What's the benefit of the three tier pricing model?

I feel like I see the three tier pricing model everywhere, to the point where it's an industry standard. Why can't you just make a free version then a paid version, or better yet - just a paid version? Granted I've never implemented this model, but as a consumer I don't really want to choose between several options.

Not trying to be cynical, but maybe someone more business savvy than me can explain it.

  1. 2

    The book predictably irrational talks about it. It's basically price anchoring. Put something horrifically overpriced next to something normally priced, and the something normally priced seems amazing.

    1. 1

      ^ this. It's probably the only reason it exists :D

      On a serious note, it is indeed price anchoring, and you can find out the features customers are willing to pay for, and add those to your "Premium", more or less.

  2. 2

    As a less business savvy person, all pricing models have their nuances. Multi tiers usually offer one unreasonable plan to push the customer to the desired packages. Sometimes used for shifting the mindset of the customer from "should I pay for it" to "which one should I choose". Having an unreasonable option makes the other options no-brainer.

    1. 1

      Gotcha, that makes sense.

  3. 1

    There are pointless tiered pricing which is tiered for no reason.

    Some are tiered to force customer into buying their final tier, I can literally feel these, until I have moved up to their final tier's annual plan there will be persistent popup torturing me to upgrade. I sometimes upgrade just to avoid this headache from popups.

    Some have a credit system, like email providers, the higher your monthly subscription the higher your contacts and emails sends.

    It actually depends on your intentions of business tho. Free - to get people come in, a lost lead is lost revenue, simply have them for free and they'll like it for the price point. So win-win.

    Mid tier - they want your software, the bare essentials.

    Third tier - they need your software, website builders for example.

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