How do you create a multi-tiered product strategy?

I work for TeamViewer, the global market leader in offering remote access product, which is available in three-variants in the market. This is the first time I am working on a multi-tiered product. Prior to this I worked for core AutoCAD product that we sold as a single product with no variants. Since I did not have the background and experience in planning products around a multiple tiers before, I spent some time in researching and collating best practices in the industry around this subject. This post is a summary of my research:

What is a multi-tiered product?

At its most basic, multi-tiering your product or service makes it available to the market at different price points and feature sets.

Examples:

Mailchimp

Slickplan Flowchart App

Why offer tiered products?

Tiered packaging your product is not just a marketing tactic. It’s also a validation strategy.

When you add tiered pricing to your products or services, you’re able to see what your customers respond to.

For instance,

• If NO ONE is buying your top-tiered package, it’s either too expensive or doesn’t give enough value.
• If NO ONE is buying your lowest-tiered package, it means that your top packages are probably priced too low.

When to decide tiering your product?

This should be a decision taken before achieving product-market fit. By offering a varied feature set at multiple pricing points helps you cater to a more diverse customer base hence contributing to a better topline.

Benefits of tiered product offering

• Maximizing Revenues by widening your customer base

 One reason to have tiers is to capture more of the market while optimizing pricing. Think of how many more customers you can speak to if you offer a $10, $100 and $1,000 version of your product, instead of just one $100 version.

• Creates a sense of maximized value.

By allowing your customers to pick a product for themselves – one that includes what they want at a price they prefer – you create a sense of maximized value.

So in one simple chart you show them what they can get for different prices. They also feel like they have a choice, not like they’re getting strong-armed into some scam.

• Minimizing competition

Instead of giving a choice to your customer between you and your competitior, you are allowing them to choose between you and you.

How many tiers is an optimal choice?

A sweet spot of not more than 3 tiers:

• Good (Entry)
• Better (Middle)
• Best (Top)

It makes it difficult for the customers to process features and benefit differentiation for a product with more than three tiers.

Some marketers would like to wedge in more tiers like “even better” and “ultimate”, but wide research through A/B testing has shown that three tiers is normally enough from both a benefit-communications point of view and a production-cost point of view.

It is incredibly hard to communicate more than three tiers. 

This is the reason why the best retailers tier their products to three levels.

This is what Steven Forth from OpenView says about the three tiers:

The top tier should be positioned to establish a reference value. It should be high. ”

The
middle
tier is generally where you are going to get most of your revenue. Note that Salesforce and Marketo tell you which tier is the most popular. HubSpot is a bit more subtle. They make the middle tier more prominent.

The
entry
tier is the interesting one.It may be that this tier’s job is to lure people in with minimum functionality so that they get frustrated and upgrade. This is what Salesforce is doing. Not many people are happy with the Starter offer, they either upgrade or move off to some less expensive alternative.

Naming the tiered products

 Even though customers evaluate the offerings of each tier, the truth is, they more often pick the product NAME that feels appropriate, regardless of whether the PRODUCT is right for them.

Naming the tiers for your products effectively is the key

A list of recommended tier names are:

Lower priced end of the spectrum, good for enticing new customers or providing a smaller amount of content:

• Introductory
• Starter
• Express
• Beginner
• Economy
• Individual

Right in the middle, your baseline product offerings:

• Basic
• Standard
• Classic
• Silver/Gold
• Preferred
• Small Business

Moving up the ladder, adding more content for your corporate or higher-paying clients:

• Plus
• Expert
• Premier
• Corporate
• Professional/Pro
• Master
• Premium
• Enterprise
• Ultimate
• Platinum

Interestingly, at TeamViewer, we have named Blizz tiers as:

• Core
• Crew
• Company

https://www.blizz.com/en/

How should PMs plan their feature set for multi-tiered products?

• Ensure tiers are well differentiated

Ensure the tiers are well differentiated in value. The top tier plays a critical role in framing the value proposition and establishing a relatively high reference value.

• Evaluate and map your personas to tiers

Since your product offering straddles across different types of customers varying on demography, size of their business, use cases, it makes sense to design personas for your customers and optimize your tiers for the personas.

• Evaluate your goals

Evaluate what your revenue goals are for the upcoming quarters or for the year. The goals are dependent upon past performance of your product across different tiers. If a certain tier has underperformed you would want to set up a goal to promote the underperforming tier.

• Reshuffle feature set

According to your set goals, reshuffle the feature set to strengthen the low performing tier to increase its perceived value for the customers.

• Nudging buyers to a tier through social proof

Sometimes nudging your buyers through the help of an explicit banner that reads “most popular” aids them in making quick decisions. If a tier is most popular, it applies social proof on most buyers to follow the same. In a sense, it helps your buyers make quick decision. So, along with optimizing your tier with feature value, ensure you highlight the tier that you want to promote.

Example:

Hubspot

References: