Fast Beats Free Every Time | Ep 842
In this episode of The Game w/ Alex Hormozi, Hormozi introduces the concept of surge or speed pricing. He explains how businesses can offer faster service to customers willing to pay a premium. Hormozi emphasizes the value of speed over cost savings, arguing many customers prioritize quick service over free offerings.
The episode covers practical ways to implement surge pricing strategies in various industries, such as restaurants increasing prices on peak days or service providers charging higher rates for expedited timelines. Hormozi asserts that providing swifter service to premium customers can boost profits and enhance a business's reputation.
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1-Page Summary
The Concept of Surge or Speed Pricing
As explained by Hormozi, surge pricing or speed pricing involves charging customers extra for priority or speedy service. The central idea is allowing customers to pay higher rates for faster service delivery, while those preferring standard delivery times can opt out of the additional fees.
Implementing Surge Pricing
Prioritizing Higher-Paying Customers
Hormozi suggests prioritizing customers who pay more in service schedules, ensuring they receive quicker service using existing resources and without extra costs. For example, gyms can offer premium memberships for peak hours to serve those customers first.
Investing in Extra Capacity
Hormozi introduces surge support, where businesses invest in additional capacity or resources to provide expedited service to premium customers. Although faster service may incur higher operational costs, the elevated prices from surge pricing can offset these expenses, leading to increased profitability.
The Value of Speed
Speed Often Trumps Cost Savings
According to Hormozi, for many customers—particularly those facing high costs from delays—speed is more valuable than cost savings. He argues that speed often trumps free offerings in perceived customer value, as people are willing to pay more to avoid frustrating delays.
Quick Service Boosts Reputation
Hormozi states that providing swifter service to premium customers can generate positive word-of-mouth, significantly enhancing a business's reputation and demand.
Surge Pricing Examples
Restaurants Increase Prices on High-Demand Days
Restaurants can implement surge pricing by increasing meal prices 10-20% on peak days like weekends. Hormozi notes this allows capitalizing on increased demand without turning customers away, boosting profits.
E-Commerce Expedited Shipping
In e-commerce, customers routinely pay premiums for expedited shipping, especially during peak seasons like Christmas, enabling surge pricing tactics.
Service Businesses Charge More for Faster Timelines
Service businesses like auto shops can charge higher prices for expedited or "fast pass" service, as Hormozi suggests customers facing urgency are often willing to pay extra for priority completion.
1-Page Summary
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Counterarguments
- Surge pricing can lead to perceived inequality, as it may favor wealthier customers who can afford to pay more for faster service, potentially alienating those with tighter budgets.
- Implementing surge pricing could result in a loss of customer loyalty if regular customers feel they are being treated as second-class compared to those paying premium prices.
- The strategy might not be suitable for all business models, especially where price sensitivity is high, and customers are more likely to switch to competitors offering more consistent pricing.
- Surge pricing can complicate pricing structures, potentially confusing customers and leading to dissatisfaction if they feel they are being overcharged during peak times.
- There is a risk that businesses may become too reliant on surge pricing, leading to neglect of service improvements that could benefit all customers, not just those paying extra.
- In some industries or regions, regulatory constraints may limit the ability to implement surge pricing, or there may be backlash from consumer advocacy groups.
- The focus on speed and prioritizing paying customers might lead to a decrease in service quality for those not paying the surge price, damaging the overall brand reputation.
- Surge pricing can be unpredictable for customers, making budgeting for services more difficult and potentially leading to negative experiences if costs are higher than expected.
- Businesses may face logistical challenges in managing two tiers of service, potentially leading to inefficiencies or delays for all customers if not executed properly.
- There is a moral argument that essential services should be accessible to all on an equal basis, and surge pricing could be seen as unethical in such contexts.
Actionables
- You can evaluate your own willingness to pay for speed over cost by tracking your choices for a month. Keep a journal or spreadsheet where you note every time you choose a faster service option and how much extra you pay for it. This will help you understand your personal value of time and whether you might benefit from adjusting your budget to prioritize speed or savings in different areas of your life.
- Create a personal "surge pricing" system for your freelance or side gig services. If you offer any services on a freelance basis, consider implementing a tiered pricing model where clients can choose to pay more for a faster turnaround. Make sure to communicate the options clearly and track which option your clients prefer, as this can inform your future pricing and service structure.
- Experiment with prioritizing tasks based on a self-imposed "surge pricing" model in your daily life. Assign a higher "cost" to urgent tasks and a lower one to less urgent tasks. At the end of each day, review which tasks you prioritized and completed to see if this model helps you manage your time more effectively, especially when facing deadlines or high-pressure situations.
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The Concept of Surge Pricing or Speed Pricing
The business strategy known as surge pricing or speed pricing, as explained by Hormozi, is where customers can pay extra for priority service.
Surge Pricing Adds Fees for Speedy or Priority Service
The main concept of surge pricing consists of charging additional fees for speedy or priority service. This allows customers to receive faster service by paying higher rates. Those who prefer not making the extra payment can stick to the standard delivery times.
Surge Pricing Maximizes Profit By Charging Based On Urgency and Willingness to Pay
Higher-Priced "Speed Pass" Increases Revenue Without Alienating Price-Conscious Customers
Hormozi elucidates on the "speed pass" system, which is akin to surge pricing, capitalizing on customers who are willing to pay a premium for faster service. He discusses the profitability of such a system, noting that businesses can charge more based on a customer's urgency without incurring additional costs, making it 100% margin. H ...
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The Concept of Surge Pricing or Speed Pricing
Additional Materials
Clarifications
- Surge pricing, also known as dynamic pricing or demand pricing, is a strategy where businesses adjust the prices of their products or services based on demand. This means that prices can increase during peak times or when demand is high and decrease during off-peak periods. The goal of surge pricing is to balance supply and demand effectively, maximize profits, and incentivize customers to adjust their purchasing behavior based on price fluctuations. Companies like Uber and airlines often use surge pricing to manage demand and optimize revenue.
- A "speed pass" system is similar to surge pricing in that it allows customers to pay extra for faster service. It capitalizes on customers willing to pay more for immediate or priority service without incurring additional costs for the business. This system can lead to increased revenue by charging higher prices based on the urgency of the customer. Customers who opt for the "speed pass" contribute to higher profits, while those seeking standard services at regular prices are not affected.
- Surge pricing profitability with a 100% margin means that the additional fees charged for priority service are pure profit, as the costs remain the same regardless of the speed of service. This strategy allows businesses to increase revenue significantly without incurring extra expenses, maximizing their profit margins. By capitalizing on customers willing to pay more for faster service, companies can enhance their profitability by ...
Counterarguments
- Surge pricing can create a two-tiered service system, potentially leading to inequality where only wealthier customers can afford the faster service.
- It may lead to customer dissatisfaction among those who cannot or choose not to pay for the premium service, feeling that they are being penalized with slower service.
- The strategy could backfire if standard delivery times become significantly slower as a result of prioritizing surge-priced services, damaging the brand's reputation.
- Surge pricing can be seen as exploitative, especially in situations where customers have urgent needs and are left with no choice but to pay the higher fees.
- It may encourage businesses to intentionally limit their standard service capacity to create artificial scarcity and push more customers towards the higher-priced options.
- There is a risk that the quality of service could decline if businesses focus too much on speed rather than the overall customer experience.
- In some industries or markets, implementing surge pricing could lead to regulatory scrutiny or legal challenges, especially if it is perceived as unfair or discriminatory.
- Surge pricing relies on custome ...
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Implementing Surge Pricing or Speed Passes
Hormozi puts forth strategies for how businesses can implement systems to serve higher-paying customers more quickly and efficiently.
Prioritize Higher-Paying Customers In Schedules
Hormozi discusses a service prioritization strategy where customers who are willing to pay more are served quicker than those who pay standard rates. This is done by prioritizing them in the business's schedules.
Serve Customers Faster Without Extra Costs
Hormozi suggests using existing resources to prioritize higher-paying customers, ensuring they are served first. This does not introduce additional operational costs, as it merely involves changing the sequence of service delivery. He uses the example of gym classes where two types of memberships can be offered based on peak and off-peak hours. This allows the business to serve customers who pay more for peak times faster, such as in oversubscribed classes at prime times like 6 pm, without incurring extra costs for the business.
Invest In Extra Capacity or Resources for Faster Delivery to Premium-Paying Customers
Hormozi introduces the concept of surge support, which involves investing in extra capacity or resources to provide faster service to those customers willing to pay a premium. Even though faster service may come with ...
Here’s what you’ll find in our full summary
Implementing Surge Pricing or Speed Passes
Additional Materials
Counterarguments
- Surge pricing and prioritizing higher-paying customers can lead to a perception of inequality, potentially alienating customers who cannot afford premium services.
- Prioritizing customers based on their willingness to pay more may undermine the principle of fairness and could damage the brand's reputation among its customer base.
- Implementing a two-tier system based on payment could create a negative experience for standard-paying customers, leading to dissatisfaction and potential loss of business.
- The strategy assumes that all customers value speed over cost, which may not be true for all market segments; some customers may prioritize affordability over speed of service.
- Overemphasis on profitability might compromise the quality of service provided to non-premium customers, which could hurt the business in the long term.
- There is a risk that the additional revenue generated from higher-paying customers may not be sufficient to cover the costs of the extra resources or capacity, especially if the demand for premium services is overestimated.
- The strategy could lead to operational complexities, as ...
Actionables
- You can create a personal priority system for managing your daily tasks, focusing on the most valuable ones first. Start by listing your daily tasks and categorize them based on their potential value or return on investment. For example, if you're a freelancer, prioritize tasks for clients who have higher budgets and can offer you more work in the future. This way, you ensure that your most lucrative projects get your attention first, which can lead to better job opportunities and higher income.
- Consider offering your skills or services at a premium during your most productive hours of the day. Identify when you are most efficient and alert, then offer your top-tier services during these times for a higher rate. For instance, if you're a graphic designer who works best in the morning, you could offer an 'express design service' between 8 AM and 12 PM at a higher rate, promising faster turnaround for clients willing to pay more.
- Experiment with a personal surge pricing model for your services d ...
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Value of Speed in Customer Value
Alex Hormozi explains the increasing importance of speed in delivering customer value, and how it can often be more significant than cost savings for many consumers.
Speed Often Trumps Free in Customer Value
Hormozi suggests that for some customers, particularly those who incur high costs due to service delays, speed is more valuable than cost savings. Hormozi asserts that speed often trumps other aspects like cost savings (free) in customer value. By delivering services faster than normal, businesses can benefit from increased word of mouth as customers are willing to pay more to avoid the frustration of delays.
Customers Pay More for Faster Service Due to Delays Being Frustrating
He recalls that companies like Amazon and Netflix became leaders in their industries because they provided speedy access to products and entertainment, eliminating the delays associated with more traditional methods. Hormozi mentioned that Spotify, despite free alternatives through online downloads, succeeded because it offered rapid service. He emphasizes that people despise delays and businesses that can reduce or eliminate waiting times have a distinct competitive edge. Furthermore, Hormozi recommends reallocation of resources to meet this consumer demand for quick service, confirming that customers are willing to pay a premium to avoid the annoyance of delays.
Quick Service Enhances Business Reputation and Word-Of-mouth
Hormozi argues t ...
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Value of Speed in Customer Value
Additional Materials
Clarifications
- Service delays can lead to high costs for customers due to various reasons such as missed opportunities, increased stress, or financial penalties. For example, in industries like logistics or healthcare, delays can result in lost revenue, compromised patient care, or damaged reputation. Customers often value timely service highly because it can prevent these negative consequences and provide a smoother experience overall. Businesses that prioritize speed can attract and retain customers who are willing to pay more for efficient and reliable service.
- The connection between speed, cost savings, and customer value lies in the idea that for some customers, the value of receiving a service quickly can outweigh the importance of saving money. This means that businesses can attract and retain customers by offering fast service, even if it comes at a higher cost, as customers are willing to pay more to avoid delays. Speed can enhance customer satisfaction and loyalty, leading to positive word-of-mouth and increased demand for the business's products or services.
- Quick service can positive ...
Counterarguments
- Speed may not always be the primary concern for customers who value quality, customization, or sustainability over quick service.
- Cost savings can still be a significant factor for consumers with budget constraints, making it equally or more important than speed in some markets.
- In certain industries, such as healthcare or education, the quality and thoroughness of service may be more important than speed.
- Rapid service could potentially compromise the quality of the product or service if not managed properly.
- A focus on speed could lead to employee burnout or a stressful work environment, which may negatively impact customer service in the long run.
- Some customers may prefer a slower, more personalized service experience, which could be lost if speed is prioritized above all else.
- Businesses that focus too much on speed might overlook opportunities for innovation or fail to adapt to changing customer needs that require more thoughtful development.
- Word-of-mouth is not the only marketing strategy, and other factors like brand image, product quality, and customer loyalty can also significantly impact demand.
- The premium price for faster service might not be justifiable for all customer segments, potentially alienating those who are more price-sensitive.
- Overemphasis on speed could lead to ...
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Examples of Businesses Leveraging Surge Pricing
Businesses across various industries are embracing surge pricing strategies to capitalize on demand fluctuations and increase their profits. Here are some ways in which different types of businesses are leveraging this model.
Restaurants Increase Meal Prices on High-Demand Days
Hormozi suggests that restaurants could implement surge pricing strategies by increasing their meal prices by 10-20% on high-demand days, such as weekends. He notes that by reprinting menus for these periods, establishments can capitalize on increased demand without having to turn away customers due to full seating. Since most restaurants operate on thin margins, even a 10% premium on prices during peak times can significantly boost profits.
Capitalize On Increased Demand Without Turning Away Customers
Utilizing separate menus for weekends or other busy times offers a practical way for restaurants to apply surge pricing without alienating their customer base. This approach ensures they can serve a high volume of patrons while benefiting from the elevated footfall. It's a fine balance between maximizing earnings and maintaining a favorable customer experience.
E-Commerce Businesses Offer Expedited Shipping At Higher Prices
In the e-commerce industry, Hormozi points out that customers are accustomed to paying a premium for expedited shipping. Especially during the fourth quarter, when Christmas shopping is at its peak, e-commerce businesses can leverage surge pricing strategies by offering faster delivery options at increased prices. This both caters to customers' immediate needs and capitalizes on the seasonal surge in demand.
Customers Pay Premium For Fast Delivery
By enabling customers to opt for faster delivery for an additional cost, e-commerce businesses provide choice and convenience, while also monetizing the urgency and impatience of consumers. This easily accessible surge pricing tactic effectively boosts revenue, particularly during busy shopping seasons.
Service Businesses Can Charge More for Faster Timelines
Service businesses, such as auto shops or home renovation services, can adopt surge pricing by allowing customers in need of expedited service to pay more. Hormozi shares that offering a 'fast pass' for immediate service can benefit ...
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Examples of Businesses Leveraging Surge Pricing
Additional Materials
Counterarguments
- Surge pricing in restaurants might lead to customer dissatisfaction if they feel they are being unfairly charged, especially regular customers who visit on both peak and off-peak times.
- Separate menus for busy times could result in operational challenges and confusion among staff and customers, potentially affecting service quality.
- Expedited shipping at higher prices might not be sustainable or justifiable if the actual cost of delivery does not significantly increase for the e-commerce business.
- Customers might feel exploited by e-commerce businesses that offer fast delivery for a premium, especially if the cost does not reflect the service level or if the standard delivery is intentionally slowed.
- Service businesses charging more for faster timelines could create a two-tier system where only those who can afford to pay more receive timely service, potentially alienating customers with tighter budgets.
- Offering a 'fas ...
Actionables
- You can analyze your own spending habits to identify when you're likely to pay surge pricing and plan your purchases or bookings accordingly. For instance, if you tend to dine out on weekends, consider visiting restaurants on weekdays to avoid higher prices. Similarly, if you frequently need fast shipping, try to order items in advance during non-peak times to save on expedited shipping fees.
- Create a personal 'value menu' for your services if you freelance or offer any personal services. For example, if you tutor or provide graphic design services, you could offer standard rates for regular timelines and premium rates for expedited services, clearly communicating the value of faster delivery to your clients.
- Develop a system to prioritize your personal ...
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