What's the benefit of the three tier pricing model?

I feel like I see the three tier pricing model everywhere, to the point where it's an industry standard. Why can't you just make a free version then a paid version, or better yet - just a paid version? Granted I've never implemented this model, but as a consumer I don't really want to choose between several options.

Not trying to be cynical, but maybe someone more business savvy than me can explain it.

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    The book predictably irrational talks about it. It's basically price anchoring. Put something horrifically overpriced next to something normally priced, and the something normally priced seems amazing.

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      ^ this. It's probably the only reason it exists :D

      On a serious note, it is indeed price anchoring, and you can find out the features customers are willing to pay for, and add those to your "Premium", more or less.

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    There are pointless tiered pricing which is tiered for no reason.

    Some are tiered to force customer into buying their final tier, I can literally feel these, until I have moved up to their final tier's annual plan there will be persistent popup torturing me to upgrade. I sometimes upgrade just to avoid this headache from popups.

    Some have a credit system, like email providers, the higher your monthly subscription the higher your contacts and emails sends.

    It actually depends on your intentions of business tho. Free - to get people come in, a lost lead is lost revenue, simply have them for free and they'll like it for the price point. So win-win.

    Mid tier - they want your software, the bare essentials.

    Third tier - they need your software, website builders for example.

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    This comment was deleted a month ago.

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      Gotcha, that makes sense.

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