Reinvigorate Your Business With Tiered Pricing

When you make a lot of money, or you did then lost it all and are now rebuilding yourself, they want to know how you do it. I guess that’s why one of the most frequent questions I’m asked is, “Mike, how do I make more money?”

I have an answer, a very good answer as a matter of fact, but before I give it to you, let’s be clear on one thing. We’re assuming that you’re already making some money now, right? I mean my answer won’t do you any good if you’re standing on a street corner with a cardboard sign that reads, “Will work for money.”  Ready for the good answer?  Product tiers.

Using Product Tiers

For this system to work, (are you feeling the suspense yet?) you have to already be making some money doing something for clients who pay you for whatever it is you do. That’s the key element required for the time tested, and totally effective, tier method of increasing revenue to work. If you are currently making no money and have no clients, then I hate to say it, but this blog post really isn’t for you. Instead, I recommend you read my other blog posts about starting a business from scratch.

Building on a Brand

Congrats. . .  you’re making some money doing some thing, right? So let’s get started using the product tier method to increase your revenue. Step one; take a look at what you are selling. For simplicity’s sake, lets say you sell soap. It’s not fancy soap. It’s just good old wash-the-dirt-off-your-hands type soap.  Now let’s have a try at making a new variation of this product that’s a little more expensive. Maybe the newer, more expensive version is made using a special organic abrasive, like sand or crushed walnuts so it will scrub the tough and disgusting stuff, like worm guts off a fisherman’s hands, along with the dirt. Or add aloe and some organic frou-frou herbal scent and sparkly flakes to it to make it fun to take into a bubble bath.

Then, make another, even more elite version of the product. Maybe the next step up the tier has crushed flower petals mixed in with the soap and comes wrapped in a special paper made from recycled cardboard that helps save the planet. While there is no right or wrong answer here, find some way to build a higher tier of your basic product, then a better one, and then the best one. Each of these will be at increasing price points, of course.

Why It Works

Win at all costs

Tiered systems play into the psychology of your customers. Think about it. We all want to be the best at something. (That pecking order thing doesn’t just happen with chickens and turkeys – and by the way, turkeys win – Go Hokies!) If we can’t be the best at sports, we try to have the best car in town. If we can’t do that, then we find something else to be the best at, or to have. It can be the best spouse, best kids, best haircut, best smile, best grump (yes – some of us strive to being the best at the worst stuff), best rhubarb pie or be known for throwing the best parties. We are surely hardwired in life for two things, (1) to want to make more money and (2) to be the best at something. And if you make soap, then having the best soap is one way to achieve both things you’re wired for.

Customers are people too. They’re also hardwired to always want to stand out by being the best. If they can do it with your product, then in their mind at least, they are the best. Most people will use your regular old soap (maybe they are the best, in their mind, at something else), but others will, without a doubt, upgrade and gladly pay the price to get the best to feel like the best.

Case in point – remember Izod shirts? You know, the one with the alligator on it? Or the Polo shirt with the Polo logo? It is the same stinking shirt you can get just about anywhere. But, with the Polo or Izod logo on it, the shirt becomes the next tier up, and people happily line up to pay twice as much money for the shirt with the logo on it. This is because they feel it makes them the best, not at wearing shirts, but it signifies they hang out with the people who have and wear the best because they are the best. Or something. Either way, in their minds it matters.

Give Them the Chance

First Class Product Tier

The most fun thing about product tiers is the race to the top. If you ever played “King of the Hill” as a kid you understand the pride and excitement of standing on top and looking down at everyone else. Everyone wants to climb up to the top of the highest tier. Unlike playing King of the Hill as a kid, where it was your sworn goal to kick people off the hill, now you want to let people climb your hill, er tier, quickly. The faster they scramble up the tiers, the more money you’re making. So when someone buys your regular soap, tell them about your other products. Tell worm gut fishing guy about your special abrasive, but loaded with skin softeners soap. Tell his wife about the “gold flakes, fun in a bubble bath” lavender scented soap. Point them to the next rung up and let them start climbing tiers.

Folks, this works across the board for all kinds of products. Do a quick case study of the examples within American Express (a personal favorite of mine—and no I am not brown nosing here.  Well maybe a little.) They have the “Plum-to-Gold-to-Platinum to the “super secret” Black Card tier model. Notice how that even though you know about the product tier model now, you’re still have the little voice inside saying, “Gotta have that black card.”

This model works for services, too.

Still not convinced? Okay, ever fly coach? Or business? Or first class? Yep. All product tiers. Shoot, even theme parks do it! They start out with their standard park access, then offer a priority line, and then even an exclusive or ‘early access’ pass.

The product tier system is the key to increasing your revenue. It’s right in front of you. Just look at what you currently offer, whether it’s a service or a product, and determine what you can offer to the person who wants a “better, more better, betterest best” version possible. Then run with it!

Dig Deeper Into Consumer Behavior

If you want to learn more about how consumers behave, my favorite read on the subject by a long shot is Why We Buy by Paco Underhill.  A great compliment to Underhill’s book is The Paradox of Choice by Barry Schwartz.

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