Comparing Pricing Models

If you’ve ever researched a product, service, or productized service online you may have been presented with one, two or most likely three options on the pricing page of their website. Those options are typically titled something like ‘basic’, ‘pro’, ‘advanced’, or ‘bronze’, ‘silver’, ‘gold’.

Additionally, those options list out what’s included for that option, and then finally the price for each option. Did you ever wonder how or why they come up with those particular price points? Sure, part of it is what the market will accept as fair, but there is some phsycology behind it.

It turns out there are some standards of sorts for pricing models when it comes to determining the dollar jump from one tier to the next, and depending on what the business is trying to drive te customer to will dictate which pricing model to use.

Let’s take a look at popular pricing models commonly found on website productized services these days.

The first is “REGULAR/PREMIUM PRICING”, and the formula is 1x, 1.05x. This naturally drives people to the second option, since there’s not much price difference (e.g. $100 and $105).

The second is called “MIGHT AS WELL”. The multiples are 1x, 1.5x, 1.75x. This option typically drives people to option 3, because again if you’re offering more features for not much more price then people will say “well, I might as well upgrade!” (e.g. $100, $150, $175).

The third is the “GOLDILOCKS PRICING” formula. The multiples of 1x, 2.2x, 5x will drive buyers to the second option because the psychology of option 3 being so expensive and not wanting “just the basics” of the first option.

Finally, and this one is realitvely new to me, is the “25% up” formula. Instead of three options there’s only two options: 1x and 1.25x (e.g. $100, $125). It’s similar to the second option, and when used most people will natually chose the 1.25x option becuase of the percieved value.

In the end, no pricing model is perfect, and none are cast in stone. I’ve used a couple of these in my offerings and they all have their pros and cons. Choose wisely!

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