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Transcription – Mike Arce Show 187

Chantal:               Mike Arce. My friend, it is so good to have you back on the show.

Mike:                    I am excited as I always am to be on your show.

Chantal:               It is time to get into this interview today, and of course we’re going to be talking about pricing psychology. I guess where I want to start this conversation is that, I heard you say that many sales are lost at the price presentation stage. Can you explain why you think that is?

Mike:                    Yeah. A big thing that you hear a lot of gurus say is, “If somebody didn’t buy from you at the point of making that sale to close, the point of the close, they didn’t buy it from you because you didn’t provide enough value.” In reality, I just don’t think that’s true in most cases because small businesses and local businesses do a good job of, in fact I think they talk too much, they over-deliver. They build a great rapport; that’s the part they have no problem with. People have no problem with the rapport-building and the educating and all that stuff. Where they have a problem is asking for the money at the end. A lot of people have their price in their programs set up in a terrible way, but the reason is because they’re copying what everyone else is doing. Everyone else is really just copying what everyone else is doing too. Nobody has any real rhyme or reason; they think they do, but there’s no actual psychology behind the pricing. It’s their best guess as to what they think would get the person to want to buy.

Really what they’re doing is they’re making all price options look attractive. Depending on what they may want, they’re something for everybody. That’s wrong.

Chantal:               Okay, so talk to us more about that pricing psychology. Help us understand that. How can we actually use pricing psychology to influence our consumer’s behavior?

Mike:                    I think when people come up with their pricing, I don’t think people spend too much time on it. I would be surprised if the average person spends even an hour on it. That’s incorrect. There’s literally companies, there’s teams, there’s analysts, there’s people that are hired to design pricing a certain way spend weeks on it. Most people just don’t spend enough time on it. Now you don’t have to necessarily spend weeks because we’re not really coming up with rocket science here. You don’t need to because your competition sucks so bad and you just have to be better than them. You don’t really need to spend weeks on something like that. If you’re Nike, different, right? You’re competing with Under Amor. If you’re Coca-Cola, you’re competing with Pepsi, but in this case, you’re competing with most people that just suck in the industry at doing this. You want to design things in a way to where everything is a no-brainer. If everything is a no-brainer, they don’t need to think about it, which is the number one objective you face.

Chantal:               Okay, so we want to make it easy for them to say “yes.”

Mike:                    We want to make it difficult for them to say “no.”

Chantal:               I like that.

Mike:                    Everything’s easy, right? It’s just some things are easier. It’s easy to say “yes,” it’s easier to say “I’ll think about it.” We want it to be hard for them to say “no.” I’ll give you an example of how a movie theater will do it. This is a study that was actually done; if you go to, you can actually read this article I wrote and there’s video on it. The video actually shows a study of people going to the movie theater and they take a group of people, go to the movie theater, and the options were a small popcorn for $3 or a large for $7. More than 80% of the people chose the small for $3. When asked why they chose the small, they said, “$7 is a little out of line for popcorn. It’s too expensive, it’s a ripoff.” Then what they did is they took the same demographic, same size and volume of people, put them in, and what they did was they kept the small for $3, they kept the large for $7, but then they added a medium for $6.50. Small $3, medium $6.50, large for $7. That’s all they did.

More than 80% of people selected the large now, but here’s the great thing: for the people that selected the medium or the small, all that cashier had to do, she didn’t have to be a great salesperson. All she had to do was say, “You sure you don’t want the large? It’s only $0.50 more.” Everyone would go, “Oh okay, let’s get the large.” You can watch it. Watch the study. See, what happened is, they want the large. They didn’t say, “Let’s create an option for everyone”; if they did, it would’ve been $3 for a small, $5 for a medium, $7 for the large. That’s how everyone, depending on what you want, will get something right. What they did is say, “I want a large, therefor I’m going to create something that’s symmetrical to the large with the exception of one variable, and it’s going to be less attractive of a variable.” 7 and 6.50 are very close together, but for $0.50 more, it makes sense. The $3 one doesn’t even get any attention. No one even looks at it. Before, it was the one everyone ran to, but with the addition of the medium for $6.50, it’s completely ignored in the next study. Now it just becomes to you a no-brainer: “It’s $0.50 more. Why would I ever pay $6.50 for a medium? For $0.50 more, I get something twice as big.”

That’s an example of psychological processing when you’re making that pricing, that packaging.

Chantal:               Mike, I love that example that you just shared and I do want to encourage everyone to check out that article that you wrote on the pricing decoy. We’ll make sure that we put a link in today’s show notes. What I would love for you to do is take that psychology that you just talked us through with the popcorn/movie analogy, talk to us about that in terms of a personal training business owner or, say, a small studio owner, perhaps even an example that you’ve worked it. Let’s put it into terms that we can all apply to our business. Let’s chat about that. How to work-

Mike:                    [First thing 00:05:22], three options. First thing, three options for this example. Now keep in mind, there’s not one way to raise your kids, there’s not one way to get in shape, there’s not one way to sell a program. There are different ways; there’s a two-pricing option that works okay as well. We’re not going to talk about that. That’s a little bit more advanced. Let’s talk about the three-pricing which everyone can do today. Everyone can do this process today. First thing is you have to understand what type of a studio you are. What’s your offerings now? Is it five times a week? For example, we have a one-time-a-week package, a two-time-a-week package, and an unlimited package, or are you contract? They’re all the same, but we have a three-month, six-month, twelve-month. What is it? Now you know what you are, and by the way, packages, you should find a way to do recurring revenue. Get away from the packages. People that say, “Oh, packages work better in our business” don’t understand their business. Packages don’t work better in any business. Recurring revenue works better.

Now if you’re looking for an option that’s easier to sell because you want to find something that’s easier to sell for your skillset today, then yeah, you stick with your comfort zone, but what I’m telling you is what’s best for your business is recurring revenue, and level up your skill on selling that so that it’s easier for you to sell that because you’re going to need to recurring revenue. Okay-

Chantal:               Let me just step in for two seconds, Mike. So what you’re saying is having people on, I don’t know if this is an Aussie term. I think it’s international. Having people on direct debit, reoccurring dues.

Mike:                    Direct debit, yes. Like every month, it’s $150 a month or $250 a month-

Chantal:               Yeah, gotcha.

Mike:                    Or whatever it is. Get them used to that because every time you have to ask me to buy or, “Hey, your sessions are up. Did you want to get another 12?” Come on, seriously? You’re giving me the option every month. Just let it come out; I don’t even pay attention to it. Anyway, so I have to pick one for this example so I’m not going to do both. In my article that I wrote, I do both, but let’s just say you’re the type of studio that does, “Okay, if you want to come here once a week, twice a week, or three times a week, or unlimited or whatever,” let’s say that’s your style. Okay, great. First off, you got to eliminate one because we can only have three. Let’s say one-time-a-week, two-time-a-week, unlimited. One-time-a-week, two-time-a-week, unlimited.

Chantal:               Mm-hmm (affirmative).

Mike:                    Now what we do is we say, “Which one do we want to sell?” Everyone wants to sell the unlimited. You [should 00:07:32] want to sell the unlimited. The only reason you wouldn’t want to sell the unlimited is because you don’t have a lot of members yet for to realize that even the unlimiteds will still only come one, two, or three times a week anyway. The people that don’t have enough members yet, they think like, “If we do unlimited, what if everyone comes six days a week?” Yeah, no, won’t happen. That’d be amazing that you tapped into the one community that values fitness that much. It’s not going to happen. Okay, so one-time-a-week, two-time-a-week, or unlimited. So now if you want to sell unlimited, what we need to do is we need to make the next one, two-time-a-week, so similar in price that it just makes no sense to go with the two-time-a-week. Then we need to make the one-time-a-week so different-looking that no one will choose it. This is going to sound crazy. People that are listening to this are going to think it’s not going to work, and that’s every reason why it will work.

What you’re going to want to do is start with the one we want to sell. We want to sell unlimited. What do we want to sell that for? I don’t know what your industry is, like Pilates because you’ve got reformers and stuff like that, like it may be more expensive in your hit studio or boot camp. I don’t know what you are, where your margins are, but let’s just say you go, “I’m okay with selling it for $150. $150 a month, unlimited, I’m happy with that.” Great. If that’s the case, first, $149, and don’t be the one that does $147 because you want to be unique. The real reason people do seven’s at the end is because they don’t want to be the guy with the nine at the end because they feel like everyone knows it’s really $150. Relax, there’s a science behind it that you didn’t even bother studying. You’re just assuming that it’s not going to work. You’re negatively projecting because you think that’s going to be sales-y and you don’t like salespeople, so you’re going to not be the guy that you don’t like. Science shows end with a nine, so $149.

Now, your next option is going to be $144. Your unlimited’s $149 a month, your two-time-a-week is $144 a month. Right now, your audience is going, “That sounds stupid.” No, it sounds like a no-brainer. Now your one-time-a-week, it’s not going to make sense not to do it. What you’re doing to do is you’re going to pick something like $139 or $129 or $124 or $134. What you’re ultimately doing, let’s say we go with $124. $124, $144, $149. One-time-a-week, $124. Two-time-a-week, $144. Unlimited, $149. Now we’re not done yet. We’re not done. There’s more. That $149, you have to look at everything horizontally. I see this to the left, middle, and the best one’s on the right. Underneath the $149, you’re going to have a bunch of stuff that just doesn’t come with the first and second option. For example, free body fat testing. Free BMI testing. Free measurements, nutritional consult, free T-shirt, free water, whatever. It doesn’t matter.

We make a decision: “This is the one I’m selling, and the other products are only designed to make that one the no-brainer.” When you do that, you can do what you’re supposed to do, which is not rely on great salespeople, because you’re not going to find them at an affordable cost in this industry, not to rely on great salespeople to close. The pricing sheet will do the closing for you. What you do is, you turn the sheet and go, “Here you go. These are the different options. Which one kind of jumps out?” That’s all you say. To them, it only makes sense to pick the last one and they just buy. This is important because when everything makes sense, it takes me a little longer to look at it all. When everything makes sense, I have to make sense of it for me and my life and my routine because most people don’t have a routine yet. You may, right? A fitness professional may. The average person doesn’t have a routine yet. For them, they’re thinking like, “Can I do this one-time-a-week? What’s my schedule look like?” If the pricing is set up like $119, $149, $179, they’re really making sense of this.

What happens is, this comfort starts settling in because what does every employee do? A salesperson gives them a sheet and stands there uncomfortably. Now at a restaurant, the waiter walks away, right? They give you the menu and they walk away. There’s no pressure to look at all the options, but it’s weird to do that in the fitness world. You don’t say, “Here you go. I’m going to walk away. I’ll come back in a minute and a half. Tell me which one you like.”

Chantal:               Take your order.

Mike:                    Yeah. Here, what happens is if I don’t make my decision in five seconds, that sixth second, I’m uncomfortable. That seventh second, I’m uncomfortable. Not only am I, the consumer, uncomfortable, the salesperson’s uncomfortable. Now the salesperson, if inexperienced especially, will feel the need to break the silence and start suggesting stuff, like, “For you, I think it would be good if you get…” Now if there’s any misalignment with what I was thinking, which they’re probably going to do, now I feel a disconnect. Everything in sales is subconscious. Don’t make sense of it, because if you make sense of it, that’s not the reason I’m buying. How many times have you looked at everything on paper and everything makes all the sense in the world but it doesn’t feel right so you don’t do it? Vice versa, how many times has nothing made sense on paper? Everyone you know is saying, “Don’t do it, don’t do it,” but it feels right. You believe in it and you do it. Your gut makes the decision; your brain just rationalizes if it’s too big of a risk.

When you’re trying to rationalize a form, you’re actually hurting a sale. For them, because you’re allowing them to use their rational mind as opposed to gut, you’re hurting the sale. That’s why you get a lot of “I need to think about it”s, and you need to get away from “I need to think about it”s by making it a no-brainer. If you have no brain, you can’t think, and that’s what a no-brainer is. Make it a no-brainer, no need to think about it. Close the sale and move on, and you don’t need be a great salesperson to do it because the sheet does all the work.

Chantal:               Phenomenal. I love everything that you’ve just gone through, and I want to thank you for just going through so much detail around that because at the moment, I can actually see that pricing sheet in my head. I’m hoping that all the FBP family can see that as well; they’re visualizing exactly what you just stepped us through. I’ve got a couple of questions around that, Mike. First-

Mike:                    Even if they can’t visualize it working for them yet, in that article that I shared with you,, there is a video that’s a compilation of all the fitness studio owners that trusted me and sent me a video how it worked for them. I’m batting a thousand. Nobody doesn’t make that look good.

Chantal:               Awesome. So there’s a couple of things that I want to touch on here. Number one is just how important, and you referred to it as a “pricing sheet” I think you called it, and I hate this, that I come across so many conversations or PTs, not so much studio [inaudible 00:14:51] but I guess PTs that don’t have a formalized pricing sheet. They just kind of fly off by the seat of their pants and just have a conversation with someone. I love your recommendation on having that written down and having that sheet written. That’s number one. Number two, you explained the order of that, so you had the cheapest package on the left-hand side, then the middle package, and then the package that you want them to purchase on the right-hand side. Now I assume that that sequence is necessary, that whatever we want them to purchase, we put on the right-hand side. Is that correct?

Mike:                    Yeah. I mean, people read left to right. They’re going to start with one, they look at the next one, and then they end at the right, the last one, which looks a lot like the second one. They never go back to the first one; they stay on those two.

Chantal:               Okay, so that’s really important. The next thing is, you touched on this during that answer, and you were talking about the pricing psychology around finishing a price in 99 versus 97. What I was interested in is you actually gave examples of, I think it was 124, 144. You’re basically saying it’s like $124.99, $144.99, $149, or is it just the single? Can you help us understand that a little bit more?

Mike:                    Because remember, you’re not looking to sell the other two. The nine, what it does is it automatically brings a relativity to the number to the left of it. For the $149, they’re looking at the four, they’re seeing $140. Now keep in mind, everyone knows $149 is really $150 consciously, but there’s two brains working. It’s kind of like, you ever look at one of those images and you know it’s something else, and finally whatever it is, then you finally see it. It’s a man kissing another woman, but when you looked at it the first time, it’s one of those weird designs. The first time, all you could see is the guy looking to the right. That’s it. You don’t see anything else. Then once you see that, “Oh, with this perspective, I see a man kissing a woman,” now you can’t un-see it. The brain works in a weird way to where even though we see something, sometimes our subconscious can’t get past something else. We have to remember we’re not selling to the conscious mind, the rational mind. We’re selling to the guy. The conscious mind knows it’s $150. The subconscious mind doesn’t.

The story is, if you read the book “Priceless,” it’s a great book; I’ll actually put an image of it right here.

Chantal:               Yep. Say it again just for all our audio listeners. “Price List” is it called?

Mike:                    “Priceless,” like no price. Priceless.

Chantal:               “Priceless,” yep.

Mike:                    Not “list” with a T at the end. Not that. Okay, so “Priceless.” When you buy that book, there’s going to be an example in there. I may chop up the story, but there’s a few different theories as to where it started. One of them was because the British dollar and the American dollar didn’t [confer 00:17:50] properly. They were doing it like eighths and stuff like that. By putting something at a 99 at the end, it ended up breaking things even. There’s another theory that a big box store, I think it was Macy’s or Bloomingdale’s, one of those two actually started doing 99s because there was a little doubt in the cashiers and them pocketing money, so they create a dollar amount that forced them to get change and buy one penny off. It’s just a way for security. There’s a couple different theories, but here’s what happened: they started realizing that the nine actually worked. It was working so well, they tested it with eights and sevens and it didn’t really matter. Nine always won. A few guys were joking around in the ’80s, and they said, “We should open up a $0.99 store,” and they did. Obviously that blew up pretty well.

There was competing $0.88 stores, $0.98 stores, and nothing ever worked as well as a $0.99 store. There’s psychology behind it, and I don’t think enough people read or understand pricing. There’s an example in this book as well where they actually say, “Okay, we have 30,000 people on a mailing list that we send a catalog to every month.” It’s a clothing store. “We’ve got 30,000 people on this mailing list. Here’s what we’re going to do: we’re going to send all 30,000 people the exact same catalog; however, this 10,000, this one blouse, we’re going to make that blouse $34. In the other 10,000, just that one blouse is going to be $39. In the third group of 10,000, it’s going to be $44.” They’re all identical every way with the exception of that one blouse that’s $34 in one, $39 in the other, $44 in another. Out of this group of 10,000, that group of 10,000, and this group of 10,000, the $39 one actually outsold both of the others, the one that’s more expensive and the one that’s cheaper. The nine works.

The nines worked in so many studies, your show’s not long enough. People don’t take the time to ask why?” They just start projecting the wrong things and people need to study [inaudible 00:20:13]. It’s really interesting how your sales process would be a lot smoother if you clear some of the obstacles that you don’t realize are actually in the way.

Chantal:               Let’s wrap this up with a couple of really strong takeaways for all of the listeners out there, Mike, because what I’m imagining right now is if I’m a personal trainer or if I’m a studio owner, I want to take the opportunity now to go back and have a look at my pricing sheet, to go back and have a look at the structure, the way that I’ve actually set my pricing up. Right now, that would be my veery first move. What takeaways can you give the listeners today based on our conversation around pricing psychology?

Mike:                    Well number one, definitely remove the clutter. If you can’t give that price list or that price sheet to a random person that doesn’t know your business and within 15 seconds they can turn the paper over and they can tell you what they get for what price, if they can’t do that, it’s too complicated. You can because you’ve created it. You get it, and your employees can because they talk about it all the time. That’s number one: reduce the clutter. If you are going to add a ton of stuff, it should only be for the one that you actually want to sell, and the other ones shouldn’t have all that. The next thing: know which one you want to sell and design everything around that. Don’t look for an option for everyone. Look for an option that helps your company the most, and make it so that everyone wants that. Read the book “Predictably Irrational.” It’s a great book. That’ll give you a good understanding as to all the different ways you can price things. Read the book “Priceless” that I just explained. That’s another really good way, and also read the book “Ultimate Sales Machine.” That’s another really great book by Chet Holmes.

Here’s the thing: to be great at anything; not good, great, you’ve got to be well-rounded. Tom Brady is great. He’s well-rounded. He doesn’t just know how to do this well and everything else he sucks. He knows how to do it all well. He studies the game. He studies it. LeBron James, Tiger Woods, all those guys. As a business owner, you can’t just be great at getting people in shape. You can’t just be great at getting people to build rapport with you. You can’t just be great at customer service. Have you even read a book on pricing? You’re not going to be born with that. That’s like saying the competitor that wants to be on stage at a fitness competition because he’s born genetically gifted that he’s also intellectually gifted to where he just knows how much protein you should have. He doesn’t know what protein is. No one’s born knowing, “Okay, I need this much protein, carbs, and fiber.” No one knows that. You have to get that externally, put it internally, and then your physical genetics can get advantages better than others.

With you, “Hey, great. That’s awesome, you’re good at sales.” That means nothing if intellectually you don’t know what the heck you’re doing with your pricing, with your followup, with your whole sales, with your ads that you’re creating for Facebook and Instagram. Is there a reason you wrote that or did you just write it? Do you have [urgency and scarcity? 00:23:17] do you have popularity? Do you have rarity? Do you have all those strategies inside of your ad at the same time, or did you just do what you think sounds good and you think most people would like? Then, you’re winging it. Doesn’t matter how good you’re are, you’re never going to be great. You’re going to be the guy that could’ve been great.

Chantal:               Mike, I love your passion for learning and I love that you always go over and above when it comes to helping educate people in our industry. It’s one of the things that I admire so, so much about you. You, in everything that you do, are always trying to help all of us out there, so thank you for joining us today on the show.

Mike:                    It was fun to speak with you, too. Thank you for having me.

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