Pricing Strategy: Tiered Pricing (Example)

This is part 3 of our 2nd week on Pricing Strategy. Previous segments are available on our archives page

Let’s see how tiered pricing might work for Doug’s Desserts’ online subscription service. The goal of this product is to provide bakers with delicious recipes and tips. But do all bakers need or want the same level of service? Originally, I planned to price the product at around $2.00 / month based on the earlier pricing inputs I identified; can I tailor the product for different types of customers and charge them each a different price?

Product Usage
By using a website tracking tool, like Google Analytics, I can view how my customers are using my site to see how many users are coming in each day and what parts of the site are most popular. With a site like this, there are a few ways in which I could gate the customer experience, for example:

  • The total number of recipes to view per day or month
  • The number of logins per day or month
  • The ability to use advanced features, like menu planning
  • The level of customer support, like phone versus email

After analyzing the customer usage statistics, I decided on three tiers:

  • Newsletter: One recipe emailed to you per week.
  • Individual: These users will be allowed to have full access to my website. Once a customer has decided to pay, I’ve decided to not further restrict access to the number of recipes she / he can view. Also, these users will be able to email a chef to ask questions.
  • Family: The focus of this option is providing the advanced menu-planning feature, plus allowing more members of the family to share a subscription.

Product Value
Now let’s think about how much each tier is worth to a customer:

  • Newsletter: A recipe a week adds nominal value to a customer so free is a reasonable price. The newsletter allows me to engage customers and encourage them to buy a subscription by showing them the value of my product. Even if they don’t, I’ve included advertising to allow me to make revenue.
  • Individual: We have lots of great recipes that customers will have unlimited access to and the ability to email a chef is a value add that differentiates the product; $2.00 / month makes sense from my earlier product value analysis and is competitive with my competitors.
  • Family: The primary value of this product is the menu planning and the ability for each family member to have their own profile. There might not be as many customers who want these options, but $6.00 / month seems like a great value if the two hours a month of menu planning (valued at $10.00 per monthly customer) went almost to zero!

Putting it All Together
Your goal is to make it easy for the customers to see the costs and benefits you are offering. Summarizing the information in a table can be a great way of communicating this information.

Newsletter Individual Family
Free $2.00 / month $6.00 / month
Features

One free recipe per week sent via email

Get all Newsletter features

Plus

Unlimited access to our website

Unlimited email access to ask questions to a chef

Get all Individual features

Plus

Unlimited access to our website for three additional family members

Weekly menu planning, including an aggregated shopping list

 

Tomorrow, I’ll talk about the theory of discounts and promotions.

Recipe of the DayCook’s Illustrated Classic Brownies (free trial / subscription required; I do not receive any compensation for this link)