Question: Hello Mark, hope you’re doing well. If you have some time, I’m curious to get your thoughts on the following interesting pricing dilemma. I’m the PM for a company. We are leveraging the Good, Better, Best pricing model which you have strongly encouraged us to use. However, we are thinking to reduce the number of package options to reduce complexity, focus on our differentiated value, add and raise the average price of sale by eliminating the current “Premium” option. We’re planning to A / B test this in the market but I’m curious about your perspective on this. Thank you. Fred
Answer: Very interesting question Fred. My (strong) belief is that good, better, best (GBB) is a much better choice. However, it is possible that if you didn’t originally implement GBB well, the two choice selection may prove more profitable in your A/B testing.
First, you suggested removing complexity. I’m curious what’s complex. GBB is not complex to the buyer. Maybe it’s an internal issue that you don’t want to manage 3 offers. I’d argue that having 2 choices makes the decision harder for the buyer. There is no obvious choice.
Second, you wanted to raise ASP. This might happen if you remove the middle choice, but it’s not assured. Everyone who used to buy the one in the middle will now have to choose between the low end and the high end, or they may choose to go somewhere else. The ASP result depends on how many go which way. If you remove the low end option, you will definitely raise ASP but you will probably lose some customers too.
Finally, here is my suggestion. Whatever two choices you think you want to sell, create a third choice that is much more expensive. Consider it a concierge service. If price was no object, what would you put in this offer to maximize the value to your buyer? Just by having this really expensive option, which nobody may ever purchase, you simplify the buyer’s decision and you will move more buyers to choose the more expensive of your “2 choices”.
Hope that helps.
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Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.