Do you see that Pricing Grid right there?
What you see is a Strategic Pricing Grid that I developed for a Private Client this week after a call we had together designing a new offer for his business…
(I’ll explain what all the annotations refer to in a moment…)
And while it might seem like the numbers you see above are somewhat arbitrary…
As you’re going to see in just a moment…
Every single one of those numbers was chosen strategically…
Every single one of those numbers has a relationship with the others.
And the specific pricing gap between each one?
Is intentional.
And because so many of the lessons contained within this grid are universally applicable…
(And which may be helpful for YOU as you examine and reflect on the pricing strategy you have in place currently in your business…)
I thought we’d mix things up a bit in this week’s issue of The Digital Contrarian…
And dissect this client’s pricing matrix in detail.
Beginning with some of the most misunderstood…
1 | Psychological Pricing Principles.
Imagine this:
You have a potential customer on the verge of making a purchasing decision.
They’re balancing value and cost…
Weighing alternatives…
They’re considering how they’re going to justify their purchase decision to their spouse (or business partner…)
And most importantly – to themselves.
But then, they pause…
Because they’re confused…
And the sale that just a moment ago you felt so confident was going to close…
Is now suddenly at risk…
* * *
First, when we think about “pricing strategy”, the thought (for most people) most often evokes numbers…
But instead, it should evoke words…
Because more than anything else – a well-designed pricing strategy should tell a story…
It’s a language in and of itself.
It should overcome objections…
Provide purchase justification…
It should steer the conversation in your prospect’s mind…
And guide the actual conversation you have with your buyer…
(And if it’s well-designed, it can not only radically increase your sales conversion rate – but it also helps direct the buyer to the option that’s going to best serve them and which is in their best interest.)
In other words:
A well-designed pricing strategy not only helps you better sell…
But also better serve…
Let’s take a look at a few key principles in the following example…
2 | The Problem with Most Pricing Strategy...
Now just for some quick context:
The Private Client I mentioned earlier is currently doing in his business approximately $300K/mo in revenue, and we’re looking to get that to $500K/mo within the next year…
(As an aside – I work with clients who are both significantly below and significantly above this revenue level, and the principles we’re going to explore are universal.)
Now, the pricing matrix I shared above is for a monthly service subscription in the health & wellness space – which includes a menu of deliverables that he’s looking to start offering this year…
Prior to our call, he came to me with a pricing strategy that looked a little something like this:
First, the good:
- This is a typical “Good, Better, Best” pricing menu that you will often see so many coaches, consultants, professionals, and service providers utilize.
- And offering multiple pricing options like this is almost always better than a “take it or leave it” single choice.
As you probably already know, the reason why it’s almost always better to offer some form of multiple option like this (e.g. “credit card or bank wire?”; “payment plan or pay-in-full?”, etc.)…
…Is because it directs your prospect’s brain toward making a decision between one of those options, “Do you prefer A or B?”, as opposed to evaluating the single choice you offer, and deciding “Would you like to move forward, Yes or No?”
Now, when it comes to pricing strategy specifically, one of the reasons why the juxtaposition of multiple options like this is so important is because:
Price is never evaluated in a vacuum.
Price is only ever evaluated relative to something else. Your buyer’s brain is like a heat-seeking missile, desperately looking for something to compare your price to, in order to evaluate whether your offer represents a good value.
(e.g. $100,000 is neither “expensive” nor “cheap”, until it’s compared to something else. Think: Wristwatch vs. 1,000 Acre Ranch.)
And if you don’t offer one or more (ideally no more than two) alternatives for your buyer’s brain to evaluate – their brain will naturally fill the void by finding something external (read: outside of your control) against which to compare your price.
And generally speaking, you want to control that frame.
And the way you control the frame is by offering multiple options.
* * *
Now, this first draft pricing structure – like many that I often evaluate – is a good start. Here it is again for reference:
It’s rooted in logic…
It follows some of the most basic best practices…
But it lacks the strategic intentionality to really drive sales of his program…
(So this is a cautionary case study in terms of what not to do…)
Instead, let’s talk a bit about what’s missing (and let’s dissect the changes in that “annotated” pricing matrix I shared a bit earlier…)
3 | Reducing Cognitive Load & Guiding Your Buyer to the Best Choice (for them).
Here is the revised pricing matrix again, but this time naked without any annotations.
My first question for you is this:
Which option do you think we’re steering (the majority) of buyers toward in this pricing grid?
Take another look, and I’ll give you the answer in a moment.
.
.
If you guessed the “PLUS” plan, then…
Ding Ding Ding!
You are correct :-)
Let me explain:
Generally speaking – you want to have a “clear and obvious choice” that you steer every given buyer toward.
(You don’t want to make it a “tough choice”.)
Now the nuance to this, is that it should be the clear and obvious choice for them.
(But not necessarily the same “clear and obvious choice” for everybody.)
For example, if we isolate just the bottom line numbers from this matrix (to simplify this exercise), you’ll notice a few key relationships between the different numbers below…
First, the PLUS plan (the middle one) is only $240 more than the BASIC plan (what the brain quickly calculates to be “just a couple hundred bucks more”, or a relatively small difference.)
Whereas in contrast, at over $3,000; the PLATINUM plan (the one on the right) is $1,600 more than PLUS plan (what the brain quickly calculates to be “Woah, that’s more than DOUBLE the cost!”)
Additionally, if you notice the “price thresholds” under (or over) which each of these three bottom line numbers land:
- BASIC, at $1240/month – is intentionally priced below the $1250 threshold.
- PLUS, at $1480/month – is intentionally priced below the $1500 threshold.
- PLATINUM, at $3,080/month – is intentionally priced above the $3,000 threshold.
Because PLUS starts with a “1” and PLAT skips “2” and instead starts with a “3”… it “stretches” the perceived gap between these prices even further than they already are.
At the same time, because “PLUS” is “just a couple hundred bucks more” than BASIC (and importantly, not a full $250), it “shrinks” the perceived gap between these two prices.
(This is a concept I’ve discussed with members of my mastermind we call “Shrinking & Stretching” your price gap.)
And as a result, the PLUS plan (for the majority of buyers) not only appears to be the “clear and obvious choice”…
It’s also the choice that’s most likely in their best interest, and which offers the best value – in most cases.
(More on this in a moment…)
Buyers feel good when they’ve done this level of problem solving calculation. (They feel responsible – as they should, and that they’ve done their homework before making a decision.)
But you’ll notice that we’ve oriented the numbers in such a way that they can do this mental math themselves.
We’ve reduced the cognitive load such that most buyers don’t need to take out a calculator to solve this problem.
(This is important.)
They can figure it out with just the right amount of cognitive effort.
But the nuance to all this, is that the PLUS plan is not for all buyers…
4 | The Delicate Balance of "Threading the Pricing Needle" & Serving Different Segments.
For convenience, here is our “bottom line” pricing matrix once again without any annotation:
In this grid, the BASIC (on the left) and PLATINUM (on the right) plans are not just decoys.
(In case you’re not familiar, “Decoy Pricing” is a strategy wherein you include options that aren’t really there for people to buy, but instead just represent a “decoy” to offer price contrast.)
Instead, in our pricing grid, the BASIC and PLATINUM plans are priced in such a way to both target and serve two (2) additional distinct segments of the market…
Let me explain, beginning with the PLATINUM plan:
As I wrote in [Issue #031] Cultivating Influence vs. Chasing Attention…
“There is a segment of every market that is not nearly as price sensitive as you think. And if you aim to serve that market segment, your biggest risk is actually undercharging for what you do…”
There is going to be a small segment in every market (including your market) that wants your most premium offer.
The most expensive dish on your menu, so to speak…
And they want it, because they want the best.
They’ve got the budget – and often have more money than time – and they don’t want to mess around trying to save a few bucks with one of your lower or middle tier offers…
So it’s important that you price this premium offer in such a way that you can deliver your best.
(For me, for example, this is my Private Client Practice – which effectively gives you unlimited access to me as your private coach and strategic advisor, and which is currently priced at $5K/month.)
Now, in my client’s case, he offers a number of health treatments for his patients/clients. And because of the hard costs associated with delivering these treatments, at the BASIC and PLUS levels, he has to *limit* the number of treatments a client can receive in any given month.
BUT…
At the PLATINUM level – priced in the way that it’s priced – he can offer virtually “unlimited” treatments to clients who choose that plan.
So for clients who have both the use-case and the budget, the PLATINUM option is the “clear and obvious choice” for them.
What about the BASIC plan?
Well, there is another segment of buyers on the opposite end of the spectrum. These are buyers who are currently spending $750 to $1,000 per month on à la carte services in his business at full price.
And because they’re buying these services à la carte, they’re not getting the benefit of the “discount” applied to services bundled within one of these subscription plans.
At the same time, they simply don’t have the budget for the PLUS plan (and certainly not the PLATINUM plan.)
So by pricing the BASIC plan “just a few hundred dollars” more than what they’re already spending – and getting *so much more* value at that price…
Because the other two options are simply “out of budget”, it makes the BASIC plan, the “clear and obvious choice” for buyers in this segment…
Make sense?
Now the “horizontal” relationship between the BASIC, PLUS, and PLATINUM numbers is the first layer to this matrix…
The second layer, is the “vertical” relationship between these numbers…
Which brings us to the next “advanced” psychological pricing principle we’re going to explore…
5 | The "Double Step-Down".
For this one, to help simplify the illustration of this principle, let’s isolate the BASIC plan pricing:
What you see here is what’s known as a “Double Step-Down”.
There is not just one – but instead two – price drops relative to the “Regular Price”, which you’re going to see how – when combined in tandem with one another – simultaneously a.) give people a reason to buy now, b.) overcome one of the biggest objections to buying, and c.) make buyers feel good about their purchase…
Let’s begin with the first of the two step-downs:
The $500 “New Client” Discount.
First, you’ll notice there is a reason for this discount.
(It’s specifically for new clients.)
And even though it applies to virtually everyone signing up for this service – it both gives you (as the business owner) the narrative explanation to give to your client as well as the rationalization in their brain for why the discount is being offered.
The conversation might go like this:
“Normally, the regular price for this plan is $2,050/month – but because you would be considered a “new client” – this month, we’re currently offering a $500 monthly discount (which would apply going forward each month), which takes things down to just $1,550/month.”
Now, pausing here for just a moment:
Notice how the regular price starts with a “2” and the “New Client” price not only starts with a “1”, but is effectively priced in such a way that the brain “rounds” the number down to just $1500 bucks.”
That’s the first step-down.
And it effectively gives people a reason to buy now (the discount is being offered this month, but not necessarily forever).
Next up we have:
The Subsequent 20% “Cash Pay” Discount.
One of the biggest objections my client faces is the fact that traditional health insurance often doesn’t cover the treatment protocols he provides to his clients/patients.
And this is incredibly frustrating to buyers and it introduces purchase friction.
This is where the “Cash Pay” discount comes into play.
Here, the conversation goes like this:
“So the $500 discount takes things down to just $1,550/month. But let me ask you this: Are you paying through insurance or are you cash pay? The reason why I ask is because if you are cash pay, we offer an additional 20% discount, which would take things from $2,050 to just $1,240 per month.”
Now, pausing here for just a moment:
The brain hears and looks at these numbers and thinks, gosh – between the $500 New Client Discount and now the 20% Cash Pay Discount on top of that, that’s almost half the regular price.
And while it’s annoying that my insurance won’t cover this, the fact that you offer a Cash Pay discount specifically – both softens the blow and puts us on the same side by creating a common enemy (“those damn insurance companies!”)
And here’s the important part…
With the combination of all these things, as a buyer, I now feel good about making this purchase.
Side Note: You should always pay close attention to your own reactions as a buyer and as a consumer. For example, the Cash Pay idea came to me after a recent experience a few weeks ago at a local dentist that did not offer a cash pay discount to their patients…
I overheard a conversation at the front desk, and I could hear how frustrated this patient was, and I thought to myself: This is a massive missed opportunity for this business…
And BTW – While this “Cash Pay” idea might not apply to your business or industry, that’s not the point. Instead, in terms of how to apply the principle behind this idea in your business, ask yourself:
“What’s a big objection or frustration your buyer has at the time of purchase, and how might you address that head on?”
(e.g. Is it a pain for your buyer to switch from their current provider to you? Offer a 20% “Switching Discount” to offset the trouble. You create a common enemy (the current provider, who presumably is not adequately delivering for them) and demonstrate your empathy and understanding for how much of a hassle it is to switch, while putting you both “on the same side.”)
Now, there’s one final piece to this puzzle, and that’s this…
6 | The Justification Narrative. The Single Most Important Conversation.
There is still one final pricing hurdle to pass…
You can think about this one as the final boss :-)
And that final hurdle is this:
The conversation that the buyer will eventually have with either a co-decision maker (like their spouse or business partner) or a key person of influence in their life (which can be their friend, business advisor, or even their therapist…)
A conversation where they rationalize the purchase to somebody else, and demonstrate that they made a wise decision.
Because as I wrote about in [Issue #013] How Alex Hormozi Lost My Trust (A Cautionary Tale for Personal Brands).
One of the most impactful things I learned from the brilliant copywriter Ray Edwards:
“People are more afraid of looking foolish than losing money.”
So, at the time of purchase – whether or not the buyer needs to “ask for permission” to make the purchase or not…
They are going to be playing out a conversation in their mind with that co-decision maker, or person of influence in their life.
And your Pricing Strategy needs to provide the “Justification Narrative” for your buyer to look like a smart and savvy consumer in the eyes of their spouse, business partner, friend, or whomever…
So with our Pricing Matrix above, here’s how this conversation might actually play out (for this example, we’ll pretend the conversation is with the buyer’s spouse.)
“Hi honey, so I decided to sign up for something today. You know that health thing I’ve been doing? Yeah I decided to sign up for a monthly plan.”
“Normally their plans are priced starting at $2,000 dollars a month, and I think they go up to over $4,000 dollars a month.”
“I went with one of their middle plans, because it offers the best value. It’s only $200 more than the lowest price plan – but you get a ton more with it.”
“I ended up signing up today specifically because they were running a special this month for new clients, where you save $500 a month every single month. And then on top of that, because this is one of those things that insurance doesn’t cover, they offer a 20% discount for Cash Pay.”
“So all said and done, even with the discounts – their most expensive plan is over $3,000 bucks a month. The cheapest plan is around $1,200 a month… and the one that I signed up for, the middle one, is only like $200 bucks more. So it was a really great deal.”
See how this pricing grid provides the “Justification Narrative” for this purchase?
7 | Final Thoughts & (Potential) Next Steps.
Now, is a “three option” pricing strategy like this the only way to position your offer or offers in your business?
Of course not.
I have Private Clients (and members of my Strategic Advisory Group Mastermind) with strategic pricing models using a number of different frameworks.
(What we explored here today is just one example…)
Now the way…
Speaking of my Strategy Advisory Group Mastermind…
(This is my inner circle group that meets virtually several times each month, and which starts at $1K/month to become a member…)
Quick Heads Up:
Last month, I was planning on opening 2-3 more spots in the mastermind, but they were preemptively filled by really great interested candidates who reached out to me privately over the last few weeks…
One is a long-time subscriber, who had been following my work dating back to my time working with Glenn Livingston, PhD (more than a decade ago…) who is making a public re-entry into social media with a new project, after taking some time away over the last year to focus on her health…
One is a friend of mine, whom I met through the Front Row Dads community. He’s now working on a new venture to supplement (and eventually potentially replace) the income from a primary engagement that currently takes the majority of his time.
And the third one is actually a long-time member of my team, who along the way, “on the side” has built successful business of his own, by applying my teachings.
In fact, you can see his revenue progression from the last year (which he gave me permission to share with you):
Now, the reason why I’m mentioning this – is because early next week I am going to sending an email opening 2 more spots into this mastermind (my virtual, inner-circle group…)
I expect them to go quickly.
BUT, if you were interested in one of those spots – I’d be open to considering making one (or potentially both) of these spots available preemptively before the public invitation goes out.
All to say…
If you are interested in being considered for one of these two spots, working more closely with me, and potentially becoming a client and part of my group…
Here are the next steps:
- Shoot me an email and put the word MASTERMIND (in all caps) at the beginning of the subject line so it gets my attention.
- Tell me a little about your business – Share your website/social media links. Tell me what you sell and the market you serve. Tell me roughly where you are revenue-wise (or if this is a new venture), along with what your goals are for the year, and why you’d like to work together and be part of this group?
- Tell me why you think you’d be a great addition to the mastermind (I’m only opening 2 spots, so fit is important to me). What about the ethos of what I’ve been writing about here in The Digital Contrarian over the last few months resonates with you?
I’ll be considering spots on a first-come, first-serve basis – so if you do have an interest – send me an email with answers to the questions above this weekend.
In response back to your email, I’ll reply with my thoughts – and if I think it’s potentially a good fit – I’ll explain exactly how the mastermind works, how things are structured, and the three (3) options (which start at $1K/month) for working together in the group.
Okay, I’ll leave you with that for now…
I’ll wrap today’s issue with this:
I hope today’s somewhat different issue given you some ideas to think about when it comes to your own pricing strategy this year.
The most important takeaway I want to leave you with is this:
Pricing Strategy is far more than a tool for profitability.
It’s a language that conveys a story:
It communicates value, builds trust, and when well-crafted – it guides the decision-making process for your buyers…
What story does your pricing strategy tell?
* * *
Remember to hug the ones you love…
And until next week,
Ryan :-)
