View source for Good–better–best

{{short description|Tiered pricing strategy}}
'''Good–better–best''', also known as '''Goldilocks pricing''', is a type of [[pricing strategy]], a form of [[tiered pricing]] in which variations of a product are offered at multiple prices.
==Consumer behavior==
The "good" option is typically a basic, [[no frills]] product which has few features, but which is accessible to more buyers because of its low price. The "best" option is typically a [[premium pricing|premium]] product which has the most features and a high price, and which is sometimes considered a [[luxury good]]. Offering a middle, "better" option invokes the [[Goldilocks principle]], in which consumers may reason that they can spend more money than the "good" option costs, but that they do not need the premium features of the "best" option.<ref name="hbr-2018">{{cite news |last1=Mohammed |first1=Rafi |title=The Good-Better-Best Approach to Pricing |url=https://hbr.org/2018/09/the-good-better-best-approach-to-pricing |access-date=June 8, 2023 |work=Harvard Business Review |date=September 1, 2018}}</ref>
Companies selling a particular good had traditionally relied on a [[demand curve]] to identify an ideal price. This created a [[Catch-22 (logic)|Catch-22]] in which a good with only one price would exclude buyers who would not pay the single price, and it would also sacrifice profits if a less [[Price elasticity of demand|price sensitive]] customer were able to pay more for a premium version.<ref name="hbr-2013">{{cite news |last1=Mohammed |first1=Rafi |title=Why Good-Better-Best Prices Are So Effective |url=https://hbr.org/2013/02/why-good-better-best-prices-are-so-effective |access-date=June 8, 2023 |work=Harvard Business Review |date=February 8, 2013}}</ref> In addition, a lower-priced good can generate additional [[ancillary revenue]] for the seller through further revenue streams; for example, in 2018, an [[iPhone SE (1st generation)|iPhone SE]] cost about one-third as much as Apple's flagship [[iPhone X]] did, but Apple could continue to sell content, services, and accessories to a buyer of the less expensive phone.<ref name="hbr-2018" />
Good–better–best pricing takes advantage of consumers' [[Anchoring (cognitive bias)|anchoring bias]]; for example, when [[Williams-Sonoma]] sold a [[bread machine]] for $279, then introduced a premium bread machine for $429, the premium machine did not sell well, but the original model's sales almost doubled, because customers reasoned that the $279 model was a better value.<ref name="priceless">{{cite book |last1=Poundstone |first1=William |title=Priceless: The Myth of Fair Value (and How to Take Advantage of It) |date=January 5, 2010 |publisher=Farrar, Straus and Giroux |isbn=9781429943932 |page=156}}</ref> In addition, the "best" option creates a [[halo effect]], such as when [[Patrón]]'s introduction of premium [[tequila]] caused its lower-priced tequilas to also increase in sales, due to improved customer sentiment about the brand.<ref name="hbr-2018" />
==Examples==
[[Sears]] often used the good–better–best strategy in its [[Mail_order#Sears|mail-order catalog]], for products such as [[Craftsman (tools)|Craftsman tools]].<ref name="salesvantage">{{Cite web|last=Manfer|first=Sam|work=Biz-Blog@SalesVantage|title=Good, Better, Best|url=http://www.salesvantage.com/blogs/index.php/salesdog/sales-strategy/good-better-best|date=April 6, 2010|access-date=April 6, 2010|archive-url=https://web.archive.org/web/20100426061343/http://www.salesvantage.com/blogs/index.php/salesdog/sales-strategy/good-better-best|archive-date=April 26, 2010|url-status=dead}}</ref> In the 2000s, Sears and [[Kmart]], which were owned by the same [[Sears Holdings|parent company]], included celebrity brands like [[Martha Stewart Living]] and [[Ty Pennington]] Style in their good–better–best tiers. Similarly, in 2009, [[J.C. Penney]] announced that it would include brands by [[Cindy Crawford]] and [[Chris Madden (designer)|Chris Madden]] in its "better" tier, supporting [[American Living]] by [[Ralph Lauren Corporation|Ralph Lauren]] in the "best" tier.<ref>{{Cite web|last=Duff|first=Mike|work=[[BNET]]|title=Sears, J.C. Penney Launch Post-Martha Home Collections|url=http://industry.bnet.com/retail/10001302/sears-jc-penney-launch-post-martha-home-collections/|archive-url=https://web.archive.org/web/20090411170045/http://industry.bnet.com/retail/10001302/sears-jc-penney-launch-post-martha-home-collections/|url-status=dead|archive-date=April 11, 2009|date=April 8, 2009|access-date=April 6, 2010}}</ref>
At bars, customers often have a choice between [[well drink|rail drinks]] with the bar's choice of inexpensive liquor, "call" drinks with the patron's choice of moderately-priced liquor, or "[[Top-shelf liquor|top shelf]]" drinks with a premium brand of liquor. At the point of purchase, a bartender may be able to [[upsell]] a customer from good to better, or from better to best, if the price differential is small and if the customer is in a good mood.<ref name="psychologytoday">{{cite news |last1=Dholakia |first1=Utpal |title=What Consumers Should Know About Good-Better-Best Pricing |url=https://www.psychologytoday.com/us/blog/the-science-behind-behavior/201602/what-consumers-should-know-about-good-better-best-pricing |access-date=June 8, 2023 |work=Psychology Today |date=February 16, 2016}}</ref>
[[Consumer packaged goods]] companies like [[Kraft Foods]] have attempted to improve sales by adopting good–better–best strategies to broaden their appeal with basic and premium products targeting the low- and high-income consumer.<ref name="reuters-2013">{{cite news |last1=Wohl |first1=Jessica |title=Towels, spicy carrots at front of latest consumer products push |url=https://www.reuters.com/article/us-usa-consumer-products/towels-spicy-carrots-at-front-of-latest-consumer-products-push-idUSBRE9270PG20130308 |access-date=June 8, 2023 |work=Reuters |date=March 8, 2013 |language=en}}</ref>
[[Economy class]] air travel, long considered a single class of service, has been diversified into [[basic economy class]], economy class, and [[premium economy class]]. Airlines have found that over 50% of consumers who start at a lower price end up upgrading to a higher price.<ref>{{cite news |last1=Nickisch |first1=Curt |title=Pricing Strategies for Uncertain Times |url=https://hbr.org/podcast/2020/07/pricing-strategies-for-uncertain-times |access-date=June 8, 2023 |work=Harvard Business Review |date=July 7, 2020}}</ref>
Some companies have quietly increased consumer prices by lowering prices on basic models while simultaneously introducing new, premium models at higher prices. For example, [[Peloton Interactive]] lowered the price of its basic [[stationary bicycle]] from $2,245 to $1,895, and also introduced a new premium bike for $2,495.<ref name="wsj-2021-11-21">{{cite news |last1=Dholakia |first1=Utpal |title=How Companies Raise Prices Without Raising Prices |url=https://www.wsj.com/articles/how-companies-raise-prices-without-raising-prices-11637490602 |access-date=June 8, 2023 |work=The Wall Street Journal |date=November 21, 2021}}</ref> One jewelry sales consultant advised retailers introducing good–better–best pricing to set their "better" price about 10% higher than a product's average sales price, with "good" prices about 25% lower, and "best" prices no more than 50% higher.<ref name="instore">{{cite news |last1=Johnson |first1=Larry |title=3 Simple Ways a “Good-Better-Best” Display Can Make You More Money |url=https://instoremag.com/good-better-best-merchandising-larry-johnson/ |access-date=June 9, 2023 |work=Instore Magazine |date=April 24, 2019}}</ref>
==Risks==
A common pitfall of good–better–best is [[cannibalization (marketing)|cannibalization]], where customers who could afford the "better" option instead opt for the "good" option to save money. Marketers discourage customers from downgrading by implementing "fence attributes," such as by making "good" hotel rates non-refundable, or by making the least expensive concert tickets [[general admission]], with no assigned seats.<ref name="hbr-2018" />
Some sales professionals discourage a good–better–best strategy for being non-specific and non-targeted to a particular customer, instead recommending that salespeople select and offer one pricing tier based on the customer's needs.<ref name="salesvantage" /> Customers may be annoyed by [[Partitioned pricing|price partitioning]], especially when the "good" offering appears to be inexpensive, but then includes many fees and limitations, as happens with the basic airfares of [[low-cost carrier]]s. This risks creating resentful customers who do not return.<ref name="hbr-2010">{{cite news |last1=Bertini |first1=Marco |last2=Wathieu |first2=Luc |title=How to Stop Customers from Fixating on Price |url=https://hbr.org/2010/05/how-to-stop-customers-from-fixating-on-price |access-date=June 8, 2023 |work=Harvard Business Review |issue=May 2010}}</ref>
==References==
{{reflist}}
[[Category:Consumer behaviour]]
[[Category:Pricing]]