Why use Tiered Pricing?
Tiered pricing gives wholesalers and distributors a way to quickly and easily test ways to increase sales and profit margins. It can also give you access to new customers with different price sensitivities.
The Benefits of Tiered Pricing
The purpose of price tiers is to find ways to better match the value you offer to specific groups with the value they want. You can also use it as a way to incentivize larger sales, segment markets and give you access to customers at different price points that otherwise might not buy your product.
Tiered Pricing Strategies:
- Volume: In this method the more your clients buy the lower the price per unit. This method motivates clients into buying higher quantities if the tiers are close enough.
- Bundles: In this method you offer more or greater quality in the higher tiers,creating packages that match potential customer groups. This is often shown as a “good, better, or best” set of options with 3 choices. This method helps keep you from leaving money on the table by allowing users to buy at the price point that fits the value they see. If done correctly typically 50% will buy the lowest tier, 35% the middle tier, and 15% the highest tier.
- Segments: In this method you identify specific groups of customers based upon their value and offer different prices depending upon the group they are in. This method allows you to provide pricing to VIP groups to encourage loyalty or to better fit with the competition you face in this segment without lowering margin for all segments. It allows you to compete in competitive segments without lowering your margin across the board. The segments need not only change the price, but also other aspects to reward or incentivize certain groups. Amazon gives its “Prime” segment access to faster, free shipping rather than different prices. You might give better pricing to local customers, to businesses rather than direct customers or to those switching from a competitor. Additionally, if you typically wholesale your products, a tiered pricing strategy can enable you to sell direct to consumer (D2C) at a retail price (perhaps under a different online store or eCommerce site), while still providing your loyal customers with your best pricing.
- Affiliate pricing: This is a version of the Segments strategy that gives special pricing to customers brought to you by a 3rd party or affiliate. Typically this results in a commission to the affiliate which can be computed as part of the total cost of the sale. Outside sales reps may function in the same way as affiliates and each rep may be given a different price for those clients they bring in. You can even have multiple levels depending on the quantity of new clients an affiliate or outside rep has brought in. This incentivizes the most effective affiliates and those they bring in.
The Best Way to Implement Tiered Pricing
All of this can get complicated unless you have a single system in place to track and organize all the different tiered pricing methods. Obviously, this gets really challenging with Spreadsheets and such. You need a system that will carry your tiered pricing strategy across both your eCommerce sites as well as allowing your inside sales reps to access these pricing tiers in sales quotes. Also, to analyze the effectiveness of your different channels and pricing strategies, you also need to report on the sales of each affiliate, segment, bundle or volume discount allowing you to fine tune and maximize your sales and margin.
How to Use Tiered Pricing in Zangerine
Zangerine makes tiered pricing a breeze. Since Zangerine provides pricing to both your sales staff and your eCommerce sites you only have to enter your pricing tiers once and any time you make a change to that tier it will be reflected everywhere you sell. You can create volume discounts at the product level, and create bundles of several products that act as a new product with its own price. In Zangerine you can also create as many segments as you like and add customers to those segments. Then in the product record just create a new price and assign it to each segment. Finally Zangerine can even handle affiliate and sales rep commissions.
Best of all you can see sales by segment, affiliate, bundle or volume pricing so you can test new strategies and quickly make adjustments that flow to every part of your business automatically!
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