Defining value and pricing strategies

From: alexhormozi

A key question for aspiring entrepreneurs is “what should I sell?” [00:00:09] Understanding the fundamental categories of what can be sold and how to modify their delivery can help define value and shape pricing strategies.

What Can Be Sold?

There are seven fundamental categories of things that can be sold, each available in digital and physical formats, totaling 14 distinct possibilities [00:00:17]:

1. Products [00:00:34]
   • Physical: e.g., water bottles [00:00:36]
   • Digital: e.g., a PDF [00:00:38]
2. Services [00:00:42] (things done for other people)
   • Physical: e.g., massage, lawn mowing, car repair [00:00:45]
   • Digital: e.g., an ad agency making ads, buying media [00:00:51]
3. Access [00:01:06]
   • Physical: e.g., leasing a building [00:01:09]
   • Digital: e.g., access to a digital content library like Netflix [00:01:11]
4. Attention [00:01:16]
   • Physical: e.g., a billboard [00:01:19]
   • Digital: e.g., Facebook and Google selling audience eyeballs [00:01:25]
5. Risk (Insurance) [00:01:32]
   • Physical: e.g., insuring a building, product guarantees [00:01:35]
   • Digital: e.g., cyber threat insurance [00:01:40]; AppleCare is paid insurance [00:01:54]
6. Money [00:01:57]
   • Physical: e.g., actual US Dollars [00:02:07]
   • Digital: e.g., cryptocurrency [00:02:10]
7. Endorsement/Brand [00:02:15]
   • Physical: e.g., licensing a logo for merchandise [00:02:17]
   • Digital: e.g., a verified checkmark on Instagram [00:02:23]

It’s also possible to sell a combination of these categories, such as a rock concert selling access to an experience, plus physical drinks/t-shirts, and digital recordings [00:02:35].

Choosing What to Sell First

The decision of what to sell first largely depends on two factors:

1. Resources you have [00:02:52]
2. Your skills, value, and experience [00:02:53]

Even first-time entrepreneurs have experience through osmosis from parents (e.g., doctor’s child knowing about eyes, mechanic’s child knowing car parts) or past odd jobs [00:03:00]. Consider which of the seven categories you already have some experience with [00:03:39] and which big problem you can solve given your resources [00:03:42].

With limited starting capital (e.g., $100), the most common starting point is selling your time, often in the form of services [00:03:49]. The ideal “sweet spot” is providing the most value to a person for the least amount of money to you [00:04:04].

The Delivery Cube: Enhancing Value and Profitability

Once you’ve identified what to sell, the Delivery Cube offers six frames to enhance or make it more or less valuable or more or less profitable as a business owner [00:04:13]:

1. Delivery Model (Scale of Delivery) [00:04:24]

   • One-to-one: E.g., a one-on-one call review system [00:04:40].
   • Small group: E.g., semi-private groups of five people [00:04:33].
   • One-to-many: E.g., a webinar to a thousand people [00:04:38]. Each has different value propositions [00:04:28].

2. Level of Involvement [00:04:46]

   • Do-It-Yourself (DIY): You sell it with unlimited scale, but typically lower value [00:05:00].
   • Done-With-You (DWY): You hold their hand through the process, offering an intermediate value [00:04:49].
   • Done-For-You (DFY): You do all the work, selling a final product or outcome; typically the most expensive and easiest to sell, but hardest to deliver [00:04:53].

3. Support Level and Medium [00:05:15]

   • Medium: Chat, email, phone call, Zoom call [00:05:17].
   • Email support is more scalable but less valuable than real-time Zoom call support [00:05:31].

4. Consumption Format [00:05:40]

   • Format: Visual, audio, text [00:05:41].
   • Delivery: Live or recorded [00:05:45].
   • Live content is typically perceived as more valuable, especially if in-person, but is least scalable [00:05:53]. Recorded digital content is most scalable but perceived as least valuable [00:06:01].

5. Speed and Convenience [00:06:07]

   • Availability: 24 hours a day vs. nine-to-five [00:06:12], number of days per week [00:06:17].
   • Response Time: Guaranteed response in 24 hours vs. three minutes [00:06:21].
   • This involves a trade-off: overstaffing for customer convenience (incurring inefficiency) or full staff utilization where customers incur inefficiency [00:06:34].

6. The 10th Test [00:06:50]

   • 10x Price: “If I charged 10 times more for my current thing, what would I have to change about it to be worth 10 times more?” [00:06:52] This prompts thinking about how to provide significantly more value (e.g., turning a $10,000thingintoa[[pricin{g}_{s}trategie{s}_{f}o{r}_{h}ighticke{t}_{i}tems|$100,000 thing]]) [00:07:07].
   • 1/10th Price: “If I had to deliver the same or even more value, but could only charge one-tenth the price, what else would I do that would be perceived as valuable but wouldn’t cost much?” [00:07:18] This focuses on finding highly scalable, low-cost additions that maintain value.

These frameworks provide a starting point for determining what to sell, and how to scale it to be more profitable and/or valuable to the end consumer, while considering internal resource allocation [00:07:37].