How products and services are priced is an area that’s seen a huge amount of creativity over the years, and that creativity shows no sign of abating. In this variation on a theme, instead of having a go at producing fresh creative, I’m going to try to list as many pricing structures as I can to hammer home just how creative you can be with something as simple as the cost of a product.
This is the classic. How to make something feel like it costs less than it really does? It’s less than a pound, but not materially so. The business gives away a fraction, the customer’s brain makes more of it than it really should.
When I was 16 I worked in the local branch of Boots. I spent a lot time assembling and stocking up red cardboard stands that stood at the end of aisles offering a free additional bottle of shampoo to anyone who purchased one. It’s two for the price of one. It’s a volume play. It lets you drop the price in exchange for shifting more stock. Bogofs featured alongside the higher volume, lower subsidy three-for-two.
Fly to Spain for £10! You want to choose your seat? That’ll be a fiver. And board early? Little bit more please. Luggage?! You’d like to take luggage? It’s going to cost you. Let’s call it an even £80. Each way. This is clever but it is deeply, deeply frustrating.
Here companies are doing two things. Firstly, they’re tempting people with a low price and then, once a customer is committed, they incrementally increasing the price. Secondly, they’re spreading cost. Customers who are willing to abstain from every perk get an exceptional, discounted deal. Those who want or need the additional services that are offered, are paying a premium.
If add-ons lump things on as you go, tiers sell you luxury incrementally. It’s the difference between flying economy, or premium economy, business, club, first, etc.
Tiered pricing typically offers certain perks at a certain price with the middle options usually carrying the chunkiest margins. It’s not just airlines that use it. Tiers are incredibly popular. iPhones are tiered between the entry level, the standard, the Pro, etc. So are wines in restaurants: the house red is cheap and no one’s ordering the expensive claret, but the mid-priced riojas sell all day long with healthy margins.
Free introductory period
Give away a month’s free subscription (after you’ve collected the credit card details, obvs) and then sit back as the monthly fees roll in. Apple aggressively used this technique when it launched Apple TV+ and Apple Music, indeed they gave as much as three months free or more. This pricing structure works in industries where monthly fees are low and usage is habit-forming.
It’s worth noting that, really, all clever pricing structures are a discount of one form or another. The classic, straight-to-the-point discount is good for driving demand because people like a bargain. Obviously, it actually has to be a discount for reasons of ethics, decency and trading standards.
Spend a little, get a fraction back. Spend a ton, get a fraction back. Keep spending and after a while you’ll get some cash or a voucher.
Like the bogof this is a volume play, but this time selling one item a piece to multiple people rather than multiple things to one person. Uber relied heavily on this tactic to grow – giving people credits to use for future rides every time a friend used the service for the first time using an individual’s unique code. This is a combination of discounting and endorsement from a trusted third party. It is very powerful.
Like cashback but points schemes bring two additional benefits. The first is relative opacity; some rewards purchased with points are worth more than others. You’d need a spreadsheet and a surfeit of boredom in your life to accurately assess the value of rewards. The second benefit is exclusivity. Points are issued to members and members are different from non-members. In this scenario ‘different’ means ‘better’.