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The Secret to Boosting Profits Overnight: 5 Proven Pricing Strategies
502 Plays7 months ago
What if I told you that adjusting your pricing could unlock new levels of profitability without adding new products or customers? In this episode, we dive into the 5 proven pricing strategies that can help you make more money with the products you already have. Whether you're running an e-commerce store or a service-based business, smart pricing is the easiest way to grow your bottom line.
You’ll learn:
- How to use price anchoring to make your best offers irresistible
- Why offering multiple price tiers can capture more customers
- The power of decoy pricing to shift buyer behavior
- How to protect your brand’s premium image while still offering discounts
- The importance of tailoring pricing for different audience segments
These insights are based on real-life experiments in my own businesses, including Zoof and Amazing.com, and have led to immediate profit increases. If you’ve been underestimating the power of pricing, this episode will change how you approach it—and your bottom line will thank you.
🎙️ Tune in to learn how small pricing changes can make a big impact on your business.
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Transcript
Exploring the Depths of Pricing
00:00:02
Speaker
see So at one point I had this idea that I wanted to like really dig into this like concept of pricing. So I read like nine books on the topic. And i because I feel like it's kind of a thing we all have to do all the time. It doesn't matter if we're selling products, selling services, selling whatever. It's like at some point we've got to decide like what do we actually price our product at. And so I was like I've read all these marketing books over all these years, all this direct marketing stuff.
00:00:27
Speaker
But I feel like I never really saw that much of sophisticated advice on like how you actually price products. But we're not the first people. I mean, there's all these different pricing books on how to
The Power of Pricing Strategies
00:00:36
Speaker
do this. And the cool thing is, it's kind of like the title of the topic says, I mean, this is a thing that if you do this right, you can literally make more money tomorrow. like It doesn't require any new products. It doesn't require any new marketing channels. It doesn't require any additional traffic. It doesn't require any of this kind of stuff. It just requires a strategy. And the cool thing is, is people have been testing pricing strategies forever. So there's a lot of data out there in terms of what works and what doesn't work. So that's what we're going to get into.
Complexities in Pricing Decisions
00:01:01
Speaker
So in one of these pricing books, I think this sort of story is a good example of what we're about to get into. So in one of these pricing books, the guy talks about at the very beginning, he's like, okay, his friend was going to start a restaurant and he's trying to figure out like, what do I price this main chicken dish at?
00:01:16
Speaker
And he's like, should I price it at $17 and be more sort of budget conscious? Should I price it at like $35, $40 to be more premium? And that was the question. That's the kind of thing we all kind of think about. We're like, we're selling a new supplement or we're selling a new electrolyte product or we're selling whatever. Like what do we price it at? Like this price or this price?
00:01:33
Speaker
And the interesting thing was is a lot of the sort of data shows and this sort of advice is that it's not that simple. And so like the advice he ended up kind of giving to him was like, okay, it's like, you're going to have a certain price for happy hour at the bar. He's like, at some point you may have like a senior citizen discount, and then you may price this as a bundle with some other sort of things. And so it wasn't like a black or white, this or that sort of pricing option. And his goal is to be able to appeal to as many people as possible to sort of maximize everyone's willingness to pay.
00:02:03
Speaker
And so it ends up being more complicated than this or that kind of answer, but I mean, that's how you make more money here.
Application and Impact of Pricing Strategies
00:02:09
Speaker
And so this is the guy who wrote that book. I can't remember if it was this book or his other one, but I'll kind of quote both of them. It says, prices can be changed on Sunday night and new profits will start flowing in on Monday morning, which is why this pricing thing is so interesting. And for me, it's like I read all these books. I'm like, this is cool. Like some of it, I think I have this coming up soon. But I guess it's a little bit subjective.
00:02:28
Speaker
But, and so at first I kind of put it aside. I was like, I don't know what to do with all this. And it's cause like, you can only test so many prices, but then as I had more experience, cause this was probably four or five months ago, over those like three or four months after, then I kept popping situations up in business, running a promotion for life boost, doing something for amazing, something for zoof. And it's like every time you have to decide on a price. And that's where I saw this stuff become more and more and more useful. I was like, oh, like this actually is really sort of powerful information. And it's one of the best ways to make money.
Profit Potential Through Price Adjustments
00:02:56
Speaker
um So, big profits from small price increases. This is just a little example to show you what we're talking about. like Say you've got a product priced at 100 bucks, you sell 10,000 units, that's a million bucks in revenue. Say your cost, including expenses, cost of goods sold, everything is 900 grand. You make $100,000 in profit. Say this is kind of where you're starting. You raise prices by 10%, from 100 bucks to $110.
00:03:17
Speaker
and you sell the same number of units, 10,000 units, your revenue is now 1.1 million, and let's say your cost, the only cost that increases is a little bit of extra credit card processing, so an extra 3 grand. So you're at $903,000 and now you're at $197,000 in profit.
00:03:32
Speaker
from a $10 increase. That's an increase of 97% just by bumping up the price a little bit. This assumes you're able to maintain the same unit volume. It assumes you don't have all these other costs kind of blow up. But I think more often than not, within some reason, that's
Upcoming Workshop: Pricing Practices
00:03:46
Speaker
kind of what we experienced. I mean, Reggie was literally just saying that he increased prices in his business. He was the best decision ever. Was nervous to do it, didn't know if it would work out, but has not heard him. Hasn't received hardly any kind of complaints. And I think we all sort of will experience a lot of these things um if we start adjusting our pricing.
00:04:02
Speaker
So here's what we're going to cover. Five proven pricing practices to increase profits. And before I do that, I want wanna to make sure everyone has one of these, this pricing workshop thing. You don't need to start looking through this. You don't need to start filling this out right now. We've got time after this kind of session because I want you to have an overview of this whole landscape of pricing stuff. And then we're actually going to do like a a workshop together where you're actually going to apply this in your business. Because I want you to walk away from here with more than just kind of good ideas. like This is like real work that you're going to be doing.
00:04:32
Speaker
And I think it'll be incredibly useful for you, no matter what kind of product you sell or where you're going to sell it. But in general, after all this research I did, because you know once you read three or four books on this, like all the rest are basically repeating the same stuff. So you're kind of flipping through, and they all kind of ah end up going on these same different topics. So value-based pricing is number one. Positioning is number two. Versioning is number three. Differential pricing is number four. And then pricing hacks. These are like the little Uinta nines and that kind of thing. And so I think all of these are important.
00:05:02
Speaker
But I think these are like the main areas of adjusting your pricing that we're going to get into. So first, I wanted to give that same warning is that some of this stuff is, a lot of it's been proven with different studies than people have done. But it's not the kind of thing where you're going to necessarily want to or be able to split test everything forever. like If you're going to create a sales page, and we've talked about this. And by the way, we can talk about the book later. But some of the stuff is in that black book on your on your desk.
00:05:28
Speaker
um If you're going to create a sales page, it's like should you have a headline, should you have benefit, should you have features, should you have social proof, guarantee scarcity, all that kind of stuff, you could sit there and split test every single one of those elements to make sure every single one of those elements is important, but it just doesn't make sense. It's like if you want to start with your best foot forward, even though you know you're not 100% sure everything there needs to be there is actually going to work, then that's what you start with. And I believe pricing, to some extent, is similar. Some of the stuff you can test, but some of the stuff is proven through best practices that it just makes sense to implement, even if you can't split test.
00:06:05
Speaker
If you can, split test, fantastic. So just kind of give you that warning because some of this stuff is, it may work in one situation, but not in another. But I think in general, this is going to give you the best chance of maximizing the amount of money you make in your business in the quickest amount time, ah quickest time possible.
00:06:20
Speaker
So first, value-based pricing. So this is the same guy, one of his books called 1% Windfall. He says it begins with identifying what the customer's next best alternative is and then evaluating its attributes. We all kind of do this to some extent, but my guess is almost none of us have done it to the level that is recommended by this guy and other sort of pricing experts. And so here's what this ends up looking like. And this is part of what we're going to do in that workshop that we have.
00:06:47
Speaker
So you start with your product um and then you're basically comparing your product to say three of your top competitors. And you're getting kind of a general base price. Like if this person is very similar to yours, like as you're looking at their next best alternative, if this person's very similar to yours and say they price at 30 bucks, this person's $50, this person's $10, you're like, okay, maybe a general base price, let's call it 30 bucks. If you were starting from scratch, like what is this market gonna kind of accept?
00:07:14
Speaker
Then you're comparing your product based on these attributes such as brand. How does my brand compare to these other ones? um Quality of the brand, sort of experience of the brand, like how long has the brand been around? If you've got some business where, you know, say you're in Reggie's case and say you have some doctor that works with you, that's probably increasing the quality of your brand versus somebody that's just like two guys living in their mom basement selling the same product.
00:07:38
Speaker
And so you're kind of comparing your brand versus these other ones and say your brand is way better than all three of the competitors, then maybe you're like, okay, that gives me like a $5 per unit bump in potential price I could charge. Or maybe it's way worse and you're like, ah, these guys are kind of better than me. Maybe I need to take my price down by a few bucks.
00:07:56
Speaker
Then you're doing the same thing with quality. The quality of your product. Is your product, if you're being honest with yourself or if you're talking with a group of customers, is it higher or lower quality than your competitors? How does your product compare to theirs? And the same idea. You take your price up or down a little bit based on that.
00:08:12
Speaker
then attributes. These are basically the features of your product. um And you know Eduardo and Denise's case, like maybe like their ashwagandha product has x milligrams of the core ingredient where somebody else has 50% more, 50% less. So these are the kind of features that we're looking at or like Aaron was giving you all crap about, about having black pepper and not black pepper, I think. And so you're kind of comparing these different attributes. And then you're saying like, okay, based on that, should I bump my price up or down a little bit?
00:08:38
Speaker
and then the same thing for service if you're being honest with yourself do you have like a rockstar customer service department or is it kind of mediocre like they take all the phone calls 24 seven you only offer email support every once when you feel like responding and so same kind of deal bump your price up or down ease of purchase which i think a big one for us here is like A way to look at this could be like, for us, for example, selling our coffee, we're not available to buy in retail stores. So I think we would get a ding versus some other brands like say like we're not quite direct competitors because like Four Sigmatic does more mushroom coffee, but they're available in all kinds of retail stores all over the planet. So they're getting a little bit of a bump in terms of ease of purchase.
00:09:17
Speaker
um Also there's other companies that sell like big tubs of, say somebody only drinks cold brew and they sell these big tubs of cold brew. um We would probably get a little bit of a ding because we're not available in that format. A little bit harder too because then they have to go make the product and that sort of thing and then style also.
00:09:33
Speaker
Obviously, a lot of this stuff is very subjective, and it is what it is. I mean, that's part of this thing, is it's not a perfect science, but what you're trying to do is say like, okay, here's like a general price for our product, and then based on all these attributes, what's a potential price that we think our product is really worth in the eyes of the customer? So this is a way to somewhat objectively, though still pretty subjectively, compare your product to other competitors. How many of y'all have done something almost to this level for any of your products, for your core product you sell the most of?
00:10:04
Speaker
Sometimes it's like you want to charge a certain price, but if you're being honest with yourself, is your product really worth charging a better price? And if it's not, like what do you have to fix? I mean, like you all do a great job on you know branding and style and that kind of thing. But say your branding and style is terrible, but you want to charge 30% more than everyone else. It's like, OK, we really got to bump that stuff up. We can't be settling for like low-quality packaging, low-quality images, all that kind of stuff, because we want this higher perceived value. But this kind of forces you to be a little more honest with yourself. um Cool.
00:10:34
Speaker
And so this is another kind of thing, which is a little bit interesting take. So this lay Caldwell on on the psychology of price says, pick one main benefit area where you can overwhelmingly exceed the quality of the competition and aim for people who care a lot about that benefit. And so this is a little bit of a take of like kind of specialization. like Is there some aspect of your product that people just really care about, that you can really make um better than everyone else? And that's another way to kind of look at this, that I think has been kind of proven and in a way to be able to charge more.
00:11:03
Speaker
A lot of the direct-to-consumer brands have done that. I mean, the one example I've always given is like Native deodorant. They went really deep into like natural and then also kind of, I'd say like minimalist design. And so they went really deep into those things, whereas everyone else is just selling kind of generic, boring, kind of, here's your active deodorant. They kind of carved out a niche that way. So kind of think about that. So first thing is value-based pricing.
00:11:27
Speaker
like comparing yourself to the next available best options like how do you actually compare on a value-based perspective and then the next one is positioning and so this whiskey brand at some point they realize their sales are kind of struggling they basically just upgraded the packaging increase the prices but the stuff in the bottle of whiskey is exactly the same and then all of a sudden their sales start skyrocketing Because they reposition their product rather than just being the same as everyone else's, they reposition it as a higher, more premium option. Same freaking liquid inside of the bottle. But now it's a more premium option and then it starts selling better. So I think premium is kind of, I'll go through three different options, but that's the same for pretty much all of us. um So typical price demand curve, the higher your price, the lower quantity you sell, the lower the price, the more quantity you sell.
00:12:14
Speaker
But this isn't always the case. Sometimes you could actually raise prices and the quantity stays exactly the same. Or sometimes you can raise prices and the quantity actually goes up because of higher perceived value. Not always, but this is something to question and part of the reason we look at this. um So first off, kind of three different ways to position. You can be a discount brand, a premium brand, or a luxury brand.
00:12:37
Speaker
And sometimes we think we have a luxury brand, but like not really a luxury brand. Most of us I think are in the premium category. But in terms of discount, and so three different ways to look at this, like what is the value proposition of a discount brand? We got the lowest prices. Think of like Costco, for example. Operations, you're focusing on efficiency. Because if you want to give people the lowest prices,
00:12:58
Speaker
If somebody else is more efficient in running their business than you, they're gonna be able to offer a lower price than you and they're gonna eat you alive. You're gonna be out of business. And so you have to be, by design, you have to be more efficient at operations. Pricing goal, I mean there's some people in the supplement world that do this and I don't know how well their businesses do, but you'll see them on Amazon. Like I think I bought some of these, like I think it's bulk supplements or something, where they'll sell like a bag of creatine. Not fancy packaging and whatever.
00:13:21
Speaker
but they're kind of leaning on this angle like okay we can't have the world's fanciest bottles and all that kind of stuff like if we want to go cheap with this stuff our packaging has got to be pretty efficient also so that's a way to kind of tailor your brand towards being discount pricing goal you want to be seen as low price tactics everyday low pricing not doing this sort of high-low where you have a big price, you run a bunch of discounts. You want people to be able to just go to your store, go to Amazon, buy at a low price all the time. And then you're kind of publicizing your small margins. I mean, Costco has been very public about, we only mark everything's up by, you know, maximum 15%. And it's like, don't worry, you're paying your annual membership fee. Like, we don't worry about that part. And so, but all the products are only marked up 15%.
00:13:59
Speaker
So that's general discount. So most of us are not in this situation. Like, raise your hand if you're selling, you're trying to be the cheapest product out there. I don't think there's anybody. It's not necessarily a bad thing, but it's just not what we typically focus on. And Dan Kennedy, a marketer guy, says, there's no glory in having the second lowest price. So it's like, you've got to go big in this direction. is This is the way you want to go? Not the position for most of us. So the next one is premium. So value proposition for premium when terms of positioning is we have the best quality.
00:14:28
Speaker
This is what you're trying to communicate through everything that you do. Packaging, um website design, copy, all of that kind of stuff. And then your operations are emphasizing quality and and brand image. ah Pricing goal, premium brand image. So you don't want to be looking at like the person that's throwing a sale out all the time. And we've been bad about this with Life Boost, and we've kind of been able to get away with it so far. If I could do everything over again, I don't think I would be so discount focused, at least on the front end offer.
00:14:56
Speaker
Even after the discount, we're more expensive than most people. But I don't think that's the right message if we're being congruent with all this. And there's um other people, for example, Roman, who's going to talk on ah Thursday. And he's got a very premium price image for his gas mask. Very picky about his discounts. And I think that's the approach we want to go.
00:15:15
Speaker
Use rounded prices is a general suggestion, though I don't know if that's always true. Avoid frequent price promotions. I think this is a big one. And it's very tempting. i Whenever you want to sell more of a product, like what kind of promotion should we run? Oh, we should like discount the price.
00:15:30
Speaker
That's not the only option. Like the one I gave kind of earlier is you can add a bonus instead. um You can do things like that that don't necessarily involve always doing discounts. I think that's kind of like the lazy way to promote stuff and not the ideal way if you want to maintain a premium image. Reduce price visibility, depending on how expensive your product is. Like if you have a discount product, you imagine you're kind of screaming the price, it's only $3 at the top versus if you have a more premium option, that sort of price display is likely going to be a little more subdued.
00:16:01
Speaker
And then they also kind of mentioned rewarding customer loyalty. This is straight out of one of those guys' books. So I guess he considers this part of premium. um And then last one is luxury, which most of us are not in this part. Who thinks they have a luxury brand?
00:16:16
Speaker
Nobody really, yeah. So most of us selling consumer products are kind of premium. Luxury is a different animal. um At some point in life, we was we were kind of trying to, maybe a couple years ago, we were like, is this a premium brand or a luxury brand? And I was like talking to Charles, I was like, based on my current understanding, it's like, I don't think we're like a luxury brand. It's like a totally different thing.
00:16:32
Speaker
um And basically this is some of stuff that I kind of ah extrapolated from other resources, but you know value proposition for luxury is our products show you are the best. It's like a signaling effect. It's like by buying this thing like now you're a cooler person like you got the Ferrari instead of the Honda Civic or whatever.
00:16:51
Speaker
It's kind of a signaling effect of the product. Operations, highest quality standards and everything. I mean this is when it's done well. It's it's not just BS branding. It's literally you're trying to go as high quality as possible and everything that you do and the and and all the ingredients that go into the product and everything else.
00:17:06
Speaker
um High prices, pricing goals, high prices are signaling a higher quality. And then as far as tactics, limited editions, strict volume and market share limits, strictly avoiding discounts and special offers. um This is not necessarily the brand, but if you ever wanted to go this route in the future, I mean, there's great brands out there. And I'll give an example here in a second, I think. um So this is Hermes. Oh, we got our person from France. Yeah. How am I pronouncing it right?
00:17:35
Speaker
There we go. But you'll see like their pricing. Their pricing is very sort of subdued. They're kind of bearing it down at the bottom, kind of rounded pricing. They're not making a big deal out of it. And so this is an example of a luxury brand, which is not the case for most of us. So that's the second one. So value-based pricing, making sure you kind of know where you're compared to everyone else. Positioning, know your positioning in the market and what that means for sort of how you run your business, how you price your products, how you do discounts or or don't do discounts.
00:18:04
Speaker
And then the next one is versioning. And so William Poundstone in Priceless says, optimizing pricing generally means making it more complicated. So this is kind of the the truth of this thing, is it's a lot of times, like I don't know for me, because I kind of like simplicity in certain things, a lot of times you just want things, just one price, here you go, never a discount, never anything like that. But in general, based on a lot of the research, if you want to maximize the amount of profits you make in sales,
00:18:28
Speaker
maximizing um your pricing and sales usually means making your pricing a little more complicated. It's usually not just a black or white kind of answer. And so this example from that same book. but This movie cinema ah was going to do free loyalty cards. And the free loyalty cards basically meant that the first time you bought a movie ticket in a month, it'd be you know a higher price. The second one you bought is a little bit lower price. And the third one is even cheaper. So they could have just said, your movie ticket's $15. But instead, it is a somewhat complicated sort of scheme. And what ended up happening is their number of tickets sold went up 22%. Their average price per ticket went up 11%. And their profits went up 37%. So this is an example of like,
00:19:08
Speaker
Maybe having the optimal pricing isn't in a matter of is is it twenty five bucks or twenty seven dollars sometime it can be a little bit more complicated and that's the idea of versioning and so a typical way to do this is to have a good better best option and we're also gonna go through this in the pricing workshop and so Matt our Apple does this stuff all the time so if you go and look at like a a laptop from them they'll be 13 inch for a thousand bucks or m2 chip thousand bucks m3 chip you know 1100 bigger laptop 1300 so good better best and so for all of us this is a thing where it may require literally creating a new version of your product which is not necessarily a thing you're going to have done by monday um but when in doubt you should be considering having
00:19:51
Speaker
a good, better, best version of your product. If you're selling a supplement, it could be capsule size or it could be level of ingredients in there. If you're selling a capsule filler like Derek, like I've been telling him for a year, you should have a more premium version of your capsule filler, but it's probably going to maximize profits for you. I'll give you an example here in a second. Apple Watch, same deal, good, better, best, um different options for people to choose from.
00:20:13
Speaker
So sometimes it's not that simple. You don't literally just have to have three options. Like King's for charcoal, which is an example given in one of the books. If you want to buy some charcoal briquettes from them, you've got original match slide, high heat, low and slow, professional, natural hardwood, easy light bag, cherry wood and more, 18 total versions if you would go to their site. So this is making pricing more complicated, but it's like the amount of work to create this brand, to create the first version of the product is like this amount. And the amount to create each one of these new versions is like this amount.
00:20:43
Speaker
But it's now allowing you to reach all kinds of different audience. Maybe somebody likes this natural idea. Maybe if somebody is like a professional, runs a barbecue shop or or does competitions or something. Maybe people want different flavors. um There's all different options here. ah Versioning basically the same product to appeal to different audiences.
00:21:01
Speaker
another way to kind of take your business and you see all the biggest businesses on the planet. So we we all see this stuff all the time, but a lot of times we don't really know what's happening. We've probably seen all these and we never really thought about it. You're like, that's a lot of different versions of the same product. Maybe all you care about is one. But then you're realizing that that's the only one you care about, but who's buying these other ones? And right now it could be all these other customers that you're missing because you don't have this version of your product.
00:21:24
Speaker
which this is probably a lot of easier than creating a whole new products because a lot of times we want to create totally new different products where maybe we'll get more mileage out of just creating new versions of our current product. So a general sort of pricing rule, this is not sort of hard and fast rule, but is to price your good, better, best at the ratio of three, five, 15. So for example, like say your product right now sells for 20 bucks. That means you could have a low end of the one that sells for $12, taking this three, five, 15 ratio, and a higher end one that sells for $60. So basically your middle one times three. So this would be an option. So then your three pricing options would be 12, 20, 60.
00:22:04
Speaker
So then now you have a premium version, you have a lower end version, you have this one. And so now you're appealing to the biggest audience possible. This one maybe removes some features, this one adds some features. Because I know sometimes like you're buying a product and like you're like, I don't want to waste my time researching, at least I do. I'm just going to buy the most expensive one I can find.
00:22:20
Speaker
And so if it's like, you know, the difference of like a $20 product versus a $40 product, it's like, who cares? Like, I don't wanna spend time researching this thing. ah So you're gonna have people out there like that. um Then you're gonna have people that are kind of like, maybe you're competing against, like I was telling somebody, I can't remember, maybe it was Miguel. um I think you were competing against some other people selling supplements at like a cheaper price or lower capsule count. And it's like, it's not a lot of work for you to create that lower capsule count. I know there's some mechanics of Amazon and how you show up and that kind of thing.
00:22:46
Speaker
But it's not a bad thing to consider to also having a lower capsule count yourself, because everyone else's product may seem cheaper just because of the raw number, even though the price per capsule may be identical. But if you don't have this, all of a sudden that other person is getting all those sales. And so this is kind of an idea of the good, better, best ratio um as a starting point. And so and this is what this person says about versioning. This is the same guy. And this is probably the best pricing book that I think I read, by the way, if you ever want to dig deeper into this art of pricing. This was probably my favorite. I mean, I have quoted this guy a lot because I read nine of these things, and I think these guys were the best by the far. by far um And so he says, the key to horizontal versioning is to offer attributes that tweak a product to meet the needs of new customers. So it's like, OK, we got our current product now. How can we tweak this to meet the needs of different customers? But it's basically still the same exact product.
00:23:35
Speaker
um For example, you mentioned your lanterns, I don't know, your headlamps. And so you could have a version for people that are specifically using it for mechanic stuff, working on their cars. And it's basically the same thing, just slightly tweaked a little bit different. People that are using it specifically for actual camping and anything like that. So, same deal.
00:23:56
Speaker
And so another option for this is this is Bark, $500 million dollars company. Another option for versioning is just a bigger bag, um bigger size, bigger quantity. That's one version for you, people that want to stock up. um Also another versioning is having bundles. And so these people offer, however many it is, nine of those, three of them, two of these. And so that's another option of versioning, just giving people more ways to purchase from you without you having to reinvent the wheel with new products every time.
00:24:23
Speaker
So we've talked about value-based pricing, seeing how you compare to everyone else, positioning, are you discount premium or luxury, and then also versioning, taking your same products and creating different versions to appeal to more people.
00:24:34
Speaker
um And the next one is differential pricing. So Southwest years ago, I think this was like 2007 or eight or something, you know, Southwest, like there's no first class, it's all the same seat. And so years ago, they were like, hmm, they're like, how do we make more money? Because I think maybe this was around 2008. So I think the financial crisis was probably hurting them a little bit. And they decided like, what happens if we offer this business select thing?
00:24:55
Speaker
And then all of a sudden business select in the first year, I think does like a hundred million dollars in sales where they basically said, Hey, we're going to let you people board a little bit early and we're going to give you these first, you know, 20 seats or so. And you pay, you know, four times as much, but it's the same frequency. Like you're still sitting in the same seat as everyone else. Except you get on a little bit early, um, you could pick your seat. And so they did like a hundred million dollars in sales in the first year and it was like 80% profit margin. So like, cause it's the same seat. It doesn't cost them anything else other than maybe a little bit of logistics and maybe some marketing budget. But then it was basically 80% profit margin.
00:25:25
Speaker
And so for them, that was their versioning of differential pricing, basically charging a different price for the same exact product. And we'll talk about how to do that. And so different customers value the same product differently. One of the examples given in one of these books is like, imagine you and a friend are like sitting on a beach. And it's really hot outside and you're like, man, I wish I had a beer. And so there's like this dingy little gas station across the street. And it's like, how much would you pay for a beer from there? as You can walk over, buy one and then bring it back. Maybe a couple bucks, three bucks, something like that. And then imagine like same exact beach, same exact desire to drink a beer, but then there's this really premium luxury resort right there. And that's where you have to go get your beer from. How much are you gonna pay there? Nine bucks, 10 bucks or whatever. Same exact beer, same exact situation.
00:26:06
Speaker
But it depends on the context what you're actually charging for the product. So that's this idea of differential pricing. And so one way to kind of maintain a premium brand but still be able to appeal to as many people as possible, kind of like that semi-fancy restaurant with a chicken dish, they're like, OK, we don't want to charge everyone $30 for this chicken dish. And so what if we have a happy hour? Or what if we have an early bird sort of discount? And so it's literally the same dish, but now they're appealing to potentially older people that want to eat earlier that maybe have less income.
00:26:33
Speaker
or they're appealing to people that maybe don't need the full experience of sitting at a table, they're just sitting at a bar having their meal. And so one way to do it is to make customers jump over hurdles to get discounts, such as we all do this kind of thing, but a limited time window to do get a discount, like the whole Sephora thing. If they were running like a 20% off discount the whole year, it would degrade the quality of the brand. But if they're like only this time of the year, only for these seven days, then it's like, okay, like I understand, like that's the only time you can get a discount, still maintaining premium image.
00:27:01
Speaker
Another way to do it, off-peak prices, coupons, end of the season sales. So always having a reason to run a discount, though I think sometimes like we probably go a little too far with this and kind of do degrade the premium brand image. But having reasons to run discounts, also quantity discounts, people are okay with. like If you make somebody order 12 units of something to get a great price, I don't think the people that bought one unit are going to complain about that. It's like, okay, that's not really degrading your premium image, it's just requiring people to jump over this hurdle if they really want a discount.
00:27:30
Speaker
also only for certain groups such as we see this all the time and we don't get upset about this like you can go to Home Depot any day and save you know 10 percent i think on pretty much everything you buy if you were past military but everyone else is not past military is not upset and they're not throwing a fit because they're like okay i'm not part of this special group um so this is another way military first responders students senior citizens anything like this. Maybe if you have a business hiard health oriented, maybe if you can somehow qualify that there's some sort of medical professional, they can get a discount. Everyone else doesn't get upset about this. So it allows you to appeal to more people without degrading the quality of your brand.
00:28:07
Speaker
Loyal customers is another one. If you've been with us for so amount of time, you get better prices. Like that's probably okay too. And Roman, who's going to be talking on Thursday, he has this thing in here. So his brand, you know, kind of sort of survival oriented. So him saying they support military and first responders is kind of aligned with a brand, but it's also a way to give discounts without really giving discounts. Cause it's only for this special group. So this kind of appeals to your brand at all. I mean, like John, like maybe this is a thing for you. It's kind of like selling a, uh, Fighting or self-defense sort of brand like maybe this would appeal and I think the same GovX ID thing works for teachers as well And so if you feel like giving a discount to teachers, this is another way So you're sort of appealing to this audience where it's like we got this super premium product, but not everyone can afford it We don't want to cheapen our brand but this is a way to give discounts to people and so you are kind of able to
00:28:55
Speaker
ah broaden your audience without cheapening it for everyone else. And I think I mentioned this in here. Oh yeah, so right here. So make sure that discounted sales don't block purchases from those that are willing to pay full price. I think this is a habit. I know, I think I literally, it's in the course I think y'all have, that was like, if somebody goes to your Shopify store, just start giving them discounts. Like get their email, start giving them discounts.
00:29:16
Speaker
The downside to that is that you're probably giving a lot of discounts to people that you didn't have to give a discount to. They would have bought anyways. Like I'm looking for discounts on Rogue Fitness because we just sort of equipped a new home gym. But I'm going to buy anyways. Like if I found the discount, great, I'm going to use it. If I don't find the discount, I'm still going to buy the thing. So I'd be the kind of customer for that business. But if they could find out a way to not give me a discount, then they're going to make more money off of me. And so I think for us, it's like we're trying to figure out how to do that. Like how do we sort of pull these people out um Either by delaying giving them a discount or making them jump over a hurdle or something that we're sort of maximizing our profitability by not giving discounts to people we don't have to give discounts to because they're gonna buy anyways. One thing that I mentioned to a few people I think over the last six months is that in Shopify, like how many of y'all have looked at your coupon report recently in Shopify to see how many people are using coupons? Not a ton.
00:30:09
Speaker
Yeah, so what you'll find is that you'll have these coupons on your site and you're probably getting more people using them than, even if they require you to give them their email address, more people using them than people are actually signing up for your email list. It's because all these sites out there, like the Honey app, the Capital One,
00:30:26
Speaker
they're scraping all these coupons and then like I go to a store and I always do on the computer because I don't think it really works on the phone. So if I want to buy something from a Shopify store, I'll do it on the computer and then as soon as I get to the checkout, the little Capital One thing starts firing and starts giving me free money off. I haven't given an email, I haven't been a loyal customer, I haven't done anything for them.
00:30:44
Speaker
And it's a bit of an issue and there's not necessarily a perfect solution for it. I recommend that at some point in Shopify you kind of consider that. um One option is obviously to make things like one-time use only. Another option is to kind of swap out coupon codes fairly regularly so they don't get picked up like that as often.
00:31:01
Speaker
um And I don't know if anybody else has any of their grand solutions. like I've looked through e-commerce blogs and stuff, and it's kind of a little bit of a hard problem to solve. But either way, it's not something that you want to be just giving people free money all the time. Because these apps are picking these things up, and you're kind of giving free money for people that would have paid full price either way.
00:31:17
Speaker
So the last one, proven pricing hacks. So there's a million of these little tricks out there. And these are the ones that I think probably have the best data behind them and can maybe move the needle the easiest. And so easy one that we talked about before is incrementally raising prices. So I gave the example of Warren Buffett and his business partner, Charlie Munger. They bought this company, Seize Candies.
00:31:37
Speaker
decades ago. And so they think they bought it for like $25 million. dollars And Warren Buffen in his businesses, because he owns a holding company and then sort of has all these businesses that they own, including public equities and stuff, but typically it does not really get involved in running these businesses. Maybe a little more on the insurance side, because that's kind of his thing. But in this business, Steve Kandy's, the only role that he had was basically every December, he would sit down and say like, okay, like, you know, I think the guy's name was like Chuck Huggins or something like that. Like that guy would be running the business. He's like, I'm going to sit down every December and I'm going to tell you what to price the chocolate at for the next year.
00:32:07
Speaker
That was literally his only job in the whole business. And every year, you know, inflation is going up two or three percent. He's bumping prices up five to 10 percent. And every single year, he's like, people keep buying this thing like it's not affecting volume. And so that's basically all he did for a few decades. And this business has returned billions of dollars to them.
00:32:22
Speaker
in cash flow, and all they did was raise prices. Like the total volume of chocolate that they've sold hasn't increased a ton. All they did was incrementally increase prices every single year, which a lot of us don't. We kind of do it whenever we feel like we have to, but we don't systematically, maybe each year bumping prices by five to 10%. We feel like we can't. um So this is typically the easiest one. I mean, this is one that Reggie saw that if you can find out, and it's not gonna work all the time for everybody, but if you right now just bumped up your prices by 5%, 2%, 3%,
00:32:50
Speaker
And if you found that, you know, zero change in volume over the next couple of months, it's free money. And that's a change you can make in seconds. And we've done it on the shipping side, and I've given some people that advice. Like on Shopify, I think we used to charge like $4.95 for shipping. We bumped it up to $6.95, $7.95, $8.95, and it's somewhere around there now. No difference whatsoever that we could tell.
00:33:10
Speaker
A little bit hard to kind of split test, um but we saw no difference whatsoever. And then that was literally thousands of dollars a month on free money that if you were to time me and Shopify would take me all of like 45 seconds to go change. Free money. That's what I like. And so incrementally raising prices is one and it applies to shipping, it applies to product costs, it applies to anywhere else where you have prices. um This is an obvious one that a lot of us know, but it's ending in nines.
00:33:34
Speaker
left dig Left digit effect. It's a one option if you had a flat price of $40 instead pricing at $39.99 tends to be I guess what they've kind of determined psychologically is people because they read from left to right at least in a lot of the world that they start seeing the three instead of the four and that's why it's sort of in your favor. Interesting thing about this is I came from the dumb internet marketing world where everyone ends prices in sevens for no reason. There's supposedly some people way back in the day, the gods of internet marketing who determine sevens are better than nines. But in general, based on everything that I read, that's useless advice. Like you're basically just giving up two extra dollars or two extra pennies for no reason. There seems to be, from what I read, zero difference in a nine or a seven at the end.
00:34:17
Speaker
And so, if you have a price that's somewhere around there, and then you end it in a nine instead of a seven, there's a good chance it'll make, based on what I read, no difference except you make more money. And so, that's another easy one. Oh yeah? What did you learn? Ended in a seven? Oh, and now you're learning the nines. Advanced pricing. Same thing, 37 versus 39 dollars.
00:34:42
Speaker
Anchor with specific higher numbers or prices. So we've all, or most of us, if you studied any sort of copywriting or you paid attention to anything that I've said over the past couple years, anchoring is a big deal. But the interesting thing is, is that it applies even to non-financial stuff. If you tell people like,
00:34:58
Speaker
Hey, you know, normally people charge like $700 for this thing, you can get it for $39. Like that's a way of anchoring. um Another thing is you can literally use any number that has nothing to do with the price whatsoever. So they've done some studies where these people are basically, I think it was students, they were kind of ah bidding on like a keyboard and some chocolates and stuff like that. But all they had them do was write down the last two digits of their social security number before they bid on the thing.
00:35:21
Speaker
And what they found was that if they looked at the people with the last two digits of the social security number, like the highest numbers, such as like 99, and compared them to the ones with the lowest last two digits, such as like 01 or 10 or something, that the people who had the higher social security numbers were willing to pay double for these products. Bid twice as much, just because they had this psychological anchor in their mind. So we use this stuff now, like everywhere we possibly can. Yeah.
00:35:47
Speaker
Yeah, there you go. And so um if you can anchor a higher price somewhere or another, comparing your product to something else, like that's fine. But according to the research, it doesn't hurt you to say that like right before you show your price, like hey, we've had 38,000 customers. So now they've got this big number in their head, and it's going to make whatever price you present look lower.
00:36:06
Speaker
is the stupidest thing on the planet, but there's been experiment after experiment after experiment that basically show the same exact thing. Ideally, you're able to say like some financial number is higher than it makes your thing look cheaper. That's another way to go, ideally. But it's literally, according to the data, like you put any number next to it and it's going to work good. ah So to give you an example, um William Sonoma was selling this bread maker for $279 and they were kind of struggling, wasn't selling a lot. So what they did is they introduced, this is perfect for you, Derek, introduced a premium bread maker for $429. So now they have two options. They have a premium one and they have their basic one. What happened was is that the premium one, nobody wanted to buy it, but of the original one, the sales double.
00:36:50
Speaker
because now it looks cheaper. Now every time they're looking at this bread maker, they're like, ah, the bread maker looks a little expensive, but they're like, wait, it's not that expensive, because there's this $400 one. So maybe $279 for a bread maker is not that bad. And so this is another advantage. Like if you have a premium one, you may be able to upsell it to customers, but it could also just serve as an anchor. You don't have to go and get a ton of inventory or anything like that. um You could possibly get no inventory and just say that like, oh yeah, if somebody actually buys one, we'll figure out how to make it. Like that's up to you.
00:37:18
Speaker
But ah having a premium one does serve a purpose. I mean, I think ideally you literally make some people, or you ask some people to upgrade from here to here, and that's probably going to be your best bet. But if nothing else, it can serve as an anchor to get people to buy more of your current product.
00:37:32
Speaker
I think I have an example of this. So use the greater raw number off of a percentage or dollar off. And so a lot of times we're trying to decide, like do you say that it's like 20% off or $20 off? like How do you decide? Is it a dollar off or percentage off? According to the research, if it's less than $100, give a percentage off. If it's greater than $100, give a dollar amount off.
00:37:51
Speaker
The reason is because it's just a greater raw number. And so an example is if it's $17 at 30% off, or you could say $5 off. Mathematically, the discount's the same. 30% off seems bigger. That's going to be the better route to go. Or if you're selling a $150 product, you could say it's 20% off, or you could say it's $30 off. Mathematically, same thing. $30 off is likely going to produce more sales. So most of us are selling, unless you're selling a big bundle of something, most of us are selling products at less than $100. So most of us should likely be using percentage off discounts.
00:38:23
Speaker
could also modify your price formatting. So a bad example would be this one on the left, because people typically leave from left and right. So the $60, like your retail price, this is you know standard stuff, but in case you have any of these mistakes happening on your site, something to look at, um people are anchoring on the left. And so having that anchor price be higher, and then having the discount price, especially if you can end it at a nine, better. Making the currency symbols a little bit smaller, better.
00:38:48
Speaker
Potentially putting the price as long as it doesn't screw up your whole branding. In red, also potentially better. These are like a few different best practices of modifying your price formatting. And it's kind of weird because we kind of see this stuff subjectively, at least at least when I started playing around with this. Like, hey, it does feel a little bit cheaper if you make the currency symbol a little bit smaller. Weird little changes, but these are all based on all these little tests and experiments people have done.
00:39:12
Speaker
phase out discounts and increments. This is a big one that I don't hear a lot of people talk about. So most of the promotions we run are like, say it's 20% off. We're like, all right, 20% off these two or three days, and then all of a sudden the discount's gone. There's no more discount anymore.
00:39:27
Speaker
Apparently some of these studies have shown that phasing it out and I kind of did my own interpretation of here It ends up being a longer promotion which could skew the results, but that's okay But in general, they're just talking about phasing out promotions producing better results and I think it's because Who knows what psychological drivers, maybe some element of scarcity, the fear of missing out or something. And so if you're like, okay, it's 20% off, all right, fine. Like you missed out, but it's 15% off now. And then people do this on concert prices all the time. And then it's like, okay, you know, you missed out on that, but it's still get every 10% off. This tends to produce a lot more sales than just saying, here's the discount and now it's gone. So you could try this on your next promotion. It's not gonna hurt you. It gives you mix something up or nothing else, but try running a promotion like this, rather than than just saying, here's the discount, here it's gone, phase it out over time.
00:40:11
Speaker
and you'll probably produce more sales.
00:40:16
Speaker
And so on the handbook on the psychology of pricing, researchers confirmed that steadily decreasing discounts, what we just talked about, generated 29% higher revenues and 44% higher profits compared with average high-low pricing, which is like discount here and now it's gone. 29% higher revenues, 44% higher profits, just from like, it takes like no extra work. This is also just kind of free money.
00:40:40
Speaker
And they also say never bundle expensive and inexpensive items. So if you had a super premium sort of thing and you have like some little piece of garbage that you charge $5 for, you probably don't want to bundle those two, as according to the research. They say when bundling an expensive and inexpensive item, consumers' willingness to pay for the whole bundle was on average 25% below their willingness to pay for the expensive item when it was sort of evaluated by itself.
00:41:02
Speaker
And so this is something to consider if you're bundling like really premium stuff with like less expensive stuff, maybe not the best idea. um Maybe you can give it away for free. I think that seems to work OK. But if it's like trying to put them together, according to this research, not the best idea. Also, sorting prices into sending order.
00:41:19
Speaker
This is one kind of, I think also related to the anchoring effect. They gave the example of like some brewery, they're doing all this price testing and they're like, what happens if we sort the beers this way? What if we sort them this way? What if we mix them up? And what they found out is that like option one would be like lowest price, medium, et cetera. Option B.
00:41:34
Speaker
um start with the highest price one and then go down from there, this one produces more sales. And so I would recommend like on Shopify, or I don't know, maybe there's an Amazon equivalent here, but especially on Shopify, if you can modify your like catalog pages and stuff, so you can include some of your more expensive items at top, because you can do like a manual sort there, which I'm sure a lot of you are probably using now. You can do a catalog there where you can have some of your more expensive items mixed in there, either bundles, or if you have a premium version, like anchor those in there, and it's probably gonna produce so more sales.
00:42:05
Speaker
So this is an example of Hermes. And so if you were to look at their top three products, I remember which category I was looking at, but the average price of the top three products was $2,400. The average price of the next five products was $1,400. So whether they're doing this intentionally or not, this seems to be the right way to do it. So people are like, oh man, this stuff's super expensive. And they're like, oh wait, this $930 little dress thing is not so bad. It's better than spending $2,500 for a piece of cloth. um So yeah, so this is a good approach to use.
00:42:35
Speaker
Here's a price decoy. So a lot of y'all may have heard of this example before, but I still think it's just as relevant as ever. We've proven this out even with doing some pricing stuff on ZOOF, like it definitely works. so And so at first they gave the options of like, you can get a digital subscription for $59, you can get a print only subscription for $125, or you can get a digital plus print subscription for $125. So these are obviously obviously the same exact price, and this one includes digital plus the print, whereas this one only includes the print. So this is a terrible deal.
00:43:03
Speaker
And so what happened was, when they did this, is that 16% of people chose digital, 0% chose the print only, because they weren't stupid, and then 84% chose the digital plus the print, which gives you an average order value of $114. Then what happened was, is they tried getting rid of the print only option, so it's like, okay, you got digital plus print, and digital subscription, which remember, nobody chose this anyway, so like what does it matter? And when they did this, 68% chose the digital subscription,
00:43:30
Speaker
32% chose the digital plus print subscription giving an average order value of $80. So this idea of a decoy offer, and we've tested it ourselves, it does work. It's like if you come up with an option, it seems so stupid, but you come up with an option that's clearly not attractive at all, that can sometimes skew people's purchasing behavior into an option that you really want them to choose. um So something also to consider.
00:43:52
Speaker
A few takeaways. so By using a lot of these strategies, we're which we're about to do a little workshop on, by using a lot of these strategies, i mean you can increase profits basically immediately. i mean The best way to make more money is if you can raise prices without affecting volume of sales.
00:44:08
Speaker
or any sort of long-term branding impact. but Most of us are not in the discount business, so I think our long-term branding impact is probably gonna be fairly minimal. We're selling premium prices anyways, but sometimes the setup can be a little more complicated than just raising prices, but this stuff is ways you can start making money immediately. This same author that have quoted a bunch says, at minimum, who here has a product that's selling well but you're kind of like running out of inventory on? All right, so we got two.
00:44:36
Speaker
says that prices for those products that you can't keep on the shelf should go up on Monday morning. I mean, we kind of do this stuff on Amazon. like Who here raises prices when they're running out of stock on Amazon? Why don't you do it, Miguel? You scared? Oh, you don't run out of stock? If you were to ever run out of stock, it seems to be a good way to go. I know there is some concern about like some weird things happening with Amazon and then being upset about it, but in general, it seems to be the way to go.
00:45:02
Speaker
Uh, so, so kind of recap before we get into the workshop. Five proven pricing practices to increase profits. Uh, value-based pricing, positioning, versioning, differential pricing, and pricing hacks. Now, let's make you some more money.