From: alexhormozi
When developing pricing strategies, it is crucial to understand customer segmentation to maximize revenue and meet diverse market needs [05:24:99]. Different customer segments derive varying levels of value from a product or service, necessitating varied pricing [05:40:99].
Pricing Based on Value Delivered
The price of a product or service should reflect the value it delivers to a specific customer “avatar” or segment [05:40:99]. For instance, a service sold to Coca-Cola will be more valuable to them than to a local brewery, allowing for different pricing [05:43:99].
Consider a Conversion Rate Optimization (CRO) expert:
- If they help an e-commerce store making 100,000 in value [05:54:99].
- If the same expert helps a store doing 10 million [05:58:99]. The value provided to the customer is directly proportional to who they are, not solely based on the provider’s efforts [06:03:99]. This principle supports defining value and pricing strategies and allows for higher pricing for higher-value customers.
Meeting Buying Personas
A common mistake in pricing is having narrow price ranges, such as 110, and 100, 1,000 per month [05:32:99]. This is because the needs and financial capabilities of customers differ significantly across these tiers [05:37:99].
The “Whale” Customer Segment
There’s a specific segment of the population, often referred to as “whales,” who consistently purchase the most expensive available option because “that’s who they are” [04:43:99]. Having a very expensive, premium offering (10x, 50x, or even 100x the price of your main product) on your menu does not negatively impact your business [04:46:99].
This strategy for premium pricing has two key benefits:
- Price Anchoring: The extremely high price anchors the perception of value for other offerings, making them appear more affordable by comparison [01:43:99]. For example, if a 10,000 “silver” package, the $10,000 option seems like a great deal [05:18:99].
- Attracting High-Value Buyers: A certain percentage of customers will buy the most expensive option regardless of the price [04:43:99]. This selling to wealthy customers vs mass markets approach can lead to unexpected sales of high-ticket items [04:50:99].
When setting these high prices, aim for a reaction of surprise or a “gasp” from potential customers [04:54:99]. This indicates that you’ve pushed past their expected price range, “breaking the rubber band of pricing” they had associated with your products [04:57:99]. After presenting the anchor, you can then explain the exceptional value, and customers will be more open to considering other, seemingly more reasonable, options [05:07:99].
By understanding and segmenting customers, businesses can effectively use tiered pricing to influence buyer behavior and capture different levels of value.