Good, Better, Best and OK? Will 4 levels work?

 

Bike_for_fourHere is a question from a reader:

Hey Mark,

We currently do have good, better, best plans for one of our services. And it is good, better, best – I know you’ve mentioned in your posts (iPhone, for example) that people sometimes don’t do it right. In our case, each plan does include everything previous plan includes plus few more things.

Here’s my question, does it always have to be 3? Reason I ask, one of our clients suggested to offer more introductory offer that’s lower in price than our current good option, which would help us pick up clients that are having hard time paying good price but might upgrade later once they increase their business. We offer B2B services, so the lower priced plan would be for solopreneurs and one-person businesses getting started. The difference would be $59/mo vs $29/mo or $39/mo, with limited core services. I don’t want to lower $59, because it does pack quiet a bit. But picking up very price sensitive clients does go with our overall strategy of helping SMBs grow. Would love to hear your thoughts on this.

Thanks a lot for your insight, feel free to use this for a blog post. Have a great Monday!

Thank you for your question.

First, it does not have to be 3, but 3 is best.  We understand how people make decisions with 3 options.  Three options make decisions simpler for your buyers.  However, we do sometimes see 4 alternatives. One example is “Anchoring” which is offering a very high end product, and charging a very high price, to make all of the options look affordable.

However, you are in a dilemma.  The risk of adding a low end alternative is some (many?) of your customers will shift their purchase decisions down market resulting in less revenue. This is true if you’re adding a third option at the low end or a fourth option at the low end.  For example, people currently purchasing good may switch to the low end.  To avoid that, you want to be careful when designing your low end product.

The low end product must be one your current customers would not find acceptable.  This may be a minimal set of attributes that aren’t attractive to current customers.  This may be purchase requirements that are so onerous that your current customers won’t switch.  For example, maybe you can create a solution where people cannot collaborate, meaning it only works for sole proprietors.  You can only do this if you know your market well.

Here’s another idea.  If your goal is to grow your SMB customer base, you may consider a freemium strategy.  For this to work, you have to be able to bring customers on line with very low cost and essentially no support.  This has the potential of bringing in many new SMB customers.  Your goal is to build as big a network as possible.  Then some of them will upgrade as their companies grow.  The advantage is you’ve built a relationship and hopefully switching costs with many more customers than simply offering a lower end fourth alternative.

This is an important decision, and of course I can’t answer it without a lot more detail and time.  However, I can share with you generalities.  Hopefully this post gets you thinking in the right direction.

Good luck.