Tiered pricing is also known as graduated pricing, tiered pricing refers to a pricing strategy where the per-unit price decreases as the total quantity purchased increases. The major characteristics of tiered pricing include:
- Customers are charged different per-unit prices depending on the volume of their total order or membership level.
- Prices drop at pre-defined volume thresholds or tiers as the customer purchases more.
- It rewards larger customers or members with lower per-unit prices the more they buy.
- Tiers are easy for customers to understand and provide savings incentives for bulk purchasing.
- It benefits both buyers through lower average costs and sellers through increased sales and revenues.
- Tiered structures can vary between industries and products to suit specific market demands.
By offering volume discounts, tiered pricing aims to boost customer ROI and stimulate increased consumption of the seller’s goods or services.
Here are some common examples of industries and products that use tiered pricing:
- Cell phone plans – Carriers offer reduced per-unit pricing (per GB of data, number of lines, etc.) as data/line usage increases each month.
- Software licenses – Large enterprise customers receive lower perpetual licensing fees per seat for bulk purchasing.
- Cloud computing/storage – providers like AWS drop storage/bandwidth costs with increased data transfers/storage tiers.
- Wholesale goods – Manufacturers offer distributors/retailers the lowest per-unit prices for the largest order quantities.
- Utilities – Electricity rates decrease as monthly usage amounts increase through multiple tiers.
- Gym memberships – Gyms entice new signups with lower monthly fees for annual/multi-year memberships.
- Streaming services – Plans like music/video apps go down in price per month as the number of streams/downloads is unlimited.
- Franchise/membership programs – Franchises bring per-unit costs down in exchange for multi-unit commitments.
So in summary, tiered pricing is widely used where large commercial and consumer volume purchases can be accurately categorized into defined quantity tiers.