Using tiered pricing to influence buyer behavior

From: alexhormozi

To effectively price products and services, especially at higher tiers, it is crucial to understand and leverage customer psychology and value perception [00:00:05].

The Strategy of Selling High-Ticket Items

To maximize revenue, businesses should aim to sell more expensive items [00:00:32]. There is no strategic advantage to being the second cheapest in the market [00:00:34]. The only strategic benefit to being the lowest cost provider is if the entire business model is built around operational efficiency and automation to offer the same product for less [00:00:40]. Otherwise, competing on price typically leads to no profit and operating at break-even, effectively becoming a non-profit organization [00:00:53].

It is recommended that businesses offer something that is 10, 50, or even 100 times more expensive than their average offering [00:01:03].

Price Anchoring

Price anchoring is a powerful psychological tactic used to influence buyer perception [01:29:00].

• How it Works: Presenting a significantly high-priced item first helps to stretch a customer’s perception of the price range [01:50:00]. Subsequent, lower-priced items then appear more affordable by comparison [02:00:00]. This strategy is applicable across various industries, including wine, software, and memberships [02:17:00].
• Two Benefits:
  1. For the majority of customers who won’t buy the most expensive (10x, 50x, 100x) option, it effectively anchors the rest of the pricing against that initial high price [01:43:00].
  2. A certain percentage of the population, often referred to as “whales,” will always choose the most expensive option because “that’s who they are” [04:35:00].
• Implementation: When presenting a pricing menu, always list the most expensive option first, rather than the least expensive [02:08:00].
• Impact: If the initial high price doesn’t elicit a “gasp” from the customer, it likely isn’t high enough [04:54:00]. This “gasp” signifies that the perceived pricing rubber band has been broken, allowing for the explanation of value that justifies the cost [04:57:00]. For example, if a “Gold” tier is $100,000,a"Silver"tierat$10,000 (offering 80% of the value) will seem like a bargain [05:11:00].

Optimizing Tiered Options: Small, Medium, Large

Beyond the anchor, the placement of the middle price point significantly influences which product tier will be purchased most often [02:35:00].

• Example 1: If you have a $5(small)and$10 (large) option, placing a medium option at $6(or$6.50, $6.99) makes it seem like a great price [02:48:00].
• Example 2: If the medium option is placed at $9(withsmallat$5 and large at $10),manypeoplewilloptforthe$10 option, perceiving it as a much better deal—getting “twice of the small” for only a dollar more [03:06:00].

Ultimately, people are looking for “great deals,” not just “cheap stuff” [03:17:00]. The distinction is that price is what you pay, while value is what you get; the “deal” is the discrepancy between the two [03:22:00].

Defining Value and Pricing Strategies

A common misconception in high ticket sales strategies is the belief that customers “can’t afford” expensive items [04:05:00]. The real reason someone isn’t buying an expensive product is a lack of understanding of its value [03:54:00].

• The Ferrari Analogy: If a brand-new Ferrari were offered for $10,000, people would find a way to get the money (calling friends/family, using credit cards, taking loans) because they understand its inherent value is far greater than the asking price [03:32:00].
• The Solution: Businesses must determine what they need to provide for their 10x, 50x, or 100x offering to be perceived as an incredible value, similar to getting a Ferrari for $10,000 [04:19:00]. This approach teaches businesses that customers are willing to pay more when they clearly perceive the value [04:30:00].
• Customer Segmentation: Pricing strategies and adjustments should align with customer segmentation and the value delivered to specific buyer personas [05:24:00]. For example, the value of a service for Coca-Cola will be higher than for a local brewery, allowing for higher pricing accordingly [05:44:00]. If a conversion rate optimization expert can increase an e-commerce store’s revenue by 10%, that 10% translates to $100,000fora$1 million store and $10millionfora$100 million store, demonstrating how value can be priced based on the client’s capacity for gain [05:51:00].

By implementing these pricing strategies and adjustments, businesses can both secure premium pricing sales and make their other offerings more attractive to a wider audience [06:08:00].