Page 59 - Harvard Business Review, Sep/Oct 2018

The Good-Better-Best Approach to Pricing

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will depend on how many attributes vary between versions, the biased, particularly by the composition of the customer sample
degree of differentiation achieved, and the price spread. that responds. Still, especially for companies desiring strong
It’s never too early to think about names for the G-B-B options; quantitative evidence before bringing a G-B-B strategy to
those are essential in helping consumers quickly identify which market, positive results from a well-designed conjoint analysis
version best meets their needs. Lisa Krassner, the chief member can provide comfort and affirmation.
and visitor services officer at the Metropolitan Museum of Art, Once research has helped a company finalize feature and
says that the very clear names of the three Members Count pricing decisions, it’s time to launch the G-B-B offerings. Early
options, each delineating a particular benefit—With Early Views, results should be watched carefully and adjustments made as
With Evening Hours, and With Opening Nights—have been key needed. Compared with other product attributes, pricing is
to the offerings’ success. often easy to alter on the fly.

Bringing in Research MOST COMPANIES COULD implement some form of G-B-B. Every
company already offers the equivalent of a Better offering,
Many companies conduct formal research to see whether their and even if some firms can’t implement both Good and Best,
intuitive sense of what customers want is on target. The timing many could gain new customers, additional revenue, or both
and scope will depend partly on organizational culture: Some by adding either a Good or a Best to their lineup.
data-driven companies do several rounds of testing, starting The companies with the biggest challenges in designing a
soon after the brainstorming step, while other companies wait full G-B-B lineup are those whose products have few distinct
until they’ve created tentative G-B-B bundles and prices. (Still features and/or features that can’t easily be modified, making
others proceed without any formal research.) Regardless of it hard to identify effective fence attributes and move down mar-
timing, companies can draw on three sources of data: ket with a Good bundle. In other cases, executives may be too
Expert judgment. Experienced executives, salespeople, and fearful of cannibalization (or skeptical about the effectiveness
other frontline employees have a good understanding of cus- of fences to limit it) to sign off on a Good offering. (Some B2B
tomers and their needs. They’ve watched people balk at prices, companies that decide against explicitly marketing a Good prod-
and they often have a sense of when customers would pay more. uct may devise a compromise: quietly offering a Good version
When setting G-B-B prices, companies should collect and factor to budget-constrained clients on a case-by-case basis, with the
in the views of these in-house experts. Although that may feel goal of establishing new customers or saving existing ones and
unscientific, my experience with clients shows that in-house upselling them in the future.) Even if a Good option is not viable
expert judgments often reliably predict data gathered during in any form, exploring a G-B-B strategy may prompt companies
more-formal testing—and many companies design and imple- to introduce a Best offering, which can deliver new revenue.
ment effective G-B-B strategies using only those judgments to As strategies go, shifting to G-B-B pricing may seem simplis-
drive bundle and pricing decisions. tic, but many companies have discovered that it’s more powerful
General market research. Basic insights can be gained by than it appears at first blush. Jim Roth, a senior vice president at
asking customers to respond to potential features and prices in Dell EMC, was in a fast-food restaurant at Chicago’s O’Hare air-
quantitative or qualitative surveys (the questions can be added to port when he realized that the bundled value meals on the menu
existing post-purchase satisfaction surveys). Simplicity is crucial: board made it easier for him to order. That caused him to reflect
A survey item might say, “We’re excited to roll out this premium on his own company’s pricing and bundles. Dell EMC ultimately
feature for $79. Would you be interested in making this purchase, created Good, Better, and Best versions of its deployment
and why or why not?” Modifying the questions to test customers’ support for B2B customers—and found that customers buying
interest in a discounted Good product instead can yield insights those bundles generally spent three times as much as they had
into fence attributes and the risk of cannibalization. previously spent on that type of after-purchase support. Dell
Conjoint analysis. This common research technique EMC thus joined the many other firms who have recognized that
involves giving subjects a series of binary product choices, G-B-B could help them serve their customers better—and boost
each with different features and prices, and asking which they their bottom line. HBR Reprint R1805H
prefer. It can be a powerful tool: If the choices are constructed
well and enough data is gathered, researchers can gain a clear RAFI MOHAMMED is the founder of Culture of Profit, a consultancy that
helps companies develop and improve their pricing strategies, and the
sense of which attributes or features customers want, how much author of The Art of Pricing: How to Find the Hidden Profits to Grow Your
they will pay for each, and which are fence attributes. It isn’t Business (Crown Business, 2005) and The 1% Windfall: How Successful
foolproof: As with any market research, results can be flawed or Companies Use Price to Profit and Grow (HarperBusiness, 2010).

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