Endless Possibilities with Tiered Pricing

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Tiered pricing is a strategy implemented to encourage consumers to buy larger quantities of a product. The strategy is executed by applying a discount that is correlated to the quantity of product ordered. The discounts given can be viewed as “tiers”.  As the order quantity increases, the discount also increases. Therefore, the product or service you are providing can be purchased at different price points. It is a very common strategy and is used regularly throughout big and small businesses alike.

How can businesses use tiered pricing?

Tiered pricing is in a variety of transactions that consumers interact with daily. For example, if you are booking accommodation online, there is likely to be tiered pricing. By increasing the number of days you stay, a discount may be provided. Moreover, the discount may be different amounts for an increase in days. Therefore, 1-3 days, 4-6 days, and 7+ days may all have separate discounts. Generally the longer you stay, the greater the discount. This structure is tiered pricing. Additionally, if you add more people to the accommodation, there may be a tiered pricing structure for groups and families.  

Another example would be online shopping. Let’s say you just bought a new pair of jeans. When it comes time to select the shipping options, you can pay different amounts to receive the delivery sooner. Overnight or express delivery is often more expensive. If you are happy to wait and don’t need the jeans urgently, you might pay less for shipping and just wait a few more days. The different shipping options change the final price allowing you to chose the tier or price point you are comfortable with.

Capitalising on tiered pricing strategy

It is often easier to have a few products that you can sell at different price points than numerous products that can become difficult to manage and make a profit on. Speaking of profit, tiered pricing is geared at making your company more money. Consumers will pay the price point that they are willing to pay, therefore, if they are willing to pay more, it is important to capitalise on this behaviour.

Since the internet allows people to price shop easily and efficiently, a tiered pricing strategy might keep them on your page. Instead of having them price shop with your competition, you can now encourage them to price shop within your own site. This way they can find the item they want and the price they want all within your business. By giving people choice and value for money, you will be able to respond to these core desires of consumers and keep consumers coming back.

Tiered pricing is a viable and accessible option for businesses to increase profit margins, gain more customers, and provide their customers with value and choice. If you haven’t used tiered pricing in your business already, it’s worth looking into further. The possibilities are truly endless.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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