Five pricing strategies for higher sales, predictable income and lifetime value
Five pricing strategies for more sales, predictable income and maximum lifetime value (LTV):
1\ Increase contract length
Offer discounts to buyers willing to sign a longer contract.
You can also up discount size as deal length increases.
Example:
- 1-year deal = no discount
- 2-year deal = 10% off
- 3-year deal = 12% off (+2%)
- 4-year deal = 17% off (+5%)
Advantages:
- A guaranteed, consistent revenue stream
- Increased customer lock-in as they integrate your solution over the long-term
- More chances to upsell and cross-sell throughout the life of the longer contract
2\ Tiered pricing
Offer different pricing tiers with varying levels of service.
Zoom's yearly plans:
- Basic: Free (max 40 mins + 100 ppl per meeting)
- Pro: $149 (max 30 hrs + 100 ppl + 5GB storage)
- Business Plus: $250 (300 ppl + 10GB storage + Translation)
Advantages:
- Capture more segments who would otherwise not be able to afford you
- Increase perceived value of more expensive options
- Price anchoring: In the Zoom example, the presence of the $250 plan makes the $149 option appear more affordable than if it did not exist
3\ Modular pricing
Allow customers to mix and match what goes into their product.
Tesla Model S (any desired combinations of):
- Paint job
- Wheels
- Interior
- Steering
- Acceleration
- Enhanced autopilot
Advantages:
- Maximum agility in price adjustments. The ability to add or subtract individual modules allows for micro-adjustments in price
- Possibility to introduce complementary modules made by partner companies for revenue sharing
4\ User-based pricing
Adjust pricing based on number of users.
Microsoft Office 365 for Business:
- Basic: $6.00 per user/mo
- Standard: $12.50 per user/mo
- Premium: $22.00 per user/mo
Advantages:
- Lower churn and higher usage per seat. As businesses are charged per user, they are motivated to actively promote product usage among their users, aiming to maximize their return on investment.
- Predictably scale pricing as user numbers increase
5\ Give non-monetary incentives
Instead of discounts, give incentives with high perceived value - but which are relatively inexpensive to you
It could be offering:
- Exclusive content
- Extended support
- Exclusive invitations to events
- Priority access to new features
Advantages:
- Increased perceived value that is difficult to quantify monetarily
- Strong differentiation. Buyers can no longer compare you feature by feature with competitors
- Strong emotional connection, loyalty & word-of-mouth if the incentives are seen as rare & valuable
6\ Summary:
For more sales, predictable income and maximum lifetime value (LTV) try one or more of these:
1\ Increasing contract length
2\ Tiered pricing
3\ Modular pricing
4\ User-based pricing
5\ Giving non-monetary incentives