What Consumers Should Know About Good-Better-Best Pricing
These days, good-better-best pricing is everywhere. When purchasing an airplane ticket, for example, passengers can buy the default coach ticket (good), pay for some extra leg-room by upgrading to “premium economy ” (better) or pay through the nose and buy a business class seat (best). With all three tickets, the basic service is the same―aerial transportation from point A to point B. But the amenities (or the degree of discomfort suffered, for the cynical among us) vary.
Along similar lines, in bars, alcoholic drinks are priced low as rail drinks when the customer does not ask for any branded alcohol (good), higher as call drinks when a specific brand is requested (better), or highest as top shelf drinks for premium liquor brands (best). An Acura TLX vehicle comes in three versions: the base model has a 2.4 liter engine and an 8-speed automatic transmission (starting at $31,695; good); the mid-version has a 3.5 V-6 liter engine, and a 9-speed automatic transmission (starting at $35,320; better), while the high-end version is 3.5 V-6, 9-speed automatic with all-wheel drive (starting at $41,576; best). As these examples illustrate, when using a good-better-best pricing approach (also known in the trade as “tiered pricing”), the marketer sells several different versions of the same product to consumers at different price points and corresponding quality levels.
For decades, marketers have packaged and offered different products to different customer segments. See the Chevrolet ads from the mid-1950s. No one would mistake the hoity-toity target customers of the 1955 Bel Air convertible with the blue-collar family that would find the 1956 Handyman station wagon to be appealing.
But this way of designing and pricing products based on customer segment differences is changing. With the good-better-best pricing approach, marketers now systematically offer different product versions to pretty much the same customers based on how much they want to shell out on a given purchase occasion. For instance, someone flying for work may buy a business class airline ticket because her company is paying for it; but on another occasion, she may fly in coach when shelling out of her own pocket.
So what do shoppers need to know about good-better-best pricing?
1) Marketers want consumers to trade up from the good option to the better option or from better to the best option.
By offering different choices, at the first blush, it may appear that marketers have shifted the decision of which version to buy each time over to the customer. But the truth is that through subtle and overt signals, marketers encourage customers to purchase the more expensive option than the one they had in mind to begin with.
Take the case of pork chops. A grocery store uses good-better-best pricing, promoting a deal on thin-cut chops (the good version) in the meat case at a mouthwatering price. But the meat case display strategically exhibits thicker-cut (better) and pasture raised organic chops (best) right next to the cheap chops. In such a line-up, the thin-cut chops won’t hold their own for most shoppers. The goal of such overt comparison is to lure buyers towards the more expensive choices. Kent Harrison, marketing VP of Tyson Fresh Meats described the logic in this way :
"Retailers must make sure to stock their case with a variety of choices, to give consumers the option of moving up to the next tier of quality, which will also be an opportunity for the retailer to gain higher total dollar sales.”
2) Many consumers oblige the marketer and trade up to the more expensive better or best options without careful thinking.
Once shoppers have made up their minds to purchase something, they are relatively easy to persuade about which specific item to buy. They routinely change their minds at the point of purchase. Often times, the situation itself may make the trading up decision an easy one. For example, if someone else is paying for your airline ticket, upgrading to premium economy or business class makes sense on a long-haul flight. Or you may be at a bar and having a really good time with friends. In the midst of this fun, ordering a top-shelf drink instead of a cheaper rail drink feels like a natural decision (after all, it’s only a few dollars more!). Or you may justify the expensive choice to yourself in other ways―“After all, I don’t buy a new car every day, so I might as well opt for the version with the bigger engine and the all-wheel drive.”