The Approach to pricing – “Good-Better-Best”

A single price is more of an offering ultimatum to the customers rather than the product and services.  It regulates a sense in the customer that the brand is forcing them to either buy it at this price or forgo it. This approach is certainly not good for the business as the customer is driven automatically to the brand offering choices in prices at convenience.

A brand shall be able to determine the features and add-ons, its customers will value on specific prices. The entire idea is to be the envelope covering the major demands of the customer of all price-segment. It is quite essential to locate and evaluate different customer tiers and render a way for them to compare each option that you are offering.  Many brands are practicing methods of pricing to pull in all targeted segments of the product. One such pricing strategy is Good-Better-Best pricing, and believe it or not, good-better-best pricing is around you already everywhere. This strategy is much “price-focused” and offers categories for the customers to compare and proceed with one of them.

The companies usually shrink their profits by offering discounts to lure in price-sensitive customers and jeopardizing the chance of letting the high-end customer shred their pockets more. The multi-layered offering G-B-B attracts new customer, while stays put the existing product to keep up with current customers and, offering a high-end version to increase the spending cycle of customers on its products.

Good-Better-Best

The brand would always want to position itself in the marketplace like the one accommodating more customers than the competitors. The agenda of the strategy is to provide a solution to the “price-value concerned” segment and it offers 3 options to the customers for a product at a gradually increasing price. The options are obvious to guess; the “good” option, the “better” option, and the “best” option.

With these options or choices, you actually convey to your consumers, “if the best is not under your price range, I’ve got better or good for you” or “if good doesn’t do justice to your needs, I’ve got better or best for you.” A good example following this strategy is the Airlines; where, you get to choose between the “economy” class, “business” class or “first” class indicating the existence of good-better-best again.  

As much as G-B-B seems alluring, the implementation is as much hard because if the new offering is not built and priced perfectly, the customers would hop to lower-end pulling your profits down.

The Good-Better-Best has 3 approaches from which it benefits:

Offensive Approach	This approach can heighten revenues in at least 4 ways:
	1.  Brands can pull up margins by offering a “best” or “high-end” version that tempts high spenders and also, persuades the current customers to spend more.
	2.  Offering a “low-priced” or “good” product so that price-sensitive customers can access and associated with the brand’s product line.
	3.  Creating a whole new “best” offering that would elevate the position of the brand.
	4.  A “low-priced good version” can boost additional revenue from related or complementary goods & services.

 

Defensive Approach	1.  Not every time, G-B-B about being offensive and aggressively seek revenue; sometimes the defensive strategy helps in retaining a large percentage of customers and also, the integrity of the company.
	2.  It has been observed that instead of offering discounts to fight competitors, sometimes creating a new good product is an effective defensive strategy.

 

Psychological Approach	1.  Along with the offense and the defense of G-B-B strategy, this approach is more on consumer psychology which matters the most.
	2. Drawing on consumer psychology concepts to evaluate and understand consumers, and with the choice offered, give them a sense of empowerment.

 

A major step in G-B-B is choosing attributes and features to add, drop, or vary to cultivate perceptions of value. The addition or subtraction of features would lead to one higher or lower end version. In other words, an existing product would be the “better” version, where adding features would make it “best” and subtracting features would make it “good”. However, in the case subtracting the features is not making the offering worth the time and value, the brands can let go of that option and choose to stay with better or best.

Naturally, there are few critiques of the G-B-B strategy. The G-B-B strategy has been called a “death-wish strategy” by few brands as its focus is entirely on price, not value. This price segmentation differs from the value as the customer decides on value. With this risk, shifting to G-B-B would give leverage to customers to migrate to the new lower-priced offerings, cannibalizing revenue, and margins thus, adding on more risk.

Research

To understand the culture of the customers’ needs and wants, many companies conduct various research. For establishing a perfect and accurate G-B-B bundle and pricing, it is essential to trace and study the market. The companies could draw on 3 sources of data:

Expert Judgment

• The front-line employees such as executives and salespersons have quite a knowledge of what customer wants and needs.
• Companies should conduct studies on the information received from these in-house experts and accordingly set G-B-B prices.

General Market Research

• Engaging customers through a survey to ask their opinion and feedback on potential features and prices would render a handsome insight for setting the G-B-B.

Conjoint Analysis

• This analysis could be used to determine how sensitive the consumer is towards the change in prices. This would be a strategically important analysis to conduct to have an overall insight. 

With the research, the company is well able to determine and finalize its features and prices proceeding to launch the G-B-B offering. 

With the launch, it is to expect a boost in customers and revenue.

This blog is written by Kumar Kritanshu, a student of MBA at the Asian Institute of Management, Philippines.