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Estd 4.22.2023
Below is a concise answer from our pricing strategy book, Price to Scale:
• Yes, there is a risk in offering too many plan options. When you have too many tiers, you risk confusing your customers and diluting the clarity of your value proposition. Customers might have difficulty choosing the plan that best fits their needs, which can lead to suboptimal decisions—like opting for a package that isn’t a great fit or pressuring you to discount features to close the sale.
• Similarly, having too few tiers can be problematic if your segments’ diverse needs aren’t adequately met. With too few options, you might miss out on capturing additional revenue opportunities from different customer segments or prevent natural upsell paths.
• How do you know if you have too few or too many tiers? Look at several key signals:
– Are your customers clear about what each tier offers? If feedback or user behavior suggests confusion or frequent questions about “what’s the difference” between plans, it might indicate too many options.
– Is there evidence of “shelfware” or buyers being locked into a plan that doesn’t evolve with their needs? That could point to having either too few or misaligned features per tier.
– Monitor your churn and upgrade/downgrade conversations. If you often find customers downgrading out of necessity because the tier allocations don’t match their evolving usage, it’s a sign that the segmentation might not be optimal.
– Analyze usage data and sales performance for each tier; significant gaps or overlaps can indicate that you’re either overcomplicating your offers or not fully addressing potential revenue segments.
In our book we discuss the “good–better–best” approach as an example of a simple structure. However, without a deep understanding of each customer segment’s true needs, even this simple framework can backfire. The key takeaway is to align your plan structure with clear, differentiated value for each segment—ensuring cognitive clarity for your customers while capturing maximum revenue opportunities.
Remember: the optimal number of tiers is one that clearly maps to your customer segments without overwhelming them, while still leaving room for upsell and flexibility as customer needs evolve.