In the early 80s researchers at Duke University, NC, conducted experiments to understand how grad and undergrad students react to choices, and observed buying preferences in cars, beers, restaurants and a few more.
Following is a brief adaptation of their method and what they observed.
It all began two variants of beer. An affordable and an expensive beer. They noticed that about 70% chose to go for the expensive variety, and for every 100 bottles they were able to fetch a revenue of ₹28.5K
Next, they introduced a decoy — a lower variant of beer. The addition of a decoy in this instance seemed to be adverse.
There were no takers for this lower variant of beer, however its presence in the range pulled the center of pricing downwards. Lesser students preferred the expensive variety and choose the affordable one.
The total revenue for a 100 bottles now dropped to ₹27.6K
Finally they introduced a premium variant. This introduction had a positive effect, and significantly improved revenue.
Now for every 100 bottles they were able to generate a revenue of ₹31.2K
This experiment in the 80s gives us a brief idea about the Good-Better-Best (GBB) pricing strategy. Whether you’ve noticed it or not, this method of pricing is practised in a lot of products that we use day-to-day. It is proven to be an effective method.
The Good-Better-Best pricing strategy offers customers three options for a product at gradually increasing prices. A good option, a better one and the best option, usually represented by regular, plus, and premium.
Let begin by looking at the addition of a premium product to a product line.
In 2015 Patrón Spirits introduced a line of Roca Patrón tequilas made by the tahona process, which uses a two-ton wheel hand-cut from volcanic stone to extract juice from cooked agave. It had a much better depth of flavour than tequila produced by automated means.
Its debut at about $69 a bottle exceeded sales expectations and catapulted it to one of the worlds best selling premium tequila brands. Besides this, the addition of a premium bottle also improved the sales of the lower priced variants sharply. The detailed and intricate ways of manufacturing Roca Patrón boosted perceptions of the overall Patron products. It created a brand halo that reinforced the entire product line of Patron.
The CFO of Levi Strauss, in an interview once said, “If you think about product hierarchy, there’s a better product and a best product. The good product is the jeans for about $40. The better product is anywhere between $60 and $80. And the best product is upward of that. Wholesale in the US is largely a good product market. Our direct-to-consumer business is more of a better and best product.”
Retailers must recognise that value-shoppers are not a market segment. Everyone seeks value. However different people just value things differently.
Levis understands that their customers value a positive experience. Levis Strauss maintains an omni-channel approach where they have retained the brick-and-mortar experience along with having an online presence as well.
Real life Good-Better-Best Examples
Lets look at a few brands that have embraced the GBB strategy to better understand the concept
Apple iPhone
Apple has embraced this concept in a lot of its pricing strategies. Their iPhone variants reflect a good better best framework. This strategy is not applicable only to the devices but also to the features of the device. I.e. Once I choose an iPhone 12 Pro, I am also prompted to make a decision about the memory capacity, and even that pricing is based of the GBB concept.
According to this report by Counterpoint, iPhone 12 (the better) has the highest share by volumes, followed by iPhone 12 Pro (the best), with iPhone SE and 11 (the good) trailing behind.
Netflix
Netflix emphasises on the GBB strategy by literally saying it out loud in their video quality.
About a year or two ago, Netflix launched a plan specifically for mobile devices. However according to this article and many other researches, majority of Netflix content is viewed on TV. By throwing in a plan like the mobile-only ₹199 plan, Netflix is pushing users to make quicker choices and go for one of the middle options. For users that are unsure about the content offered by Netflix and choose to go with the ₹199 plan, Netflix knows that they will eventually be switching to higher plans to view content on TV as proven by endless user behaviour data across multiple markets globally.
Chanel
The GBB model can also be applied to daily retail products. In this example, Chanel offers exactly 3 variants of their famous N°5 Eau de Parfum.
In this case the best variant, the 3.4oz bottle retails for $138 ($40/oz), whereas the 1.2oz lower variant goes for $82 ($68.33/oz). The middle variant is a 1.7oz bottle retailing at $108 ($63.5/oz).
This strategy will push almost all customers to purchase the 3.4oz variant because of the sheer value for money. One can expect almost 0% conversions for the decoy 1.2oz variant, with price sensitive customers still choosing the mid variant.
Implementing Good-Better-Best Pricing in your products
Don’t be afraid to introduce premium
As we observed in the case with Roca Patrón, a premium offering can boost a customers perception of the brand positively. Also, since you can pull in customers with your ‘Good’ and ‘Better’ pricing, the ‘Best’ tier can be the one with higher profit margins. When a premium offering lives up to its promises, it forms a brand halo that can build customer confidence and boost sales of even the Good and Better tiers.
Make the good product accessible
You can use your lowest tier as a means for customer acquisition. In the case of Netflix, the addition of an affordable ₹199 plan allows more users to get on to the platform. Brands can later retarget these users and push them towards higher tiers.
The Center Stage effect
Also known as the Goldilocks effect, when faced with a set of products, we prefer the one in the middle.
Researchers at the University of Chester presented participants with pictures of objects placed horizontally and asked them to indicate which object they preferred. They observed that participants often favoured items that were in the middle rather than the ones at the end.
This bias has strong implications even for digital products where the highest selling product can be placed in the middle of an array to make buying decisions easier.
Experiment and research extensively
Finally, brands need to understand that while there are best practices, using a one-size-fits-all model can lead to an unintended disconnect with your customers.
Brands need to conduct extensive research and reiterations of their prices till they are able to hit that sweet spot that gives value to their customers as well as help the brand achieve their revenue goals.
The following articles from the Atlantic and Harvard have inspired this post, along with many other websites used for research.
Thank you for reading. Please share this if you’ve learnt something new today.
