The weird psychology of selling expensive products (according to Alex Hormozi)

The other day I re-downloaded audible and picked up Alex Hormozi's "100 million Dollar Offers. " It's filled with a ton of gems. If you follow business influencers, you probably have seen his hairy/gym rat appearance online already. If you haven’t — he started out with launching gyms, helping others to do the same with his extremely effective marketing playbook and has transitioned to building a massive online following with the intention of attracting great investment opportunities for his private equity firm acquisition.com.

In his book, 100M offers Hormozi basically gives you free game on how to price products in such a way that you can run a business with great margins and still be the best in your market. He argues that creating a great offer, a "grand slam offer," is something you can apply to your business immediately and reap the benefits right away, making it a potent tool to apply during times of laggard growth.

Here his pricing strategy summarized to the best of my ability:

Most entrepreneurs price their products for market efficiency. They will drop their prices to be the second cheapest on the market. The competitors will emulate until every one is barely scraping by to cover their operational expenses. Exceptional businesses, however, price them at a premium price with attractive guarantees that give the clients as much downside protection as possible. 

Hormozi's grand slam offer in the gym industry was based on a no-risk, high-reward model for gym owners. Essentially, he would offer to increase a gym's revenue significantly within a short period (like 4 weeks), and his payment would be a percentage of the increased revenue. This model was revolutionary because it eliminated the upfront risk for gym owners. They didn't have to pay anything unless Hormozi's methods yielded results. This approach was incredibly attractive to gym owners because it meant they had nothing to lose and everything to gain. 

The offer was compelling because it was built on a few key principles:

1. No-Risk for Clients: Gym owners didn't have to pay upfront fees, which removed the barrier to entry for them.
2. Performance-Based Pricing: Hormozi’s compensation was directly tied to the results he delivered, aligning his interests with those of the gym owners.
3. Quick, Tangible Results: The promise of significant revenue growth within a short timeframe was highly appealing and created a sense of urgency.
4. Expertise and Trust: Hormozi's confidence in his methods and the success stories from previous clients added credibility to his offer.

He went from going to the gyms and scaling them being physically present to just distributing his playbook with the same model — I grow your business and we both win. His package was success-oriented with quick wins built into the program to keep his clients motivated. 

His business exploded, as he learned how to sell his playbook remotely and scale more efficiently. It’s a pretty neat story and the moral of it all is that you don't need to compete on price if you offer enough value. You are essentially creating your own market dynamics, while leveraging a few powerful psychological triggers that lead to lots of new business – for instance, low risk / high reward, instant results and trust and credibility by displaying a track record of helping other clients.

The mistake a lot of people make is to justify their offer at the end of the call when in reality prospects should be blown away by how much value they’re getting from your service. It should be a no-brainer. And this is done by having what Hormozi calls a grand slam offer. An offer that people can’t refuse because of how great it is. 

Now, of course this isn’t as effective if you can’t live up the guarantees you’re making. You need to actually deliver on your promises and benefit from referrals thereafter. You’ll need the high prices to invest in the best talent/inventory to keep your status as a trustworthy and exceptional partner. 

Premium pricing packages can be used to attract the best talent, pay them well and over deliver on your promises. If you sell your products too cheaply, you will not invest in the business the same way. Your customers won’t be as invested in working with you, as your product is “cheap” in their eyes. Premium prices demand investment from both the customer and the business, a great symbioses is created that greatly increases the odds of success. 

Hormozi's unconventional approach to pricing—opting for premium rates coupled with strong guarantees—highlights the importance of perceiving value in a different light. Rather than engaging in a race to the bottom with pricing, his method emphasizes creating an irresistible offer that aligns value with cost, thereby attracting customers who are willing to pay more for superior service and results.

This strategy not only benefits the seller by ensuring adequate revenue to reinvest in quality and innovation but also benefits the buyer, who receives a product or service that exceeds expectations. It's a paradigm shift from the conventional pricing strategies that tend to undervalue products and services, leading to a compromise in quality and customer satisfaction.

Hormozi's success story underscores a vital lesson for businesses: the power of a well-crafted offer. An offer that is too good to refuse not only captivates potential customers but also creates a sense of urgency and desirability around a product or service. It's about providing such overwhelming value that the decision to purchase becomes a straightforward one for the customer.

What do you think of Alex Hormozi? Personally, I'm a big fan. He gives so much free game on his channel, and I highly recommend reading his books. If you find value in this article, please make sure to share with any one who might also enjoy it.

Happy selling y'all!