From: alexhormozi
To sell expensive products, it is strategically beneficial to be the most expensive option in the marketplace, rather than the second cheapest [00:00:32]. Competing solely on price by offering the lowest cost is only viable if the business is built entirely around operational efficiency and automation to provide the same product or service for less. Without this foundational strategy, attempting to compete on price will lead to unprofitability and potentially becoming a non-profit organization [00:00:40].
Implementing High-Value Pricing
Every business should consider offering products or services that are 10, 50, or even 100 times more expensive than their current main offering [00:01:03]. This approach is based on the principle of price anchoring and value perception.
Price Anchoring
Price anchoring is a psychological strategy where a high-priced item is presented first, making subsequent, lower-priced items seem more affordable [00:01:43]. For example, if a suit priced at 2,900 suit immediately appears more reasonable [00:01:08]. This technique “stretches the length” through which customers perceive your pricing [00:01:51].
Key aspects of price anchoring:
- Order of Presentation When displaying a pricing menu, always present the most expensive option first, not the least expensive [00:02:10]. This makes all other options appear cheaper by comparison [00:02:14]. This strategy works across various industries, including wine, software, and memberships, because it leverages human psychology [00:02:17].
- The “Gasp” Effect The initial high price should elicit a “gasp” from the customer [00:04:54]. This gasp indicates that the price has effectively “broken the rubber band of pricing” associated with their expectations for your product or service [00:04:57]. After this initial shock, you can explain the value proposition, and then present slightly less expensive options that seem much more appealing in comparison [00:05:07].
- Attracting “Whales” A certain percentage of the population, often referred to as “whales,” will always choose the most expensive option because that aligns with their purchasing behavior [00:04:43]. It costs nothing to offer an ultra-expensive item, and you might be surprised when it sells [00:04:46].
The Decoy Effect (Small, Medium, Large)
When offering multiple pricing tiers, the placement of the middle price can influence which product is sold most frequently [00:02:38].
- If a medium-priced item is just slightly more expensive than the cheapest option (e.g., 5), it might seem like a “great deal” and encourage sales of the medium option [00:02:51].
- Conversely, if the medium option is priced very close to the most expensive option (e.g., 10), it might prompt customers to choose the highest price, perceiving it as a minimal difference for maximum value [00:03:06]. The goal is to make customers feel they are getting a great deal, not just a cheap product [00:03:19].
Emphasizing Value Over Price
The core principle for selling expensive products is understanding the distinction between price and value: “Price is what you pay, value is what you get” [00:03:22]. A “deal” represents the discrepancy where perceived value significantly outweighs the price [00:03:23].
- Understanding Perceived Value: If someone is not buying an expensive item, it’s usually because they do not fully understand its value [00:03:54]. If customers truly believe they are receiving immense value (e.g., a Ferrari for $10,000), they will find a way to acquire the funds [00:03:42]. The notion that a customer “cannot afford it” should be challenged; rather, it indicates a failure to communicate the value [00:04:05].
- Developing Value Propositions: When developing a high-value product, consider what would need to be fulfilled to make it worth 10x, 50x, or 100x the price of your standard offering [00:04:22]. The aim is to create an offer where the value relative to the price is a huge bargain [00:04:13].
- Tailoring Value to Customer Segments: Avoid uniform pricing tiers (e.g., 110, 100, 1,000 a month) [00:05:34]. Price should be based on the value delivered to a specific customer avatar. For example, a service that increases an e-commerce store’s revenue by 10% is significantly more valuable to a store making 1 million, allowing for proportionate pricing [00:05:40].
By presenting a high-value anchor item at the top of your pricing menu, you not only attract high-spending customers but also make your other options appear more attractive, encouraging customers to perceive greater value in lower-priced offers [00:06:10].