use a single fixed price as a benchmark for comparing it against the competition and completely forget, in turn, the reason for the buying.

Implementing GBB is not easy. A world-class pricing team is essential working on customer price bands, parameters, and fences before implementation.

Market Price Approach In Conclusion

 

GBB is ideal to attract customers at different levels of service. People are willing to pay more money for an offer but only if the offer is of value to them. It doesn’t really matter if you say something is premium and your customers don’t the same way. 

 

Pricing your products using a one-size-fits-all price strategy often leads to over or undercharging situations. In effect, it reveals how much a business knows or doesn’t know about its customer base. 

 

People do love bundles and price options, but not if they are presented to them in a confusing way. In effect, when your price architecture is not set up with the correct floors, fences and attributes, customers will find it difficult to understand your pricing and just not to buy anything. 

 

A pricing team can help you analyse price and customer data to improve your segmentation and price architecture design process. From here, a pricing team will be in the position to give you evidenced-based input in the best price bundles. A pricing team in place will give you more confidence that a good, better, best approach is right for your business and customers. 

 

 

So do you need a GBB scheme to increase your revenues? You can look for it here, download our free pricing guide or e-book now.

 

Or, feel free to call me on (2) 91994523

 

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