Good, better, best is a pricing tactic that every firm should consider. It is an extension of versioning that takes advantage of your customers’ psychological make-up.
People who are unsure what they want, buy “Better”.
Go back and read that sentence again. It is the crux of the good, better, best tactic.
Customers avoid “Best” because they are afraid of paying too much, and they are even more afraid of “Good” because they are afraid to purchase the lowest quality and it may make them look cheap. When uncertain, they buy “Better”.
Sears was famous for using this pricing tactic.
If you currently offer two versions of your product, the act of adding a third version, with the new version being at the high end, will almost certainly increase your profitability.
To you, this means that if you currently have two versions of your offering, you should seriously consider adding a third with more features at a HIGHER price (and feature level). This action will likely sway any of your customers who were debating between buying your “Good” and “Better” to choose “Better”. You will also likely sell some “Best” at presumably much higher profit than your other offerings. Overall, simply adding a “Better” option puts more profit dollars in your pocket.
Action: Look at your product portfolios. Is there anywhere that you are offering 2 versions? Figure out how you can add a third, more expensive higher margin option. This will increase your profits.
A recent New York Times article describes how some major league baseball teams are charging different prices for different games based on demand and demand creating (or killing) factors like weather, day of week, the opposing team, and who will be pitching.
All I can say is … FINALLY.
Let’s learn two lessons from this. First, this is a wonderful example of product categorization. It is OK to charge different prices for different items. Every baseball game is different. Differentiated pricing at ball-parks is quite similar to the way the airlines price. In both industries they can move prices up and down based solely on how many tickets they have sold at certain checkpoints prior to the event – the first pitch or the takeoff. However, ball-parks have the added advantage of information: who the rivals are, who the best pitchers are, even the weather forecast as the day approaches. They appear to be taking advantage of that additional information.
The second lesson we should learn is – just because you’ve always done it this way before, doesn’t mean you can’t do it differently in the future. I remember when Barry Bonds was about to break the home run record. Those games at the Giants stadium were packed. But the Giants weren’t charging more for tickets for those games. That was a missed opportunity. They apparently won’t miss the next one.
I suspect within the next 10 years we will see differentiated pricing at the movie theaters. A movie complex with 20 screens should charge more for the latest released #1 movie with lines out the door than for a movie that has been out for a few weeks. Movie theaters have begun charging more for 3-D showings so it’s only a matter of time. Can you think of any other examples where the current practices in an industry don’t take advantage of differential pricing?
Action: Take this moment to re-think pricing on your similar products. Do your customers get more value out of one of your products than another? Do you charge more for it?