Perhaps not everyone is familiar with the Good-Better-Best approach in business, but we have all experienced it as customers, no matter where we shop. Booking a plane ticket? You’ll have to choose between Economy, Economy-Premium, or Business. Pumping gas? Your options are Regular, Midgrade, or Premium. It is an easy concept to understand, and many businesses across various industries are using this approach, while others are still not offering tiered pricing. The G-B-B strategy has many advantages, and if done right, can bring a lot of extra revenues.
What is the Good-Better-Best approach?
As the name implies, a G-B-B strategy aims to offer the customer multiple tiers of features for the same product or service at various price points. For example, if you book a flight, you can get the basic economy seat with five inches of legroom and guaranteed back pain after landing. Or, for an extra hundred dollars, you can get economy-premium seats with more legroom and a slightly better seat. Or if you’re feeling fancy and have money to spend, you can fly business class and have the best seats. G-B-B, of course, also works for physical products: Samsung does it with its phones, where customers can choose between the Samsung Galaxy S23, the S23+, or the S23 Ultra.
G-B-B changes the way the offer is framed. It goes from “Are you buying or not?” for a one-tier item to “Which one do you want?” for a multi-tier offer. That is a very powerful change that gives the customers more options favorable to the business. It also helps sell upgrades to the customer by stating that for only $x more, they can upgrade and get extra features.
Most of the time, a company starts with the “Better offer”—the “middle tier”. From there, they create the “Best” offer (what they may call “Platinum package”, “VIP package”, or another flashy name) by adding features to the existing product. The goal is to add a lot of perceived value for the customer at a low cost to the company. I recently had to book a hotel room and saw that one of their top-tier offers was a “Romantic package” that included chocolate, a bottle of sparkling wine, and a late checkout. It is a very common package offered by hotels, but I found the business aspect interesting. These items are not that expensive for the hotel, but framing the offer this way makes this package attractive to many customers who would not purchase a bottle of wine otherwise. They aren’t just buying wine and chocolate; they are buying a “romantic” experience for someone they want to spend time with.
Similarly, companies can create their “Good” offer, the most basic offer, by removing features from their standard product. For example, a smartphone manufacturer would use a less expensive, lower-quality camera lens on its most basic phone. Customers who want to access the internet and make phone calls but don’t care about taking the best pictures might be interested.
Why do companies use a G-B-B strategy?
To reach a broader audience and maximize profits
In addition to changing the way the offer is framed (see above), a G-B-B strategy aims to maximize sales and profits from multiple customer segments. Some customers who would not consider the brand due to its price might be interested in a less expensive, more basic offer (“Good”). At the same time, maybe some existing customers love the brand and the product and wouldn’t mind spending extra on a more premium offer, the “Best” offer. The challenge is, of course, to make sure these existing customers buying the “Better” product will not downgrade and start buying the “Good” product instead.
Fortunately, customers hate “downgrading”, especially if the “Good” options do not feature what they like so much about the “Better” offer. Many of us drank vodka from $10 plastic handles in college, but after getting older and used to better stuff, it would be hard to go back to drinking something that smells like hand sanitizer. It is also important not to underestimate how many people are willing to pay extra for top products. Many people will see their favorite influencers drinking $100 bottles of vodka and decide that a $30 Grey Goose bottle isn’t good enough for them anymore.
It simplifies the customer’s decision
Offering multiple tiers also simplifies the customer’s decision process. Instead of choosing and comparing multiple products from multiple brands, customers can easily determine what offer they need. They already recognize the brand, so they only need to decide what level of features and services they need. In general, businesses observe the Goldilocks principle: when confronted with multiple choices, people tend to go towards the more moderate option.
However, it only simplifies the customer decision process if the offer is simple enough. Offering twelve different tiers with multiple options would confuse customers and drive them away from the brand.
A “Best” option improves the brand image
Offering more premium products not only increases sales by getting customers to upgrade, but it can also work as a way for the brand to display its skill and capabilities—for example, Airlines with the most luxurious first-class seats like to advertise them. Even though most people can’t afford to fly first-class, it reinforces the idea that the airline provides a great flying experience to its customers.
It can be used as a defensive move
As explained above, the G-B-B approach can be used to reach more new customers and boost revenues from existing ones. But it can also be used as a defensive measure in reaction to changes in the competitive landscape or customer behavior.
For example, let’s say you sell subscription boxes of self-care items, and a new competitor enters the market with smaller, less expensive boxes. After realizing that this new competitor has stolen market share from you, you have multiple options:
- Decrease the box size and number of items, and lower the price, which may upset the existing customers who like your larger box and incentivize them to try the competitor’s offer
- Decrease your price but offer the same products, which would negatively impact your profit margins
- Devise a new offer with less items at a lower price in addition to your existing box. This option allows you to compete with the new company while doing what is needed to keep your existing customers.
The third option is not always possible, but it can be a good way to protect your market share from your competition.
It takes advantage of existing brand equity
Finally, expanding the current offer—for example, adding a “Good” and a “Best” product to the existing range—can be very efficient in terms of marketing. Companies can use the existing brand equity to promote new products rather than create a new brand from scratch.
While creating a new fighter brand can be a good idea in some cases, it often requires a much higher marketing budget. By expanding the current offer, existing customers are already familiar with the brand and may be willing to try the more premium product. Non-customers may also have a good opinion of the brand but did not buy because of pricing. These prospects would probably be more likely to compromise on features and buy a “Good” product from the brand they like.
Downsides of Good-Better-Best strategies
While it is true that customers don’t like to “downgrade” and get less features for a lower price if they are used to a product, there is still a risk they’ll switch from “Better” to “Good”. Optimally, the features offered in each tier should discourage customers from downgrading and even encourage them to “upgrade” to the most profitable product for the company.
Pricing is also very important, and the price structure should make sense to the customer. In general, it is better to keep the price gaps between each tier reasonable (experts often suggest a maximum of 50% increase between tiers).
Finally, the offer should be easy to understand and simplify the customer’s decision process rather than complexifying it. The features and packages offered in each tier should be clear. It is important to choose the right names for each tier. While a standard “Silver-Gold-Platinum” works, more explicit names can help communicate value and generate sales, like the “Romantic package” at the hotel.
Who should use a G-B-B approach?
Companies that offer differentiated products with many different available options are good candidates for a G-B-B strategy if they don’t have one already. When adding features, it is even better than the customer’s value isn’t too expensive. The best-case scenario is when customers in the industry tend to be loyal and/or have high switching costs, so they don’t shop around too much.
Conversely, it is more difficult (but not impossible) to use this strategy if adding or removing features from a product is complicated. Also, if customers are not loyal and/or are very price sensitive, they may not respond well to the addition of “Best” products.
In the end, I’d say that most brands can effectively use this approach, even though some will need to be more creative or will see more success.
A Good-Better-Best strategy can be a very efficient way to maximize sales by addressing multiple customer segments, encouraging existing customers to upgrade and spend more, and simplifying the customer decision process. It can also be used as a defensive move in reaction to a shift in the competitive environment. The challenge is not to confuse the buyer, avoid cannibalization, and keep the customers as loyal as possible. While not for every business, it is very often a strategy worth considering.