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I'm pricing my SaaS version 2.0 software in preparation for launch in Q1 and I'm wondering why so many pricing pages have 3 options.

For v1 we just had 1 pricing plan and we definitely left money on the table in the form of prospects who almost laughed at how low the price was compared to the competition. So for v2 I'm putting a bit more effort into pricing and I've been looking at a lot of pricing pages lately. One thing that I've noticed is the proliferation of 3-plan pricing pages. They all seem to have the "cheap" plan, the "best value so we made it bigger than the other 2 rectangles" plan, and the "so expensive that only people who don't pay attention to cost will choose it" plan (sometimes 2X - 3X the price of #2).

Is there any scientific or business reason why 3-plan pricing is so prolific? Or is it simply a coincidence/mimicry that comes out of people having no idea how to price their product?

Right now we are deciding whether we should go with 2-plans or 3-plans, and I just want to make sure we're not, again, leaving money on the table if we choose the 2 over the 3.

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3 good answers, +1 for each of you. So Jonny reaffirms the reason I gave to my partners for why we should price our top tier at what I think is foolishly high, but might actually seem cheap to people who don't think like me. Mike has a lot of good references, which I always love in answers. Harly brings in the psychology of the buyer and the Goldilocks phenomenon. Unless someone wants to flesh out a "canonical answer" I'm going to let this one go for a couple more days and then pick an answer next week. Thanks guys. – umassthrower Dec 23 '11 at 22:41

4 Answers

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Having several options lets you capture more consumer surplus by allowing price discrimination, similar to how airlines have coach and first class. Both get you to where you're going, but coach has a lower price point to target consumers who might be thinking about taking the bus, while first class has a higher price point to make nervous travelers feel more at ease. This allows airlines to fill their seats with those who are cheap and also those who live lavishly.

Three seems to be the magic number that lets you segment customers by level of need, without introducing too much complexity into their buying decision.

The more options you provide, the more overwhelming the buying decision is for your potential consumers. Having three options is a very familiar concept for most people.

Small, medium, large. Too hot, too cold, just right. Too cheap, worth it, too lavish.

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Chosen as most complete answer to the actual question, rather than just part of the question. – umassthrower Dec 28 '11 at 17:06
Thanks! It's the Econ major in me =] – Hartley Brody Dec 28 '11 at 18:24
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ohh, econ -1 then :-P – umassthrower Dec 28 '11 at 18:25
up vote 0 down vote

Concerning the higher end part of the pricing options, this is a means to encourage users to choose the middle plan, following the contrast principle.

Say you have 3 pricing alternatives :

  • "Basic" for free or very cheap,
  • "Regular" which would suit most users,
  • "Premium" for all features at a higher price.

Actually, in this kind of pricing strategy, the top of the range princing option is mostly present as a reference, an anchor, which makes users feel like the regular plan is not that expensive. Furthermore, there is still a chance that some customers won't care about the price and choose the most expensive plan, which is always good for you (guess you always have to provide a solution for customers willing to pay more :))

And I second Mike concerning the "Don't just roll the dice" reading, definitely worth it.

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Yup. The problem is you don't want the "basic" plan to cannibalize the regular plan. I think I'm going to end up going with 2 plans because it is truly better for my customers to be on what would be the middle plan. With my price points, unless I give too much value to the lowest plan (to where it is a viable competitor to the middle plan rather than just something for the cheapskates) anyone who chose the lowest plan over the middle plan would be hurting themselves by doing so. Might expand to 3 plans in the future, but I'm thinking 2 right now. Standard vs. ultra-super-duper-premium. – umassthrower Dec 28 '11 at 16:56
It also depends a lot on the features you'll be able to offer : do you have enough truly differentiating features for 3 pricing options or not really ? – Paddy B. Dec 29 '11 at 8:28
up vote 1 down vote

Usually as the prices double, the features or limits for each tier MORE than doubles.

Here are some great resources

I am also considering pricing for my app (see profile) and hope to dedicate a few evenings to reviewing all of these links.

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I was taking into account the relative value over competitors whose products have also gotten better over time. The absolut value may have gotten 4 - 5X relative to what the product/market looked like 3 years ago. – umassthrower Dec 23 '11 at 22:29
up vote 4 down vote

Yes, there is a scientific basis for this. There is a reason why a company like Proctor and Gamble makes so many kinds of soap.

Remember that at the top end essentially "money is no object" in that some people want the best, no matter the cost. People don't buy a $2,000 watch because they did some sort of value calculation and decided it was 100 times better than a $20 Casio watch.

Also remember that what seems of little value to you may be worth big bucks to a major customer. For example 24/7 telephone access to second tier support.

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Customer support shouldn’t be a premium feature - trevorfitzgerald.com/… – MikeNereson Dec 23 '11 at 18:31
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I think he means outside of business hours premier support. Also, in the B2B world, where I am, premier support contracts are definitely, definitely premium. – umassthrower Dec 23 '11 at 18:37

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