Pricing: The Commodity Problem Flashcards
What saying is a core tenant at Alex’s companies?
“Grow or die.” (Maintenance is a myth.)
The _____ ______ grows 9% a year. If you aren’t at least doing the same, you are _______ _______.
stock market;
falling behind
If you’re in a growing market, you may have to grow __ or___ a year to keep up or risk falling behind
20 or 30%
What 3 things does it take to grow any company?
- Get more customers
- Increase their average purchase value
- Get them to purchase more times
If you want to grow you either have to
sell more clients a month (with suitable margin) or have them be worth more (by increasing the profit per purchase or the number of times they buy)
What is Gross Profit
revenue minus direct cost of service or fulfillment
ex:
If you sell lotion for $10 and it costs you $2, your gross profit is $8 or 80 percent.
Lifetime Value
The gross profit accrued over the entire lifetime of a customer.
gross profit x the number of purchases an average customer will make over their lifetime
LTV example and breakdown
if customer stays 5 months, and they pay $1000/mo and it costs me $100/mo to fulfill (90% gross) then their LTV is $4500.
Revenue: ($1000/mo * 90% Gross Margin * 5 months) = $4500 LTV
some calculate total revenue, we calculate
gross profit
Having a _____ _____ _____ makes it almost impossible to _______.
Why?
grand slam offer;
lose
Because it helps with all three requirements for growth: getting more customers, getting them to pay more, and getting them to do it more times
a GSO allows you to differentiate yourself and sell your product based on ______ not on _____.
value;
price
Commoditized =
price-driven purchases (race to the bottom)
Differentiated =
value-driven purchases (sell in a category of one with no comparison)
a commodity is a product available in ____ ______.
many places
if all products are “equal” then the _________ one is the most _______ by _______.
cheapest;
valuable;
default
“being commoditized” is a huge problem for entrepreneurs becaused
commodities are valued at the point of “market efficiency.”
“market efficiency” means
people drive prices down through competition until the margins are “just enough” to keep the lights on.
Define Grand Slam Offer
An offer you present to the marketplace that cannot be compared to any other product or service available,
combining an attractive promotion, an unmatchable value proposition, a premium price, and an unbeatable guarantee
with a money model (payment terms) that allow you to get paid to get new customers . . . forever removing the cash constraint on business growth.
In other words, a GSO allows you to
sell in a “category of one” or “sell in a vacuum.”
The resulting purchasing decision is now between ____ ________ and _________.
your product;
nothing
As a result you’ll get more __________ at higher _______ _______ for less _______.
customers;
ticket prices;
money
In fancy marketing terms it breaks down to
- increased response rates (clicks)
- increased conversions (sales)
- premium prices (charging a lot of money)
What’s the key takeaway from this?
a business does the same work in both cases (commoditized or GSO). The fulfillment is the same. But the GSO makes the business appear as if it has a totally different product.
if you have a “__________” offer you will compete on _____.
commoditized;
price
Your GSO forces a prospect to
stop and think differently to assess the value of your differentiated product
Your GSO establishes you as your own ________, which means:
category;
it’s too difficult to compare prices, which means you re-calibrate the prospect’s value meter.
If the offer is easily _________, it’s subject to __________.
duplicated;
commoditization
unless you switch to a GSO,
your prices will continually be beaten down
We want to make an offer that is so _________ that you can skip the _________ __________ of why your product is ____________ and instead:
different;
awkward explanation;
different;
just have the offer do that work for you.
If you play the _______ _______ everyone else does,
same game;
you’ll get the same results
a GSO given to the wrong audience or market will
fall on deaf ears
