Tiered value pricing can benefit both your business and your consumers. Learn why in this article.
A tiered value pricing model for your products and services have become increasingly popular in the self-storage sector, and there are a variety of good reasons to adopt it at your own business. With businesses like hotels and airlines having long used this pricing model, we’ll give you a quick rundown of why it works, how it helps, and how to implement it at your own self-storage company.
What is tiered value pricing
It can take a long list of names: value pricing, tiered pricing, ‘good, better, best’ pricing, etc., but whatever the name, it means you price your products on the perceived value your consumers have for them. Using value pricing usually leads to tiered pricing, where perks and upgrades will cost the customer extra money on top of the ‘standard’ product.
Easy examples to draw are hotels and airlines. They’ll often charge extra for an upgrade for more legroom, a better room view, a more accessible room, and so on. They know that if they price the intervals correctly, customers will more often than not jump at the opportunity to get perks for a small added cost. Both sectors have employed this technique for a long time, so why shouldn’t it be implemented in self-storage?
Applying tiered value pricing to self-storage
Now knowing how it works, applying it to self-storage is relatively intuitive. In the same way hotels charge extra for a better view, you can add a surcharge for certain perks, even with the same standard unit size. These can include a more accessible unit (closer to lifts, wheelchair ramps), specialised storage (climate controlled, wine storage), extra security (more security cameras nearby), and much more.
Make sure you are clear on which perks belong on each tier, giving the consumer as much freedom to choose as possible, and reducing any confusion. Finally, a tiered pricing system is easily integrated into an online rental system, and will easily boost customer conversion from your website.
Why do it
With all that said, you might still be wondering what the actual benefits are, of which there are quite a few. Firstly, and perhaps most obvious, it adds extra revenue. If you were previously pricing all 5x5 units at the same price, regardless of their perks and other amenities, adding small price upgrades will add up to help the bottom line.
Secondly, it lets you cater to a much more diverse target audience. All of your prospective customers will have vastly different budgets, as well as how much they’re willing to spend on storage. By providing clear tiered options, those searching on a budget as well as those who have a bit more to spend will be able to find a preferred option.
Thirdly, you’ll be able to provide more competitive prices than your direct competitors. If other businesses are pricing their units purely based on size, they’ll have to average out a selling price which will be more expensive than the lowest price on a tiered model. Using tiered pricing gives you flexibility in your pricing, and perhaps gives you the option to have the higher tiers balance out the lower ones in terms of revenue.
Lastly, tiered value pricing has the ability to affect consumer mindset to your advantage. When given clear options, and a clear pricing system, consumers will more often than not choose to go for one of the higher tiers. In the same way people will jump at the chance to upgrade their hotel room or plane seat for a small cost, you can leverage this psychology for your business as well. While obviously not applicable to all customers, it will give some a sense of empowerment and choice, believing that they are getting a better product for not much more of a price.
Overall, tiered value pricing promises a range of advantages. It helps boost revenue, appeals to a wider audience, and positively affects consumer mindset. While it is a different pricing model to other more common ones used in the self-storage industry, it is beginning to take hold, as self-storage managers begin to realise its full benefits.
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Related Article: Psychology of Self-Storage Pricing