19. Attraction Offer. Free Pick Your Price. | $100M Lost Chapters Audiobook
In this episode of The Game, Alex Hormozi examines an alternative sales strategy where customers choose what they pay for products and services. He explores how this approach often begins with free services that accept donations, building trust in skeptical markets while maintaining higher conversion rates than traditional pricing models, even if the average sale amount is lower.
Drawing from real-world examples in car washes, coaching programs, and art galleries, Hormozi explains how businesses can make this model sustainable through tiered bonus systems. The summary covers practical implementation strategies, including how to manage operational costs for free offerings and structure incentives that encourage higher payments while preserving customer choice.
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1-Page Summary
"Pick Your Price" Sales Strategy Explained
Alex Hormozi explores an innovative sales approach where customers are empowered to choose their own prices for products and services. This customer-centric strategy often starts with offering a service for free while accepting donations, allowing customers to determine the value they receive.
Benefits and Implementation
The model builds trust and goodwill, particularly in skeptical markets. Hormozi describes how during COVID-19, his business implemented this strategy with a car wash, accepting donations to support staff. While this approach typically results in lower average sales than traditional pricing, it often leads to higher conversion rates.
To make this model sustainable, Hormozi explains that businesses should offer tiered bonuses or incentives for different payment levels. For example, higher payments might unlock additional services like one-on-one calls or extra features. He emphasizes the importance of keeping operational costs low for free offerings to prevent overwhelming staff.
Real-World Applications
The "Pick Your Price" concept has been successfully implemented across various industries. Hormozi points to examples including car washes, coaching programs, and art galleries. In these settings, businesses might offer a base service for free or provide a payment range, allowing customers to choose their level of support. This approach often works because, as Hormozi notes, customers tend to pay more than the minimum to avoid appearing unsupportive, especially when they feel their payment directly benefits employees or artists.
The model can be adapted to include tiered bonus features, such as additional courses or group calls for higher payments. This structure maintains the customer's freedom of choice while providing clear incentives for increased investment.
1-Page Summary
Additional Materials
Clarifications
- Alex Hormozi is a well-known entrepreneur and author specializing in business growth and sales strategies. He has founded and scaled multiple companies, gaining expertise in marketing and customer acquisition. His opinions matter because he shares proven methods that have helped many businesses increase revenue. Hormozi's insights are valued for their practical application and success in real-world scenarios.
- "Pick Your Price" means customers decide how much they want to pay for a product or service instead of paying a fixed price. This approach relies on customer honesty and willingness to support the business. It often starts with a free offering, encouraging voluntary payments afterward. Businesses may add extra perks for higher payments to motivate larger contributions.
- Offering a service for free while accepting donations relies on customers voluntarily paying what they believe the service is worth. This model leverages goodwill and trust, encouraging payments that often exceed typical prices. It reduces barriers to entry, attracting more users who might later pay for premium options. Success depends on managing costs and creating incentives for higher contributions.
- This strategy builds trust because it removes pressure from customers, showing the business values fairness over profit. It signals confidence in the product’s value, encouraging customers to pay what they feel is right. In skeptical markets, this transparency reduces suspicion about hidden costs or unfair pricing. It also fosters goodwill by empowering customers, making them feel respected and involved.
- During COVID-19, many businesses faced reduced customer traffic and financial strain. The car wash used the "Pick Your Price" model to keep staff employed by relying on customer donations. This example shows how the strategy can provide financial support during crises. It highlights adaptability and community trust in tough times.
- In sales, "higher conversion rates" means a larger percentage of potential customers actually make a purchase. It measures how effectively a business turns interest into sales. A higher rate indicates more successful sales interactions. This metric helps evaluate the success of different pricing or marketing strategies.
- Tiered bonuses or incentives are additional rewards given based on the amount a customer pays. For example, paying a higher price might grant access to exclusive content, personalized support, or extra features not available at lower payment levels. This encourages customers to pay more by offering clear, valuable benefits tied to their contribution. It balances customer choice with business sustainability by motivating higher payments without forcing fixed prices.
- Keeping operational costs low is critical because free offerings generate little to no immediate revenue. High costs can quickly lead to financial losses, making the model unsustainable. Low expenses allow the business to continue providing value while waiting for customer payments or donations. This balance ensures the service remains viable without exhausting resources.
- Customers often base their payment on perceived value, personal budget, and social norms. Psychological factors like reciprocity make them want to pay fairly to support the provider. Fear of judgment or appearing stingy can lead to paying above the minimum. Transparency about how payments help others increases willingness to pay more.
- This strategy works best for businesses offering services or products with flexible pricing and low marginal costs, such as digital goods, creative services, or community-focused offerings. It suits industries where customer trust and goodwill significantly impact sales, like coaching, art, or local services. Businesses with strong emotional connections to customers, where patrons feel motivated to support creators or staff, benefit most. High fixed-cost or inventory-heavy industries are less compatible due to financial risk.
- Tiered bonus features are organized into levels based on payment amounts, with each higher tier unlocking more valuable extras. For example, a basic payment might include access to a course, while a higher payment adds group calls or personalized coaching. This creates clear incentives for customers to pay more while preserving their freedom to choose. The structure is communicated upfront so customers understand what benefits correspond to each payment level.
- The balance involves giving customers the power to set their price while gently encouraging them to pay more through added value. Incentives like extra services create a clear reason to upgrade without forcing a price. This respects customer autonomy but leverages psychology, as people often want to feel fair and supportive. The key is offering meaningful bonuses that justify higher payments without removing choice.
Counterarguments
- The "Pick Your Price" model may not be suitable for all types of businesses, especially those with high fixed costs or those that operate in highly competitive markets where profit margins are already thin.
- Empowering customers to choose their own prices could lead to undervaluation of products or services, potentially harming the perceived value of the brand.
- This strategy might attract customers who are primarily motivated by getting the lowest price possible, which could undermine long-term profitability.
- There is a risk that customers may take advantage of the "pay what you want" aspect, contributing less than the cost of the service or product, leading to losses.
- The success of this model relies heavily on the psychology of the customer base, which may not be consistent across different cultures or economic backgrounds.
- Offering tiered bonuses or incentives for different payment levels could create a complex pricing structure that may confuse customers or dilute the simplicity of the "Pick Your Price" concept.
- While the strategy may build trust and goodwill, it may not be sustainable as a long-term pricing strategy without a significant volume of transactions or a high average contribution per customer.
- The approach may require more sophisticated marketing and customer education efforts to ensure that customers understand the value of the products or services and the rationale behind the pricing model.
- Businesses that rely on this model may find it challenging to forecast revenue and manage cash flow due to the variability in customer payments.
- There could be a social pressure component where customers feel obliged to pay more than they can afford or more than they value the service to avoid appearing unsupportive, which could lead to customer dissatisfaction.
- The model may not be as effective in anonymous transactions or online settings where the social pressure to pay more is reduced.
- It may be difficult to scale this model for larger businesses or for products and services that require significant investment in inventory or upfront costs.
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"Pick Your Price" Sales Strategy Explained
Alex Hormozi discusses an innovative sales strategy that empowers customers and potentially boosts sales by letting customers decide what they want to pay.
"Name Your Price" Model Empowers Customers
The "name your price" model is a customer-centric approach where businesses allow patrons to set their own prices based on what they think a service or product is worth.
Pay-what-You-want Business Model
Hormozi reflects on a car wash he visited, which was advertised as 100% free, but accepted donations. This approach empowers customers to decide what they want to pay using a sliding scale with no predetermined amounts and an unlimited maximum.
This Model Creates Goodwill and Generosity
To counter the risk of customers paying too little or nothing, businesses often offer tiered bonuses or incentives for different levels of payment. For instance, small, medium, and large payment levels could correlate with varied perks such as one-on-one calls, additional handbooks, or guarantees to achieve certain results.
Encourage Higher Payments With Tiered Bonuses or Features
Hormozi is considering applying a version of the "pay-what-you-want" model to his gyms, which indicates that higher payments may lead to more services or better outcomes. By aligning more investment with better results, businesses encourage customers to pay more than the minimum.
"Name Your Price" Can Boost Sales
"Pick your price" strategies can create goodwill and trust, particularly in environments where skepticism is common.
Builds Goodwill With Customers in Low-trust Environments
During the COVID-19 lockdown, Hormozi implemented the strategy in his business, offering a free car wash and accepting donations to su ...
Here’s what you’ll find in our full summary
"Pick Your Price" Sales Strategy Explained
Additional Materials
Counterarguments
- The "name your price" model may not be suitable for all types of businesses, especially those with high fixed costs or low-profit margins, as it could lead to unsustainable financial practices.
- Customers might undervalue a product or service, leading to a loss of revenue for the business if too many customers choose to pay less than the cost of provision.
- This pricing strategy could potentially devalue a brand or service in the eyes of consumers, as people may equate price with quality.
- There's a risk that customers could take advantage of the system, especially if there's a lack of suggested pricing or guidance on what constitutes a fair price.
- The success of a "pay-what-you-want" model heavily relies on the goodwill and honesty of customers, which may not be consistent across different markets or demographics.
- Tiered bonuses or incentives might inadvertently create a pay-to-win scenario, where only those who can afford higher payments receive the best service or products, which could alienate customers with lower disposable income.
- High conversion rates do not necessarily equate to profitability; a business could see a lot of uptake but still operate at a loss if the average payment is too low.
- Implementing a "name yo ...
Actionables
- You can experiment with flexible pricing by offering a "supporter spotlight" on your social media for customers who pay above a certain threshold. For instance, if you're a freelance graphic designer, you could feature a client's project on your Instagram story if they choose to pay 10% more than your suggested price, giving them extra exposure and incentivizing higher payments.
- Consider creating a "community chest" program where a portion of the pay-what-you-want proceeds goes to a local charity or cause. If you run a small bakery, you could allow customers to pay what they want for a special "community cookie," and half of the proceeds from this could support a neighborhood initiative, fostering a sense of shared purpose and encouraging higher payments.
- Try implementing a "feedback for discounts" initiative where customers who pay the minimum suggested price ...
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Benefits of the "Pick Your Price" Model
The "Pick Your Price" model in business offers flexibility and empowerment to the customer, often leading to an increase in goodwill and conversion rates.
"Pick Your Price" Generates Customer Goodwill
Customers Feel They Are Supporting the Business's Employees
When businesses like car washes offer their services for free with suggested donations to help the employees, customers often feel their payment is supporting a good cause. This generates goodwill as customers view their payment as contributing directly to the well-being of staff rather than to the business itself.
Sense of Generosity Can Strengthen the Customer-Business Relationship
The strategy capitalizes on the customers’ sense of generosity, giving them control over their decisions. This fosters a relationship based on goodwill and sets the groundwork for potential future upsells, as customers feel good about their decision to support and are likely to return.
"Choose Your Price" Boosts Conversion Rates
Customers Pay More Than Minimum to Avoid Seeming "Cheap" or "Unsupportive"
During the sales pitch, when presented with tiered payment options, customers are more inclined to select a higher payment level to avoid seeming unsupportive or cheap. Alex Hormozi illustrates this with an example from an art gallery where piece ...
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Benefits of the "Pick Your Price" Model
Additional Materials
Clarifications
- Conversion rates measure the percentage of potential customers who take a desired action, like making a purchase. They are crucial because higher conversion rates mean more sales without increasing marketing costs. Improving conversion rates directly boosts a business’s revenue and efficiency. Businesses track this metric to evaluate and optimize their sales strategies.
- Alex Hormozi is an entrepreneur and author known for expertise in business growth and sales strategies. His example is relevant because he provides real-world insights into consumer behavior and pricing psychology. He uses practical scenarios, like the art gallery pricing, to illustrate how people respond to tiered payment options. This helps explain why customers often pay more than the minimum in "Pick Your Price" models.
- Upsells are additional products or services offered to a customer after their initial purchase decision. They aim to increase the total sale value by encouraging customers to buy more expensive or extra items. Upselling often leverages the customer's existing interest or satisfaction to suggest relevant upgrades. This technique helps businesses maximize revenue from each customer interaction.
- People want to maintain a positive self-image and avoid social judgment. Paying more signals generosity and aligns with social norms of fairness. Fear of being perceived negatively motivates customers to choose higher payment options. This behavior is linked to social conformity and the desire for approval.
- Tiered payment options present customers with multiple price levels, each linked to different benefits or rewards. This structure guides customers to choose higher tiers by offering more value as the price increases. It leverages social and psychological factors, such as avoiding appearing cheap or wanting extra perks. Businesses use this to increase average payment amounts and enhance customer satisfaction.
- Tiered bonuses are additional rewards given at different payment levels to encourage customers to pay more. They create a sense of added value, making higher payments feel more worthwhile. This strategy leverages customers' desire to get more benefits for their money. It also taps into social motivation, as customers want to appear generous and smart in their spending.
- "Extra calls," "courses," and "group calls" are common types of value-added incentives in service-based businesses. Extra calls refer to additional one-on-one consultations or support sessions beyond the basic offering. Courses are structured educational programs that provide in-depth knowledge or skills related to the product or service. Group calls involve interactive sessions with multiple customers, fostering community and shared learning.
- Customers feel their payment supports employees directly when businesses explicitly communicate t ...
Counterarguments
- The "Pick Your Price" model may not be sustainable for all business models, especially those with fixed costs and thin margins.
- Customers may take advantage of the system, consistently choosing the lowest price, which could lead to revenue loss.
- The model could create a pricing expectation that is difficult to change in the future, potentially limiting the business's pricing strategy.
- It may attract only price-sensitive customers, which could affect the brand's perception and deter customers willing to pay standard prices.
- The model relies heavily on the psychological willingness of customers to pay more, which may not be consistent across different markets or demographics.
- Some customers might feel pressure or discomfort with the responsibility of setting the price, which could lead to a negative experience.
- The success of the model may depend on the perceived value of the service or product, which can be highly subjective and varia ...
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Examples and Variations Of "Pick Your Price" Concept
Businesses are increasingly adopting the "Pick Your Price" concept, offering customers the flexibility to decide how much they want to pay for products or services. This model blends goodwill with a capitalist approach, creating a novel way for businesses to engage with their customers.
Offer Free Product or Service, Let Customers Set Price
The “Pick Your Price” model can take various forms, initiating customer loyalty and support in creative ways.
Free Car Wash For Donations to Support Staff
One implementation of this concept is a car wash that’s offered for free with the invitation for customers to set their price through donations. This not only supports the staff financially but also lets the customer decide what the service is worth to them.
Coaching/Mentorship Program With Tiered Bonus Features
Another variation is found in coaching or mentorship programs which incorporate tiered bonus features to encourage donations or payments. For example, as detailed by Hormozi, in such a program, a customer may access a basic level for a set price, but as they elect to pay more, they unlock additional value, such as a course or group calls. This tier-based approach not only allows customers to select the level of engagement they prefer but also creates a structured way for service providers to offer more to those willing to invest more.
Some Businesses Use "Paid" Version Of "Pick Your Price" Model
The concept can also be adapted to a paid model, where customers still exercise some choice in pricing within a predetermined range.
Gallery Prices Paintings With a Range to Encourage Customer Support For Artist
An example of this could be seen in an art gall ...
Here’s what you’ll find in our full summary
Examples and Variations Of "Pick Your Price" Concept
Additional Materials
Counterarguments
- The "Pick Your Price" model may not be sustainable for all business types, especially those with high fixed costs or low-profit margins.
- This pricing strategy could lead to undervaluation of products or services if customers choose to pay less than the cost of production.
- There is a risk that customers may take advantage of the "Pick Your Price" model, resulting in financial losses for the business.
- The success of this model heavily relies on the goodwill and honesty of customers, which may not always be reliable.
- It may create a pricing expectation that could be difficult to manage if the business decides to revert to fixed pricing.
- This model could potentially alienate customers who prefer transparent, fixed pricing and may find variable pricing confusing or stressful.
- Businesses may find it challenging to forecast revenue and manage inventory with the variability introduced by this pricing model.
- The model mi ...
Actionables
- You can experiment with flexible pricing by hosting a yard sale where buyers choose their price, observing which items attract higher voluntary payments and why. This hands-on experience can help you understand the psychological factors that influence how much people are willing to pay when given the freedom to choose, such as perceived value, rarity, or emotional connection to the items.
- Start a small online shop for a hobby you're passionate about, like handmade crafts or digital art, and implement a "support what you love" pricing model. By allowing customers to pay what they feel the product is worth to them, you can gauge the perceived value of your work and gather insights on pricing strategies for creative endeavors.
- Volun ...
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