Ecommerce Encyclopedia

‟Ecommerce is a powerful means to connect the unconnected to global trade” - Arancha Gonzalez

The meaning of Tiered pricing

Tiered pricing could be defined as a pricing strategy in which the price per unit is set within a specific range. To be more specific, when each quantity within a “tier” has been sold, there would be a reduction in the price per unit. 

In eCommerce, tiered and volume pricing are both known as good methods in order to increase sales for businesses. However, some often mistake between the two strategies, while they actually are completely different from each other.

With tiered pricing, a lower price per item will be offered to shoppers once the quantity of the product has been reached. In other words, with the ‘fulfillments’ of each tier comes the reduction in prices. Let’s take an example. A customer purchasing 100 units of the same product will pay $200 for each of the first 10 units, $150 each for the next 30 and $100 each for the final 60. Therefore, the final value of the equation is $12,500. 

Meanwhile, for volume pricing, the price per unit applies to every quantity. Back to the previous example, if a customer chooses to purchase 100 units with the price of $100 each will pay $10000. 

It has long been known that businesses applying the tiered pricing strategy often witness a higher number of annual sales; despite controversy between the two types of strategies, volume pricing and tiered pricing, has long been ongoing. Still, it all depends on your business and you to pick one that suits you best. Therefore, if you opt for tiered pricing, customers might find it more tempting to buy a large quantity of your products. Volume pricing is useful because it actually offers a lower price for a large quantity of products. Therefore, volume pricing can be utilized in cases of excess stock and inventory control processes.