The Ample-Excess Approach to Pricing
Why early stage companies should consider a decoy model
For decades companies have operated on the premise that consumers will pick the middle choice when presented three different pricing options. If you’ve ever purchased a SaaS product you’ve undoubtedly been presented with 3 pricing options. This pricing model works by squeezing a few extra dollars out of a customer for a slightly upgraded feature set that costs the company relatively little to implement. Its been a boon for software companies who have a marginal cost of zero and who’s feature set exists regardless of what level you purchase.
While great for an established or funded organization, this pricing model is often the WRONG choice for early stage organizations.
What an Ample-Excess pricing model?
This is a two tier pricing model. The “Ample” portion is generally a low feature product that’s offered for relatively little money. The Excess is far beyond what the normal customer needs and carries that price tag with it. Often there is an additional step in the buying process (ie. a sales call) to create a hurdle to the purchase.
Our assumption is that Ample is fine for MOST customers, and may be lacking a few things but they aren’t truly important. Excess is to showcase that our product COULD do all these amazing things and we have the skill to implement, but customers would need to pony up to receive them.
Customers don’t know what they want, but know they want options
Its up to you to determine what the best thing for customers is, but present it in a way that forces them to make the choice you have selected. Customers are rational with money, but irrational with feature options. If you offer them more for the same price, they will take it. When we make it clear that features have costs, customers are more likely to deeply assess their needs and make a more rational choice based on their pocketbook.
Two-tier pricing makes analyzing data easier
While early stage companies would like to think they have it all figured out, the reality is they don’t. Binary choice pricing provides a larger distinction between feature sets, which can make it easier to analyze data. The more variables and options you introduce, the more difficult it becomes to peel away WHY a customer made a decision (which is really what we are after).
Good-Better-Best pricing causes companies to over build
3 tiers of pricing and features means you need to build out all of those features. While entrepreneurs will often look at lower tiered options as simply a paired back version of the thing they really wanted to build, another way to think about this is that the lower tier is really the product that should have been built. Higher tier features can be built later and sold as “enterprise” features that require a sales call prior to onboarding. Introducing these hurdles can simplify your build and more easily allow you to collect the data you need.
Three tier pricing hides customers true needs
The data speaks for itself…most customers choose the middle option. By utilizing this pricing model we naturally introduce some amount of human bias as to what customers really care about. FOMO is real and if we don’t consider its affects we may become blind to its affects on our data. Ample-Excess models help remove the uncertainty and focus on what is truly driving buying decisions.