What is a Value Ladder?
You have created sales funnels for years, and now there’s a new marketing strategy called value ladder. Suddenly, it’s time to learn something new and take your business to the next level. But what is a value ladder and how do you create one?
The easiest way to understand it is this: you start by offering something for a bottom-level price or for free to establish trust and then increase the price and value step by step with each subsequent offering. Let’s look at the concept in more detail, what the benefits of a value ladder are, and how to create one. Lastly, we’ll look at value ladders for healthcare companies.
What is a value ladder?
With a value ladder, you arrange your products or services in ascending order of value and price. The purpose of a value ladder is to build trust, so you can gain and keep customers. The aim is not to make a profit. The profit comes after you have succeeded in gaining trust and acquiring customers.
The great benefit of a value ladder is that it meets the customer where they are in the sales journey. If the customer is at the awareness stage, you meet with a free offer, the next step would be a low price offer, followed by a lead offer, and ultimately you hit the bullseye offer. Of course, life doesn’t always follow this neat little plan, but having different offers at different price points ready means there’s something for every stage of the customer journey.
Why is a value ladder important?
- Customer retention. All marketers know that it’s easier and more cost-effective to retain existing customers than attain new ones. A value ladder allows you to turn a one-time customer into a repeat customer by always having something suitable on offer.
- Builds trust. According to brandings statistics, 81 percent of consumers say they need to trust a brand before purchasing from them. The value ladder enables trust-building by providing value as a first step. You are not asking a new prospect to fork out money before getting something from you. By giving something away, you show your company’s bona fides, which creates trust, which is necessary for that first sale.
- Small sales lead to bigger sales. It’s a fact in marketing that once a consumer has bought something at a low price from you, they are more likely to buy from you again. This is one of the biggest reasons for creating a value ladder. With a value ladder, you’re not missing out on a customer who is just browsing and ready to take the first step if there is trust in your company. You can offer something small of value and still make a little money with the prospect of more money down the line.
- Gradually ease customers into bigger buys. With a well-designed value ladder, you’re not suddenly confronting a customer with a high price. You gradually accompany the customer on a journey from a low investment to your premium offer. You’re not asking them to order a thousand without having given some for free. The point is to take your customers on a buying journey at a comfortable pace.
- Creates a guided negotiation. With a value ladder, you can avoid the open question conundrum, where a customer only has the option of a yes or no answer: Yes, I’d love to work with you, or No, the offer doesn’t suit me. With a value ladder, you always have alternative offers, so the conversation isn’t abruptly ended with a no. You can take the conversation further by making alternative offers, maybe of lower value, showing them the steps that will get them what they want.
- Works for service-based businesses as well. Say you are offering childcare software that automates the operations of day-care centers and preschool facilities. A small outfit may not be convinced that they need your services. By not insisting that they sign up for a year contract, and instead offering a six-month contract or a contract that costs much less with limited functionality, your customer will soon discover the benefits of the services your software offers and might sign up for your next tear offer. Once you have the steps of your ladder in place, you’ll upsell along the way. For example, when people buy your low-priced intro offer (often called a tripwire), you can pitch your lead offer as a next step. Then, you can present your bullseye premium offer and so on.
- Creates a sales and marketing structure. A well-thought-out value ladder creates a structure for upselling. For example, once a customer has bought your low-priced offer \, you can pitch your lead offer, and as a follow-up, you can present your bullseye offer. A value ladder gives you the freedom to upsell or ‘’down sell’’ according to the needs of your customer. Your value ladder creates a range of offerings at a range of prices, which gives customers a broader choice and makes a sale more likely.
How to build a value ladder
You’ll want to create different value ladders for your different services and products. They won’t all look the same, but the basic structure is the same.
1. Free offer
The purpose of your free offer is to build trust and ultimately generate sales leads. Make sure your free offer is of value to the client, otherwise it won’t create trust. Also, keep in mind that one free offer will not necessarily lead to sales. Consumers interact with brands many times before they commit. If you can, have more than one valuable free offer ready. You could consider a free e-book, how-to videos, or a free introductory course.
2. Intro offer
This is a low-price offer that is not meant to make you money. It’s meant to provide something of so much value that it pique’s a buyer’s interest to commit financially to your next offer because it is already starting to solve their problem. Remember, you are still in the trust-building phase. Examples of intro offers are digital books, a free workshop or an introductory course.
3. Lead offer
Your lead offer starts making you money, but in return for that, you have to offer more value, preferably some service or product that a consumer can gain immediate value from, like a one on one session with you to plan future steps. This is also where you can offer a higher value product that provides more of what the person needs. To get back to the child care automation business, you could open up some aspects of your platform to a prospective customer, but leave some aspects of the service out which they will start missing and will want in the future.
4. Bullseye offer
If you planned your value ladder well, your customer should be primed for your bullseye offer. Now you offer your platform’s full scope of functionality to your customer, signing them up for a one-year contract – which you know will be extended once your customer becomes used to the platform’s capabilities.
Value ladder for healthcare companies
A value ladder can work for a medical spa or health clinic as well. In this setting, a value ladder allows the practitioner to gain a customer by getting them to buy an entry-level product. This step is meant to create trust and build the groundwork for a relationship with the customer.
Planning a value ladder for a medical spa forces practitioners to think of their offerings in terms of value and price in ascending order – from lower value products or services that are easier to sell to top-level offerings with the highest profit margins that they ultimately want to sell.
Walking the average client through a sales journey guided by a well-constructed value ladder has the prospect of ending up with the sale of a high-value product, whereas offering that high-value product too early may lose you the client.
Let’s look at a value ladder for a healthcare company in more detail.
These are the low-cost products that don’t have a profit margin, but are used to introduce patients to a medical practice. Examples of entry-level products are discounts and free trials, or getting 50% off the next buy.
An important point to remember here is low cost must not be equal to low value. It’s crucial that this offering is of high value to the prospective client, otherwise your practice will make a poor impression and your value chain will fail. Entry-level products create a person’s first impression of a practice and that must be good if it’s to lead to future business.
Put some thought into your entry-level products – their value and your service will determine how many people move up your value ladder.
If you provide a high-value entry-level product, your clients should be interested in what else you have to offer.
Think carefully about what your mid-level offers could be. They will be priced higher than entry-level products, but lower than high-end offers. You should be able to earn profits from mid-level products because your entry-level products should have covered your advertising costs.
If you run a health spa, you could offer a special on a two-night stay over or day visits at a reduced price with limited access to your services, but complete, enticing information about these services.
These are your most expensive, but also most valuable offers. Typically, these top-of-the-line products are very profitable for businesses like medical spas and health clinics. The margins are incredibly high, but so are the levels of effort you have to put in to get to this level and make a successful sale.
Apart from wealthy clients who can afford your high-end offerings off the bat, most consumers don’t get there without having tried entry-level and mid-level products first. In most cases, you’ll have to work hard to earn the trust of your average customer, before they will fork out their hard-earned money for your top-level products or services.
Most often, a person who purchases a high-end product or service, has been a client for a while and has moved through the value ladder to this ultimate point.
For businesses like health spas and clinics, high-end products invariably mean 100% profit.
The ultimate offering
It’s possible to augment your income even more through subscriptions that allow your customers to periodically pay a set amount for a service or certain products. You can leverage any recurring services your business offers to create membership programs. This is the ultimate money-spinner: you provide your customers with regular and predictable value while earning regular, predictable revenue!
A value ladder is a strategy that helps businesses build relationships with potential customers and guide them at a comfortable pace through a selling process that eventually ends with the customer buying a company’s premium offering. This plan might work on paper, but it will fail miserably if a company doesn’t offer real value at every level and doesn’t put customer service first. Most consumers will accept a free offer, but won’t take the relationships with a business further if they were not treated courteously.
Lastly, if you are looking to start your own business, a perfect starting point is Entrepreneur Rx or listening to this podcast.