How To Ride The Virtuous Cycle of High Pricing and Grateful Customers Ep 32

Summary Notes


Speaker A delves into the counterintuitive nature of pricing strategies in the fitness industry, highlighting how raising prices can create a virtuous cycle of increased customer investment, perceived value, and business profit. They argue that lower prices lead to a vicious cycle where clients value the service less, demand more, and receive poorer service due to reduced business margins. Speaker A emphasizes that higher prices attract better clients and allow for improved service, resulting in a positive feedback loop of client satisfaction and business success. Speaker B, meanwhile, encourages listeners to promote the podcast through word of mouth, as the platform relies on organic growth rather than ads or sponsorships.

Summary Notes

Introduction to the Virtuous, Vicious Cycle of Pricing

  • Speaker A introduces the topic of pricing in the context of the gym industry.
  • The speaker begins by addressing the counterintuitive nature of pricing strategies.
  • They intend to share insights on how raising prices can benefit everyone involved.

What's up, everybody? Hope you guys have an amazing week so far. And today I want to talk to you about the virtuous, vicious cycle of pricing, results, service, and profit.

This quote sets the stage for the discussion, indicating that the speaker will delve into the interconnectedness of pricing and other business outcomes.

The Counterintuitive Nature of Pricing

  • Speaker A asserts that many aspects of business, including pricing, may not be intuitive.
  • They mention witnessing gym owners who have increased their prices and, paradoxically, gained more customers and profit.
  • The speaker argues that higher pricing can lead to a win-win situation rather than a zero-sum game.

And it's because a lot of things in business are counterintuitive, and I think pricing is also one of them.

The quote highlights the speaker's view that pricing strategies may go against common sense but can be effective.

The Impact of Lowering Prices

  • Lowering prices with the intent to help more people can have negative consequences.
  • Speaker A explains that lower prices reduce emotional investment and perceived value.
  • As perceived value decreases, customer results and effort also diminish.
  • Ironically, customers become more demanding as prices drop.

So from the client side, the emotional investment goes down. So they're paying less, so they care less. Right. The perceived value also goes down.

This quote explains the direct relationship between price and both emotional investment and perceived value from the client's perspective.

Because the perceived value goes down, the results go down, because they don't think the information is as valuable.

The speaker connects the dots between perceived value and the quality of results, suggesting that lower prices lead to less customer effort and worse outcomes.

And ironically, and this is what's kind of interesting, and this is something that I can only tell you off of everybody that we've worked with and anyone who does low ticket or high ticket can support, it's that the demandingness of these customers actually go up.

Here, the speaker shares an observation that as prices are lowered, customer demands increase, which is an unexpected and counterproductive outcome.

The Vicious Cycle of Pricing and Customer Service

  • Lowering prices can attract the worst customers.
  • Reduced prices lead to decreased margins and increased customer volume, which dilutes the quality of service.
  • As service per customer declines, customer satisfaction and perceived value decrease.
  • This can result in a decrease in customer results, testimonials, and positive feedback.
  • Businesses may start to devalue their own services and contributions as a result of lower prices.
  • A lower price point may necessitate cuts in service teams and restrictions on the level of service provided.

"And so it should make sense that when you're decreasing your prices, you actually get the worst customers, too."

This quote emphasizes the correlation between lower prices and less desirable customers, suggesting that price cuts can lead to attracting customers who value the service less and may be more demanding.

"The amount of them that you have go up. And so the amount of service per customer goes down."

This quote explains the inverse relationship between the number of customers and the quality of service each customer receives when prices are decreased.

"Like for me, I love having a high price service because I value what we do a lot and I want other people to value that, right?"

The speaker expresses a personal preference for maintaining high prices as a reflection of the value they place on their services and the desire for customers to perceive it similarly.

"Now you stop getting testimonials, stop getting feedback, okay? And this is also self like, self battering, right?"

This quote highlights the negative feedback loop where lower prices lead to a reduction in positive customer outcomes and feedback, which in turn diminishes self-esteem and perceived value.

The Importance of Word-of-Mouth for Podcast Growth

  • The podcast relies on word-of-mouth for growth, eschewing traditional advertising and sponsorships.
  • The host requests that listeners share the podcast in the same way they discovered it, whether through social media or personal recommendations.
  • Sharing the podcast is seen as a way to contribute positively to the entrepreneurial community and generate good karma.

"The only way this grows is through word of mouth. And so I don't run ads, I don't do sponsorships, I don't sell anything."

This quote underscores the podcast's reliance on organic growth through listener recommendations rather than paid promotions or advertisements.

"My only ask is that you continue to pay it forward to whoever showed you or however you found out about this podcast that you do the exact same thing."

The speaker requests listeners to actively participate in the dissemination of the podcast, stressing the importance of reciprocity and community support for its expansion.

Integrity Issues in Sales Teams

  • Sales teams may face integrity issues when they feel they are making promises the business cannot fulfill.
  • This situation arises from the pressure to sell convincingly, as customers buy conviction, not uncertainties.
  • Integrity issues can lead to internal conflict within the sales team and affect overall performance.
  • Ethical dilemmas are common when sales representatives or business owners feel compelled to overpromise to close sales.

"Your sales team has integrity issues. So all of a sudden they feel like they're lying when they're promising something that they know that you as a business can't fulfill."

This quote highlights the ethical challenges sales teams face when they are pressured to make unrealistic promises to customers, leading to a conflict of integrity within the team.

The Virtuous Cycle of Pricing

  • Increasing prices can lead to a higher emotional investment from customers.
  • Perceived value of a product or service tends to increase with its price.
  • Higher investment in a product, like clickfunnels, encourages customers to utilize it more effectively.
  • As prices rise, customer demographics may shift, attracting less demanding clients who are the "right types" of customers.
  • Higher prices can result in better customer service experiences due to fewer, but more appropriate, clients.
  • Raising prices can lead to increased profits and an enhanced sense of self-worth for the business.

"So as the prices go up, emotional investment goes up, perceived value goes up. Imagine if clickfunnels were $5,000 a month. Everyone would be like, oh my God, this is the latest, greatest, most amazing software of all time, right?"

This quote explains how increasing the price of a service like clickfunnels could elevate its perceived value and lead to greater engagement and investment from customers.

"And then from a business standpoint, oops, that should say, when your prices go up, there we go. Your profits go up."

This quote simplifies the business logic that increasing prices, when done correctly, can result in higher profits and potentially enhance the business's perceived value in the eyes of both the owner and the customers.

Pricing Strategy and Business Growth

  • Raising prices can lead to improved results and an increase in testimonials.
  • Higher prices allow for better service quality as the service team is less overwhelmed.
  • With more resources, the team can spend more time on individual customer issues, enhancing satisfaction.
  • A virtuous cycle is created: better services lead to better results, which in turn leads to more testimonials.
  • Sales teams gain more conviction when they have positive testimonials and a reliable product to sell.
  • Moral salespeople prefer to sell products they believe in, and conviction in the product's efficacy drives sales.
  • It is often advised to raise prices significantly to create a clear differentiation in value.

Your results go up. Now you're getting tons of testimonials. Everyone says that your stuff's amazing.

This quote indicates that as a result of increasing prices, the perceived value and actual results of the service or product increase, leading to positive customer feedback.

Service goes up because now you can afford to give them the best.

Higher pricing allows for the allocation of more resources to improve service quality, which can lead to higher customer satisfaction.

Conviction is what sells people.

The speaker emphasizes that the sales team's belief in the product is crucial to convincing customers to make a purchase.

I say you should probably raise your prices, and usually by a significant margin.

The speaker advises that businesses should consider increasing their prices, often more than just marginally, to reflect the value of their offerings.

Sales Team Conviction and Customer Perception

  • Salespeople with high conviction in their product can sell more effectively and passionately.
  • Conviction comes from knowing that the product delivers on its promises, which is easier when the business has a track record of positive results.
  • Customers' perception of value increases with the results they experience, reinforcing the sales team's conviction.
  • Moral salespeople are more driven when they have a product they believe in, as they want to do right by the customers.

It's really hard for people who are moral individuals, which most people, I think are, especially salespeople or business people.

The speaker suggests that most salespeople have good intentions and prefer to sell products that they can stand behind ethically.

Salespeople get super excited when they have a product that really works, because then they can push it so much harder.

Sales teams are more motivated and effective when they are confident in the product's ability to deliver promised results.

Price Differentiation and Decision-Making

  • Small price differences are often not significant enough to affect buying decisions.
  • Larger price increases can create a perceived difference in value, leading to a different buying decision.
  • Businesses should consider setting prices that reflect the value of their product or service rather than minor incremental differences.

Those are basically the same buying decision, so you might as well just have everyone at 120.

The speaker points out that minor price differences don't impact the customer's decision-making, implying that a single, higher price point may be more effective.

The same buying decision would be like 167. It's the same buying decision.

A more substantial price increase is suggested to maintain the perception of value without affecting the customer's decision-making process.

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