Why “Goldilocks Pricing” Is Perfect Competitive Pricing Ploy: Provides Customer Choice & Retailer Profit

Editor's Note: As we've written many times, customers like to feel they are in control of what is important to them. Plus, the more choices consumers have, the more likely they will choose a higher-priced item -- and find the money to pay for it. (Large Assortment Choice Increases Shoppers' Perceived High-End Quality). The findings also highlight the importance of competitive pricing intelligence and assortment planning and management so retailers will have the latest real-time information on which to make the best informed, most competitive marketplace decisions. The concept of Goldilocks Pricing, or The Good-Better-Best concept, is a competitive pricing ploy that is quite attractive and easy to execute for retailers who want to raise sales and profits. Here's Mark Stiving's take on "Good, Better, Best," followed by some other examples from Harvard Business Review, CBS News, Tony Gattari, Kissmetrics, and... Gilon Miller.

Mark Stiving: Good-Better-Best is an intelligent pricing tactic that every firm should consider; it's an extension of versioning that takes advantage of your customers’ psychological make-up. People who are unsure what they want will usually buy the middle, or “Better” choice out of Good-Better-Best. Go back and read that sentence again: People who are unsure what they want will usually buy the middle or “Better” choice out of Good-Better-Best. So providing a middle choice is the crux of the good, better, best tactic.

It has been shown that customers avoid “Best” because they are afraid of paying too much; it also shows that they are even more afraid of “Good” (the lowest choice) because they are afraid to purchase the lowest quality, and it may make them look cheap. So, when uncertain, they buy “Better”.

This means, if you currently have two versions of your offering, you should seriously consider adding a third with more features at a HIGHER price (and feature level). This action will likely sway any of your customers who were stuck between buying your “Good” (the lowest) and “Better” (the middle), to choose “Better”. You will also likely sell some “Best” -- and at much higher profit than your other offerings. Overall, simply adding a “Better” option puts more profit dollars in your pocket.

The procedure called "Goldilocks Pricing" is growing more common. So if you currently offer two versions of your product, the act of adding a third (more expensive higher margin) option will almost certainly increase your profitability because people will choose the middle price.

More From Other Pricing Experts:

Reuben Swartz: If customers can perceive a clear difference in value, they expect a difference in price. (The Surprising Secret to Successful Price Segmentation).

-- Tony Gattari: One of the reasons your pricing may suck is if you're not offering premium price options, like good-better-best, or bronze-silver-gold. When people are offered the premium product vs. a cheap product, they will usually go to the middle choice, not the cheapest choice. Providing a premium choice works to your favor. 

-- John Sviokla, in Harvard Business Review, The Future of Retail: Create "Choosing" Not “Shopping” Experiences. Retailers can greatly increase their competitive advantage if they are encouraging "choosing" behavior, i.e. "buying" -- as opposed to just increased "shopping, not buying." Sviokla says to give customers choices, known as "The Goldilocks Effect" or "Goldilocks Pricing". The more that customers can choose from, the more likely they are to make a "just right" decision for themselves, and it proves not to be just a choice of lowest price. (7 Smart Ways Retailers Can Turn “Shoppers” Into “Buyers”).

-- Tom Searcy, Finance Writer, Moneywatch, CBS News: Increase your sales with 'Goldilocks' pricing: Give customers a range of pricing choices. Package these products or services creatively in ways that will let clients feel in control of their buying. You can name your packages whatever you like (Silver, Gold, Platinum), so long as it makes sense and implies a scale of value. The middle: "Gold" packages are the ones most clients will choose. 

-- (Kissmetrics: With appropriate pricing in place, you can offer customers options that fit their budget, while at the same time influencing “on the fence” customers that your more premium offerings give enough benefit that their extra price is justified.  (Kissmetric blog on psychological behavior of customers). 

Gilon Miller: Takeaways

Providing a large assortment from which to choose creates the perception of higher quality and increases consumer willingness to pay for it. (How Large Assortment Choice Increases Shoppers’ Perceived High-End Quality). Research results raise positive aspects of effective assortment planning and management as well as competitive pricing intelligence to deal with the elements of product, pricing, and prestige. If these intelligence characteristics are applied,  I'm sure, like Goldilocks, retailers will come up with pricing and assortment decisions that are… just right.  

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Mark Stiving, Guest Contributor

About Author

Mark Stiving is a San Jose, Calif.-based pricing expert with 15 years' experience speaking, writing, coaching and consulting to help firms increase profits through value-based pricing. He is the author of Impact Pricing: Your Blueprint for Driving Profits; he blogs at PragmaticPricing.com and shares pithy thoughts on Twitter using @MarkStiving.
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