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Estd 4.22.2023
Based on the insights shared in our SaaS pricing book, Price to Scale, introducing a cheaper, limited tier can be a strategic move—but it comes with important considerations:
Benefits of a Cheaper Tier
• A well-designed “lite” package can capture a broader segment of price-sensitive customers who might be hesitant to commit to a single, all-encompassing plan.
• It may serve as a defensive maneuver against churn by providing a more accessible option for users who might otherwise leave when they find lower-cost alternatives.
• When done correctly, lower-cost tiers can boost user acquisition and contribute to long-term revenue growth by addressing the needs of less demanding customers.
Risks and How to Mitigate Them
• There is a risk that customers might choose the cheaper option over your main plan, potentially eroding your premium revenue. As discussed in the book (see Chapter on Packaging Strategies), price-sensitive users may place increasing emphasis on cost, particularly as competitors provide lower-priced alternatives.
• To mitigate cannibalization, design the tiers so the limited plan only includes core functionalities, while your main plan offers advanced features and additional value. This clear differentiation helps maintain the integrity and perceived value of the premium offering.
Practical Recommendations
1. Clearly segment features: Ensure that the cheaper tier addresses basic needs while leaving sufficient premium value—such as advanced functionalities, dedicated support, or enhanced performance—for your main plan.
2. Monitor your market: As highlighted in Price to Scale, balancing acquisition with long-term revenue requires ongoing analysis of customer behavior and market response.
3. Use feature gating strategically: Encourage users who start with the cheaper tier to upgrade once their needs outgrow the basics by communicating clear upgrade paths and benefits.
Summary
A cheaper limited tier can be beneficial if it is carefully crafted to meet the needs of a specific customer segment without undermining your flagship offering. By maintaining clear differentiation between the plans, you can capture additional users while protecting your main plan’s value. For a deeper dive, consider reviewing the sections on market segmentation and packaging strategies in Price to Scale.