The Perils of “Good/Better/Best” Pricing

Blair wants sales people to stop ranking proposal options in a way that assigns judgement for prospective clients without considering the many tradeoffs that need to be considered.

Transcript

David C. Baker: Blair, today, the perils of good, better, best. I've got a lot of questions about this.

Blair Enns: Hold on.

David: Wait. No, it's my introduction. I'll let you talk when I'm ready for you to. I got a little extra time and some curiosity that took me down a rabbit hole here. I was like, where's the real science behind all this stuff? I'm not sure there is any. Everybody's following everybody else. It's like, "I traced it back as far as I could. I was looking for some science behind this." Anyway, this is very, very common when you buy SaaS or you buy something like that. You want to talk about how applicable it is, if at all, to this industry. Do I have that right?

Blair: Yes, but because you wouldn't let me interrupt you and correct you, the listener has no idea what we're talking about because you did not finish the title. You said the perils of good, better, best, and I was just going to say pricing. We're talking about pricing.

David: Oh, what do you think we're talking about, dating or something?

Blair: I know what we're talking about.

[laughter]

David: The perils of good, better, best-pricing people as if they didn't know that. Now, answer my question, please, about the science of this stuff.

Blair: You're asking me what the science is on this or what?

David: Is there any science?

Blair: Well, depends on what you see as good, better, best, Is there science on three or four multi-option proposals? Absolutely. There's all kinds of science on it, direct science on it, and some implied or inferred science from other fields, science around judgment and decision making and the power of options and the effect that options has in the decision being made, so there's all kinds of science on it. I'm pushing back on the judgment.

David: On the terms themselves. Good. Not so much the three options-

Blair: Correct.

David: -but what they're called good, better, best.

Blair: Yes. You see this term being used by pricers. Actually, you see it more often with people who are dabbling in pricing or maybe have read a book. Some people will refer to all multi-option proposals as good, better, best pricing. What I'm saying is that as professionals in the work that we, our listeners do, I don't think it's our place to be assigning judgment to the options in this way.

David: Before we get into that, what the downside-- Do you think that that judgment is perceived by the person who's making the decision about pricing and what is it doing to them? Is it just leaving a bad taste in their mouth?

Blair: Do you mean the pricer or the client?

David: The client.

Blair: I just wrapped up day four of a four-day Win Without Pitching Workshop. The exercises all build on each other through the arc of the sale. We get to a value conversation, then we do proposal construction and proposal presenting as part of our whole Win Without Pitching approach. Even though I use the word presenting a proposal with some trepidation, we really are presenting it, but the entire framework is called the four conversations.

We try to keep everything conversational. One of our principles is it's not your job to convince, especially when you're closing on a proposal with multiple options. It's really your job to explain the trade-offs of each option and then facilitate a discussion and let the client choose which one of these is best for them. It doesn't matter, even though I've spent four days poisoning people's brains, filling them with ideas, they still have this natural inclination to want to convince.

They feel like when they're putting forward a three-option proposal, they need to make a case for one of the options. They need to go into convinced mode on perhaps the most expensive option. I just don't think that's how we should be selling. I think we'll get into the nitty-gritty of it, but closing really is facilitating. You're putting forward three options. You should be happy with whichever option the client selects.

Yes, you might be happier if they choose one over another. Generally speaking, there are some exceptions I won't discuss here. You shouldn't be putting forward options that you don't think are right for the client that you wouldn't be happy delivering on.

David: In other words, if it's good, better, best, actually, you're looking for the best, whichever one of those three it is. You don't want to represent things wrong with the title. You're objecting to the titling of these, but you think the three option is a good framework, right?

Blair: Oh, yes, completely convinced of that. We've talked about that before. It sounds like you've done some research and you want to push back on the three options.

David: Oh, no, I have done some research and I do think it's valuable. Actually, not that this matters, but it actually fits. When I look at four or five options, I get this cloudy look on my face. It's just weird like that's just one person, but no, I just want to separate for people this idea that the titling might not be right, but the three options. Recap for us why the three options are still a really useful construct.

Blair: We talk about multiple options. Three is better than two, four is fine, five, I think you start to introduce the paradox of choice, although I haven't seen research that supports that it's at five. I'm with you, David, I think I can handle four options, usually. Five, it starts to confuse me. Even four, I tell the story a lot. I go through the car wash there are four options.

It's not a significant purchase, it doesn't take a lot of cognitive load, there's not a lot of money involved. I'm not going to read what I get for the gold, silver, bronze, and platinum. I'm not going to read all. I'm just going to choose the middle option because it's a routine purchase I don't want to waste any effort on it. It drives me crazy that the carwash I go through has four options and I have to spend some time deciding do I want option two or option three.

I never take one. I never take four. I take what I experience going through the car wash and that I just blow that up, make the numbers a lot bigger. Now when the numbers are bigger, you're willing to spend more cognitive load. I think the principle applies, I just know from my own experience, I really like three options. I'm okay with four options, but if it's a rote decision, it drives me crazy that I have to choose between two middle options.

Three options is really powerful. Three options also changes the question that you're asking the client to answer in a one-option, one-price proposal. The question is, is this solution that I'm putting in front of you worth the money that I'm asking to be paid? Yes, you can do some ROI calculations when you're the client in this situation. As I've talked about previously, almost all of the decisions we make in life are subjective and contextual.

When we ask the client to make a decision about a proposal and there's only one option, one price, there's no context to enable them to make the decision. We force them to go in search of that context, and by putting forward three options, we're able to provide the context and then when we can provide the context, we can shape the context and nudge people in certain directions, such as the most expensive option is called the anchor price option. The job of that price is not to sell that solution, it's there to frame the other options and other prices and make them look less expensive. That's one of the reasons it's there.

There are a lot of reasons we've covered them in earlier episodes on value-based pricing. When we talked about my book Pricing Creativity, when it came out five years ago this month, that's how long we've been doing this. Three-option pricing is entirely, it's not only valid, if you're listening to this podcast, if you've been listening to this stuff for a few years and you're not doing it, get your head out of the sand. This is the fastest way to just make more money quickly. It's the easiest way to make more money quickly. Start putting options in front of your clients.

David: What you're saying is not just the simple put options in front of them, especially if you think of it as good, better, best, but think of those options as different ways to approach it. I could see somebody who has always presented a proposal with one price, and the options are yes or no, and they have this enlightened moment. They decide to go to three-option pricing and they just automatically borrow from the SaaS world and start calling it good, better, best.

The main point, I just want to make sure that nobody misses here is that the three option stuff is good, but each one is a different approach to it. You're saying let's not just borrow everything from SaaS. The three options is good, but it's more complex than that. That's the next point. The good, better, best is sort of, it's a really basic start that just misses so much of what could be possible.

Blair: I like to say the lowest expression of this three-option proposal idea is when your three options are three different-sized buckets of either inputs, time and materials or outputs deliverables. The cheap price you get a little bit of time or a little bit of deliverable. The middle price you get a little bit more includes everything in the A plus these other things.

Then the expensive one is includes everything in A and B plus these other things. That's okay, that's valid. It's just the lowest expression of this idea. The highest expression is the idea that your three options represent three different ways of doing business together. Three different ways in which the client might engage you at three different price points.

David: I just want to repeat that because that is such a critical. I think after all these years of knowing you and hearing this stuff and talking about it, I think it's becoming even clearer for me now. The three options are not about, okay, I'm going to do this for you, I'm going to do this much more for you, I'm going to do even this much more for you and it's going to cost you these three levels.

That's not the idea here but that is the way we sort of experience it. What you're talking about here is that these three different levels are different ways of working. There's more risk for not just the client but also for the provider, for the expert here. Three levels is good but good, better, or best is the entry point here. Ideally, you're talking-- I'm just repeating what you're saying. I just think it's so important. I think we're really missing this. It's about a different way of working, it's not just about more for the client, it's a different way of working at each level.

Blair: Yes. Good, better, or best is a judgment imposed by the salesperson on the options that are being put in front of the client, this is good but really, let's call it what it is, this is the cheap option, this is the poor option, this is for people who can't afford it, aren't smart enough, aren't risk-takers-

David: The losers.

Blair: Yes. We're imbuing it with judgment. That judgment of good, better, thinking of, talking of, and naming them in terms of good, better, best, that's not necessarily there, it's the salesperson's decision to imbue that judgment into those options. They're not kind of natively there when you're selling three different-sized buckets. You can just call them small, medium, and large, cheap, middle, expensive. There's no judgment in that.

That's still valid. It's still the lowest expression of this idea. Again, the highest expression is, let's think creatively about different ways that you can engage us to achieve these outcomes. Now, let's just go back to the simple one of three different-sized buckets. I put three different options in front of you and it's basically how much time you want to buy from me.

My judgment might be that the best option for you is to spend the most money with me because then I can have the biggest impact in your business. The reason I don't like this judgment of the options, my thesis is that it doesn't matter how good of a salesperson I am, I am never going to uncover all of the variables that you have to consider in making this decision.

Every decision we make in life contains trade-offs, multiple, multiple trade-offs so if you are the client, and I'm putting an option in front of you and I'm saying this is the best option for you, what I mean by that is this option allows me to do my best for you but what I'm not taking into consideration when I put this judgment of best on this is whether or not this really is the best for you when you weigh all of the circumstances and one of those circumstances, an obvious one is price, you're going to spend a lot more money.

The other one that almost never gets spoken about is career risk. If you spend this much money with me and I don't do what I say I'm going to do, I don't hit the results, you might lose your job. Who am I, the salesperson, to say that you're making a poor decision based on that? I don't even know what those variables are, right? That's just one obvious example, this idea of career risk.

I don't know what you're going through with your boss, I don't know what's in your boss's mind, I don't know how tenuous your position is, I don't know if there's a potential sale of the business coming up and there's just no way anybody's going to approve or should approve an expenditure of that level. There's so many variables, I have to accept that I have not uncovered all of those variables. I am in no position to impose my judgment on you on what the best decision is.

David: I could see their seat being warm at the moment and they can't afford to take much of a risk, in which case, one of the options might make sense but I could also see the opposite, where their seat isn't warm, but they have this rare intersection of opportunity where there's a little bit more money, a little bit more time, they've earned a little bit more leverage, and it's really worth it from their standpoint to take this risk and go deeper and really change something, really transform it, in which case, that might be the best choice.

David: Other than just $100, $150, $200, the price stuff for the three, can you illustrate with some other examples of the three different ways to engage a client?

Blair: There are really only three things that you can price and sell. We've talked about this on earlier pricing episodes as well. You can sell the inputs of time and materials. You can sell the outputs of the deliverable, the website, the app, the campaign, or you can sell the outcome, the value that you propose to create or to help create and that last one is known as value-based pricing.

Those three things that you can price and sell now, start to think creatively about your proposal options and imagine and I'm not saying this is the way to do it, or this is the right way, or even the best way. What I would say is it's the highest expression of this idea of a three-option proposal. Is when your options align with those three different things that you can price and sell and the client can buy from you.

I might say to you, David, I've got three different ways that you can work with us at three different price points. I'll start with the most expensive one. I'm calling it partnership because this is where you're engaging us. You're not paying us for the deliverable, you're not paying us for time, you're engaging us to work with you until these outcomes are achieved. That's why I call it partnership. There's no cap on time. We have an idea of what the deliverables will be, and we'll talk about that. We're not limited to those deliverables.

We're committed to working with you until these outcomes are achieved. It's very expensive. It's priced at X. It might be, let's call it $150,000. Let's say you have a $50,000 budget, and I've priced this at $150. It could be $500, it could be 1.5 million. The numbers don't really matter, but let's just pick something simple. I might price that at $150,000. I'm calling it partnership. This is value-based pricing where you're paying me to work with you till the goals are achieved.

If you're intrigued with this option, but you want to make sure that we're really aligned, you might push back and say, okay, I want some of that compensation tied to incentives. That's another discussion, but that's a valid discussion. Now, we're still in value-based pricing, but we're getting into performance pay territory. That's the most expensive option where I'm proposing you pay for the value that we create and we're removing the limitations on time and deliverables. Now we can set some really broad limitations, or we can remove them entirely.

We can say, we'll work with you for 12 months to throw as many people as we have to, as many iterations, et cetera. Obviously, we would only propose this if we were familiar enough with the problem in the scenario, and we had a high degree of confidence in our ability to actually do what we're saying we can do. That's one option. Another option. I might say, go to the other end of the spectrum, the cheap end, and say, you said your budget was $50,000, for $50,000, we'll sell you some time. We price our two or six-week sprints at this much. You get these many sprints and we'll see how far we can get.

In the middle option, it might be that middle thing that we can price and sell and that is the output. If the client is looking for, let's say they came to us looking for a website or an app, and they were looking to achieve these goals that we talked about with the expensive option. We can say, yes, for $50,000, we sell you some time. There's no promise that we'll get the app built, but for $100,000, you get price certainty, we'll absolutely deliver an app at the specs that you outlined for $100,000.

There's three different ways that you can hire us. We can sell you $50,000 worth of time. You can spend a little bit more, $100,000, and then you know you will get the deliverable you're looking for. You will get the app. If you spend 150,000 with us, we'll not only deliver, the app will keep iterating on the app until certain outcomes are achieved. Now, there are lots of things you could pull on there, including the pricing, because the pricing for the higher one should be much higher. The gap should be bigger between the deliverable and the value option or the output option, but that represents three different ways that you the client can hire me the agency, or the consultant. Three different price points.

David: I've got a lot of dev shop clients, and I was thinking about something you said early in this episode about how it's not just risk on the part of the client, but also on the agency. It seems like a lot of folks default to this input side of things like two-week sprints and so on. Not because the client insists on it, but because they are hesitant to take the risk of a bad estimate where they lose money. They've gotten burned so many times, they're actually very happy just to get paid for all their time without any sort premium or additional risk on top of it. Do you see the same thing?

Bliar: Yes, I see it. I was talking to somebody about this today. People who run agile shops, they're like vegans. They're like so absolutely committed to this project management and pricing methodology. You and I have talked about how, I don't want to put words in your mouth, but from my point of view, I get it, I see the benefits of it. I think there's a lot good about agile, but at the end of the day, it's a labor arbitrage model.

You're selling time. Now, the good news is you can be a 100% utilized as an agile shop, so you're a utilization rates, you can do really well in selling time, but just selling time period is only going to get you so far. There's a question of whether or not your incentives are appropriately aligned with the client's goals.

David: Yes. I asked earlier to think of different ways we might describe this instead of good, better, best, it might be inputs, outputs, outcomes, and so on. It might be a retainer or project fee or performance pay. Talk about some different names that are not judgmental but are more descriptive, because I think people buy what you're saying right now. I think they just need help putting it into practice. Like, "Ah, that makes sense." Now, what do I call it? What would I call it different?

Blair: Yes, so if it's not good, better, best, gold, silver, bronze, economy, economy plus, first class. Whatever [crosstalk]

David: You've been flying [chuckles] recently, you know what me off is, I'm platinum and American and diamond in Delta, but there should be some mandate that they all use the same stuff, right? Because I want to compare myself with somebody else and it's hard to do.

Blair: What's higher? I've never known, what's higher, diamond or platinum?

David: In American platinum is highest and in Delta it's diamond. I'm the guy sitting there as you walk past me to go to the back of the plane.

Blair: Yes. [laughter] See, in Canada we call it like it is. Air Canada, it's various levels of elite, then there's super elite.

David: Oh. [chuckles]

Blair: Yes. [chuckles]

David: All right, so back to names here. Give us some better names for this.

Blair: Okay. The names of your options should be descriptive in the example I just gave, partnership, deliverable and time. Those could be the names of your options. That's what you're buying. You're buying a partnership, you're buying the deliverable, or you're buying units of time. That's one way you could name it. You could name it working from cheapest to most expensive now.

You could also call it sprints, website and the partnership option. You can call it 2 million in revenue. Assuming that that's the goal of the client for this app, to generate 2 million in net revenue. You could call it website plus campaign, so deliverable, deliverable. 20,000 marketing qualified leads. That's the outcome the client is looking for. You can think about it this way too.

You can have an option that's like, here, let's do a little bit of work real quickly so we can test the quality and the nature of the relationship, and we might call that the quick start, so that's the quick start option. Then there might be the six-month campaign, then there might be the monthly retainer with an annual commitment, so you'd call it quick start six-month campaign retainer.

You're just describing what it is that the client is buying from you and you're not getting cute. Well, I've seen a lot of cuteness [chuckles] in the names of options on proposals. You don't get cute, but most importantly, you don't get judgmental. You do not impose your almost certainly flawed, absolutely biased judgment of the client's decision. It's the client's decision to make the trade-offs are theirs to make. You will never know all of the trade-offs they have to make. You have no business telling them this one is better than the other one.

David: One thing I love about this approach is that it's never going to work unless there is a conversation happening where you are asking lots of questions and answering questions too, but you're asking lots of questions to even figure out what these options should be. Because you're never going to be able to propose three completely different approaches to a prospective client unless you've done lots of discovery in a way that's in their self-interest, so that's good. It just forces you to be a good salesperson.

Blair: Yes, it's a great point.

David: All right, so summarize this for us.

Blair: Okay, so I'm all for, three-option, four-option proposals. Options in your proposals are good. It's also these three different-sized buckets of inputs or outputs. That's a good first step. That's completely valid. It's just the lowest expression of this idea of three options, but even at that, we're still not imbuing the options with any judgment. That's the lowest expression, just three different-size buckets. The highest expression is three different ways of doing business together, so it's basically time deliverable partnership, which speaks to value-based pricing, getting paid for the value that you're helping to create.

That's the highest expression. Regardless of what you choose, those two are anything in between. You should have no judgment in the names for the reasons we've talked about a few times now. The trade-offs are the clients to make. You don't even know what all of those trade-offs are. The way you need to think about it is you're putting three entirely valid options in front of the client. If they want to save some money and take the risk that they're not going to get the outcome, that is their prerogative to do that.

David: When you're putting these three proposals together, you know how much risk you are incurring each of these, and you wouldn't be resentful if they picked any of these, right? You're okay if they pick any of them. You really want to make sure it's a good fit, but you're not going to be resentful if they choose one in particular.

Blair: Yes, you shouldn't be resentful of all the options you've put forward. Again, there's an exception to this if you're negotiating with the price buyer, but we'll leave that aside for now. All the options you put forward, you should be okay with a client choosing any of them. Generally speaking, we're more okay if the client chooses the more expensive ones, but sometimes when the client chooses the really expensive one, it's a source of stress for us because we think, we're really on the hook here. We've taken all the risk in this relationship.

We'll earn a lot of money as a result if we achieve the outcomes we've promised to achieve. We're taking all the risks, so we're not necessarily happiest when a client chooses the most expensive one, but we should never put forward an option that we would not be happy to deliver on. We shouldn't be secretly hoping, oh, I really, really, really hope they choose this one.

It's okay to have a preference. It's okay to subtly nudge somebody towards an option, and you would do that by making one a charm price, changing the way the price looks. There are other ways to do this. We've talked about nudges previously, but generally speaking, you should see your role in the closing conversation with the three-option proposal. Your role is facilitator. I've got three entirely different valid ways that you can hire us. They're different price points, so there are different trade-offs. Obviously, some of the trade-offs are the amount you pay and the risk you take.

Let me explain the benefits and obviously the cost associated with each option. Then, madam client, it's your decision, you choose.

David: This is good. It's sort of down in the weeds, but it's so important because we just kind of slap these titles on things and are creating judgment calls, which aren't necessary. This has been great, Blair. Thank you.

Blair: Thanks, David.