What makes a product truly stand out in today’s competitive market? How can strategic pricing transform your business success?
Alex Hormozi’s pricing strategies, presented in his book $100M Offers, can help you maximize your profits. His approach combines unique value propositions, niche market targeting, and strategic pricing to build sustainable business models.
Read more to explore how Hormozi’s principles can help you elevate your business above the competition and command premium prices that customers are happy to pay.
Alex Hormozi on Pricing
According to Alex Hormozi, pricing should be commensurate with the value your product offers. Your product’s value should be high. So, to maximize your profits, you should set high prices that still feel like a good deal to your customers. We’ll cover the three pricing principles he explores: creating a unique product to avoid price-cutting competitions, capitalizing on niche markets, and leveraging high prices to increase prestige and customer commitment.
Strive for a Unique Product to Avoid Price Competition
Hormozi recommends that your offer provide such unique benefits that it eludes direct comparison with competitors. If your product is a commodity that people can find elsewhere, you may get stuck in a constant price-cutting battle that hinders business growth. Each business will try to keep lowering prices to attract more customers until the profit margins are too small to sustain the business. By offering something distinct, you can avoid this pricing competition.
Hormozi writes that if you do find yourself in a direct competition, it’s more effective to raise the value of your offer than to drop your price. For example, you might add accessories or features to your product and increase your price, rather than dropping the price to match the current market. This approach maintains large profit margins and reinforces the high worth of your product.
| Tip: Unique Products Come From Extremes If your goal is to create something unique and remarkable, don’t try to make something “good,” meaning a product with broad appeal that everyone will want to buy. As Seth Godin explains in Purple Cow, any “good” product you come up with almost certainly exists already. Instead, Godin encourages you to go the opposite direction: Brainstorm what extremes you could take your product to, regardless of how popular you think it will be. For example, a very spicy candy bar (an extreme flavor) won’t be as popular as regular milk chocolate, but you won’t have to compete with established brands like Hershey’s. Some other possible extremes are quality, price, and product appearance. Godin adds that once you have an idea, don’t compromise on it. Any kind of compromise is almost certainly going to push you back toward “good”—an unremarkable product that most likely already exists. |
Capitalize on Niche Markets
Hormozi also explains that specialized, niche products can command higher prices because they cater to specific needs. These items appear custom-fit, distinguishing them from generic alternatives. For example, rather than offering a generic prenatal vitamin, you could offer a more expensive line of customized prenatal vitamins and supplements specifically formulated for the parent based on their trimester, age, dietary restrictions, and individual nutritional deficiencies.
(Shortform note: Seeking a market—even a small, niche one—where you won’t face much competition is often called a Blue Ocean Strategy, after the book of the same name by business professors W. Chan Kim and Renée Mauborgne. Kim and Mauborgne also provide a helpful method for checking how much competition your new product might face. They suggest making a line graph where the x-axis lists the various characteristics of your product, such as price and ease of use, and the y-axis represents how much emphasis the product places on each of those characteristics. Then, chart your product alongside similar products from your competitors. If your product closely matches with another product, then you’re not targeting a unique niche and you’ll face strong competition.)
Leverage Pricing to Increase Prestige & Customer Commitment
Another key pricing principle that Hormozi emphasizes is that charging the highest prices in the market can bring a sense of prestige to your product, enhancing its appeal. When people see the high price, they’re more likely to assume it’s the highest quality option available.
Moreover, a heftier price tag encourages customers to be more committed to your product, leading them to engage more deeply and consistently with it. This commitment is particularly important if your product requires customer participation—like using a new software or completing a fitness program—to achieve good results. In these cases, their participation not only benefits them (assuming they enjoy the product) but also enhances the perceived value of your product by increasing the chances they’ll achieve the deep desire that your product promised.
For example, if you offer a fitness app that’s free or cheap, and the customer doesn’t use it regularly, they’re less likely to reach their fitness goals regardless of the app quality. This might leave a generally negative impression on the customer. On the other hand, if you sell someone an expensive fitness app, they’ll be more motivated to use it consistently. As a result, they’ll be more likely to reach their goals and to associate that achievement with your product.
(Shortform note: Budget-friendly gyms like Planet Fitness have found success by taking the opposite tack on pricing. By offering low-cost memberships, these gyms make their services seem accessible to everyone—they remove the air of prestige associated with more expensive and exclusive gyms. However, this business model capitalizes on people’s good intentions and initial motivation while counting on the fact that many members will rarely, if ever, actually use the facilities. The low price point ensures a steady stream of income from a large member base, while the lack of commitment keeps overhead costs low because people aren’t using their buildings or their equipment.)
