What is Good, Better, Best Software Packaging?
Good, Better, Best (GBB) is a popular way for software sellers to package their software capabilities. Each package contains progressively more capabilities and thus has a higher price point.
GBB simplifies the buying process. Buyers can clearly see and compare the benefits that each package provides.
GBB helps software sellers meet different buyer requirements and budgets. It also provides a clear path to upsell customers to higher packages.
Software packages are typically not named “Good,” “Better,” or “Best.” Instead, they follow a naming convention that implies a progressive order. Examples would be, “Bronze,” “Silver,” and “Gold,” or “Basic,” “Professional,” and “Enterprise.”
The Benefits of Good, Better, Best Software Packaging?
The benefits to software buyers:
- GBB offers buyers a clear understanding of what each bundle includes. In turn, it is easier for the buyers to decide which package suits their needs.
- Buyers are able to buy the set of capabilities that best match their needs and do not have to pay for capabilities that they do not desire.
The benefits to software sellers:
Larger Targetable Market
Sellers are able to address different customer segments across multiple price points. This allows them to expand their targetable market and capture larger market share.
Path to Upsell
GBB provides sellers with a clear path to upsell.
GBB allows customers to self-segment themselves based on needs, budget, and willingness-to-pay. This speeds up the buying process.
Reduced Customer Churn
GBB reduces client churn (i.e. clients leaving) by providing a defined path to down sell. Instead of a client canceling completely, the customer can downgrade to a smaller package that suits their needs and budget. The software seller benefits by retaining a customer even if it is at a lower value.
Sellers can use GBB to create price anchors. Price anchoring is when sellers use pricing to influence the buyer’s price expectations. Anchors can be set low or high. For example, a high price for the “Best” package can make the “Better” package look like a good value. A free “Good” package, with a very limited feature set, can make buyers conclude that free offering will not meet their needs. They will need to pay to get what they need.
Best Practices for Good, Better, Best Software Packaging:
Find the right mix
Generally speaking, the benchmark for the number of clients using each package is the following:
- Good ≤ 25% of customers1
- Better + Best ≥ 70% of customers1
Free is not a price
Free is not a price. Free is an acquisition strategy. That means that if you offer the“Good” package are $0, your costs of offering it must be very low. The cost of obtaining and supporting each customer should be approaching $0.
Do not make”Good” too good
The “Good” package should have limited capabilities with limited value. If the capabilities are too extensive, customers will have less reason to upgrade to higher packages. This point gets exacerbated if you offer “Good” for $0.
Describe packages by benefits not features
Describe the packages by the benefits they offer, not the features they contain. If customers want to reference a list of features, you can provide a link or reference table.
Make the differences between packages clear
Make it easy for customers to determine the benefits of each package. The benefits of moving up a package must be clear. The tradeoffs of moving down a package must be clear.
Each benefit should add value
Each capability should add value to the package it is in, and in turn, add to the customer’s willingness-to-pay for each package.
Align prices with willingness-to-pay
The price of each package should align with the customers’ known willingness-to-pay for the capabilities in each package. Getting this right requires careful analysis of your customer segments.
Keep it short
Keep your list of benefits as short as possible. Try to include only those benefits that will help your customers make a decision. Too many benefits can overwhelm the buyer and prevent them from purchasing.
What are Different Variations of Good, Better, Best Software Packaging?
Include usage limits
Packages can be differentiated by usage limits. The key is to pick the right capability and the right limit. The capability you choose should be valuable to your customers, and the limits you set should make each package usable while still incentivizing upgrades.
Offering a fourth package
Offering a fourth package above the “Best” option provides a premium option for customers that may value it. The fourth package can also serve as a price anchor even for customers that do not want a premium option.
Not listing a price on your largest package
If you are experimenting with larger customers, you can choose to not list the price for your “Best” package. Instead, you provide a phone number or a link to request pricing. This allows you to engage larger customers with more custom requirements without locking yourself in on pricing.
Offer GBB per customer segment
Instead of a single set of GBB packages, you can offer a different set of GBB packages for each customer segment.
Use alternative timeframes
Annual pricing is common. It provides a predictable 12-month revenue stream. However, you can maintain your annual pricing but advertise your prices by month or week. This makes your prices look less expensive.
Offer multi-year pricing discounts
You can incentivize longer-term deals by offering discounts for multi-year engagements. By increasing the percentage discount for longer timeframes customers can get better value.
Offer introductory pricing
Offering special introductory pricing can incentivize buyers to buy larger packages. After the introductory pricing expires, and the customers renew at the higher price. This practice is best deployed when customers are automatically renewed via a credit card or it is stated in their contract.
What are the risks of Good, Better, Best Software Packaging:
Getting the price wrong
Optimal pricing for each bundle requires knowing your customers’ willingness-to-pay. This requires careful analysis. Suboptimal pricing can lead to lost revenue, foregone revenue, or stunted adoption of certain packages.
Offering too many capabilities across packages waters down their differentiation. You may get the packaging right at first, but if the Product team releases too many new features offered across all packages, you start diluting the value of each package. To prevent this, the Product team must know which new capabilities will be available in which packages. This should be known before development starts.
It is tempting to list as many benefits/capabilities as possible for each package. How can more information be a bad thing? It can overwhelm your buyers, resulting in two possible outcomes.
- Buyers conclude that you do not offer exactly what they want and they should look elsewhere.
- Buyers conclude that your pricing is too high given that they would be paying for capabilities that they do not value.
GBB is not a good option for businesses that only offer bespoke solutions. GBB is best for products and services that are standardized for mass customer adoption.
1 – Ramanujam, Madhavan, and Georg Tacke. Monetizing Innovation: How Smart Companies Design the Product Around the Price. Wiley, 2016.