E-commerce continues to go from strength to strength, growing in popularity as consumers adapt their shopping preferences to being online. Shopify store owners need to streamline marketing efforts and reassess their pricing structure to stand out from their competition and maximize sales.
In 2021, e-commerce sales were $870 billion in the United States, an impressive 14.2% increase over 2020 (and a notable 50.5% increase over 2019). There’s a lot of money to be made in e-commerce, and a tiered pricing structure can help achieve sales goals.
A tiered pricing structure offers volume discounts, decreasing the price per unit in segments, the more that the customer buys.
Let’s explore why tiered pricing is an effective strategy for your Shopify store.
How Does Tiered Pricing Work?
A Shopify tiered pricing structure follows a fairly straightforward method of offering volume discounts. A seller segments the pricing of their products and the cost of products decreases the more that a customer buys.
The customer is motivated to make a larger purchase to get a larger discount.
Imagine that you are planning a summer camp for a group of teens. One of the tasks on your planning list involves preparing a welcome pack with a branded T-shirt.
Consider the following example of T-shirts for sale from an online clothing store, with the production cost of $5 per item.
- Units 1 – 10: $10 per unit
- Units 10 – 20: $9 per unit
- Units 21 – 50: $8 per unit
- Units 51 +: $7 per unit
If you purchase 25 units, then the total cost will be (10 x $10) + (10 x $9) + (5 x $8) = $230.
Keep in mind that tiered pricing differs slightly from volume pricing, with the major difference being the unit thresholds. In tiered pricing, a discount is applied to a range (or segment) of units. A greater discount is applied to items within separate tiers.
Volume pricing also offers a discount when a consumer buys a higher number of units, but the discount is applied to all units regardless of their segment. If you consider the above example, then the total cost for 25 units will be (25 x $8) = $200.
Benefits of Tiered Pricing
So, why choose a tiered pricing structure for your Shopify store? Consider the following benefits as a starting point.
Solution for Upselling
Tiered pricing offers an attractive solution for upselling. The appeal of a discount can inspire consumers to make a larger purchase order and make their money go further. As the cost per unit lowers from one segment to another, consumers are prompted to buy more than they originally planned to take advantage of the discount — whether they need the extra items or not.
One digital product provider credits 25% of their overall revenue over the past 18 months to tier pricing. The company demonstrates how a digital product can take advantage of tier pricing by offering various packages, with the highest package offering the most value for money.
Improve Conversions
Tiered pricing allows customers to be flexible in their purchasing decisions, giving them the power to improve their purchase quantities at an attractive rate. When customers feel empowered while shopping, you are more likely to achieve a conversion.
The trick to improving conversions involves creating a model that meets a wider range of customer demands as the segments increase. The pricing model needs to be optimized to make the most of the strategy.
Some suggestions include;
- Use dynamic pricing to better understand customer demands
- Drive sales with VIP packages
- Charge a higher price for onsite purchases to encourage advance sales
- Highlight the middle tier as the most popular option to direct customer choice
Better Customer Experience
Discounts play a big role in maximizing sales, and for good reason. Pricing psychology reveals that a good offer can change the way that a customer thinks and feels. Research shows that receiving a discount increases oxytocin, the “feel-good” hormone, which further encourages the customer to reflect on the experience as a positive one.
A survey by RetailMeNot reveals that nearly 70% of millennials browse for a deal before making a purchase, and 80% admit that they are willing to try a new brand if it offers a discount. Tiered pricing is an effective way to offer a discount while encouraging a larger purchase order.
Simple Discount Structure
Both tiered discount structures, as well as volume discount structures, are easy to apply, especially with the help of Shopify apps. As a business owner, you can add several discounts for various products and customize the pricing structure as you want.
It’s easy to offer various quantity options with appealing discounts, be flexible with your sales approach, and manage various product categories with Shopify.
Selling to a Wide Range of Audiences
Tiered pricing is a magnetic sales tool for a wide range of audience groups and helps you stand out from your competition.
The flexible pricing scheme is ideal for big customers. For example, traders that buy in bulk can benefit from the discount and still make a markup when they resell the products in their capacity.
A tiered pricing model also makes it easier to target a specific sales team or appeal to a customer with a specific need, budget and priority.
These customers are more likely to return as loyal customers, especially when the pricing structure is customized to meet their needs.
Not only are you making money from a large sale, but you also increase the chance of a returning customer. To put this into perspective, the cost of acquiring a new customer is estimated to be five times more than retaining an existing one.
Implement Tiered Pricing Today
Tiered pricing discounts offer many benefits, and can help to boost the bottom line. If you’re wondering where to begin, then Bulk Discounts Now, a Shopify app can help streamline the process. Offer your customers bulk discounts without the hassle or fuss of intense calculations. Try it free for 14-days!
