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Pricing strategy: How do IWT courses compete against “free”?

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9 1

I LOVE reading strategy books. A lot of people think business strategy is about boring business frameworks and pedantic cost-benefit analyses.

FALSE! You’ll find some of the most eye-popping drama and insane stories when you study why companies do what they do. For example, strategy gives you a front-row seat to war stories about Amazon’s Jeff Bezos, why Prada doesn’t discount, and what happens when a company like Nokia doesn’t change with the market.

So when I recently saw this question on pricing strategy on Quora, a question-and-answer site, I thought I’d share a small piece of the strategy behind IWT.

Q: How will expensive privately-offered online course offerings set themselves apart to warrant the cost, when a similar free course could come out on one of the many free or low-cost MOOCs (Ramit: “massive open online courses”) that are gaining popularity?

A: This is a great question.

I create high-end courses that range from $200 to $12,000. I have courses on psychology, careers, negotiation, and business. My students are people who are interested in personal development.

My courses don’t compete with free offerings. In fact, if you don’t want to pay a cent, 98% of my material on I Will Teach You To Be Rich is free. I encourage you to start there and get results like these from my free material alone!

But my premium courses are quite different than MOOCs. Here are a few examples why:

  • We focus on very narrow subjects (“Earn1K: How to Start a Side Business”) vs. general, broad-based courses like “Introduction to Finance.”
  • Each of our courses costs over $500,000 to develop, often including years of research testing with 100,000+ data points. Free MOOCs are not comparable in depth. For example…
  • We custom-build the software and monitor retention and completion rates, tweaking until we get it perfect. We’re not simply giving people a reading list and a discussion forum, but actually curating an entire educational experience — including the analytics and research to validate that students are getting measurable results.
  • We can provide more personalized support, including triggered emails when we notice inactivity, text messages, even phone check-ins from trained support staff. All this technology is a result of reinvesting course revenues back into creating a better student experience.
  • We make big promises and build the lesson plans, software, and community to deliver. For example, in my Find Your Dream Job course, we include over 25GB of video, including interviews and hours of on-camera salary negotiations. You simply will not find these things in free courses, since it’s too expensive to produce this material without ROI. (It costs roughly $10,000/day to shoot the video included in my coursework.) That is why we see IWT students get results like this: Dream Job Success Stories.

Overall, MOOCs have a role in online education, and they can be an excellent way to get started on a subject. (Personally, I’m skeptical of the idea they’ll replace university courses, but if they expose people to a new area of study, I’m all for them.)

But premium, high-end courses do not sell “information” — they provide an outcome. It’s tough for MOOCs to compete with an artisanal, carefully constructed course that includes years of research and detailed videos, scripts, case studies, and strategies/tactics that I can only create because I know there’s a financial ROI.

*     *     *

Pop quiz on strategy:

I’ve talked before about how I give away 98% of my material for free, and how I intend for my free material to be better than others’ paid content. I’ve also shared how I prohibit people with credit card debt from joining my flagship courses, a decision that costs me over $2mm/year.

If you were analyzing the business and pricing strategy behind IWT, how would you answer these 3 questions?

  1. Who do I target and NOT target?
  2. Which decisions do I make that others in my space do not?
  3. Pick one area of the IWT business — pricing strategy, marketing, positioning, productization, process, etc — and compare it to a totally different industry. For example, how does IWT’s product strategy compare to the deodorant or luxury-shoe industry?

Share your responses in the comments below.

9 1

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9 1
  1. “when a similar free course” – The “similar” is the lie.

  2. TARGET:: Responsible people who want to also become more successful in “x,y,z” aspect of their life

    ACCEPTANCE:: Is limited to prequalified individuals who are almost guaranteed to succeed.

    OTHERS DO NOT:: create a culture of success, establish prequalified candidates that are highly engaged, mentally/emotionally/financially prepared for your course, give them tools to be successful in any way other than in a single business model.

    IWT=COFFEE:: Starbucks is great and they educate and engage their customers more than any other… In general. But does that mean one Starbucks location earns more than say, a single privately owned coffee shop? Of course not! Does that mean they are not willing to invest millions answering their customers? No. That is how Stsrbucks started and that is their culture, do they fall shirt at times? Yes. Are they the largest chain for a reason? Yes. Because people can get coffee anywhere, they spent time and money figuring out how and why to encourage people to get coffe from them instead.

  3. Who do I target and NOT target?
    From what I had noticed, you target people who have the same or similar mindset (who would pay for your course if they didn’t have that mindset?) and especially are willing to take action, otherwise it’s just a waste of time.

    Which decisions do I make that others in my space do not?
    You are kinda (or all) perfectionist so you aim for the best courses (as you always say) for the best results and you are not going below that, never.

    Pick one area of the IWT business — pricing strategy, marketing, positioning, productization, process, etc — and compare it to a totally different industry. For example, how does IWT’s product strategy compare to the deodorant or luxury-shoe industry?
    There are differences but what I find similar (finding similarities is imo good as you can see what seriously works) is for example the pricing strategy. To be successful in what you want to do, you have to target a specific group of people. Luxury-shoe companies would aim people who want luxury shoes and don’t care about money. It’s same for you and your target.

  4. Patrick Huizinga Link to this comment

    I’m don’t know about the other 2 questions, but

    2. Which decisions do I make that others in my space do not?
    A: As you also mentioned in your post, you refuse people who have credit card debt. The kind of people who ‘clearly’ would benefit the most of advice on money and wealth.

    (Not really of course. Most likely the people who have credit card debt right now would probably have twice that debt after their income is doubled.)

  5. 1: You target people who are serious about creating a better life for themselves. Charging fees filters out the people who aren’t ready to commit to changing themselves.

    2: You decide to forego profit ($2mm/yr) in order to focus on ideal clients with higher potential and a higher success rate.

    3: IWT pricing strategy can be compared to that of an exclusive night club. Your high prices mean only a certain type of person gets in and the experience can be laser targeted to their wants and needs. It keeps the quantity down and the quality up.

  6. You target people who care about succeeding in some part of life, people who will actually follow through. (You sift them out with long emails, no-nonsense attitude, and premium pricing.) You don’t target people who are passive or who just don’t have the drive, people who are negative and whine.

    You research unmet needs like crazy. You get into people’s heads and find out what they really need, even if they can’t articulate it themselves. (This is classic design thinking!)
    You give away much of your material for free as a way of sifting through people who are serious, and so people enter your courses without a doubt that it’ll be valuable for them. (“The free stuff is great– the paid stuff must amazing.”) You’re also ultra-specific about the outcomes of your courses, and that has served you well. You started narrow in one area, and branched out.

    Christian Louboutin doesn’t want just anyone wearing his shoes, he wants confident women who can uphold the status of the red lacquer shoe and follow through with sass. His shoes are only available at certain locations, aligned with high-end brands.
    IWT doesn’t want people who don’t follow through either. You cut out anyone who has credit-card debt. You’ve positioned yourself as an expert in your area; you have an NYT bestselling book (that you make sure everyone knows about) and you’ve graduated from Stanford. All of that, plus the great free material, cancels out doubt about the name “I Will Teach You To Be Rich.”

  7. 1. Well I think it’s easy to say “you target awesome people who are good at life”, but my theories on the targeting you talk less about, which involve actual choices:

    – Young adults (20s-early 30s) – you’ve said things like “we millennials are willing to work hard”, plus this age group is likely to be a bit short on money, so a good target for Earn1K. PLUS, likely to have cognitive dissonance between the perception of a career (passionate, fulfilling) and the reality of a day job, making an ideal target for Dream Job, ZTL, etc.
    – “Left-brain” thinkers – emphasis on systems over motivation and emotion; posts like this one inviting readers to think logically about you and what you offer. Of course there’s emotional “pull” in your marketing (promising freedom, pursuing passion, etc.) but the way you promise to get people there seems to be more on the logic side. Also you talk like the back end of this is highly data-driven and I imagine that’s a marketing decision too, to interest left-brain people.
    – Middle class (towards the upper end) – It’s a nebulous definition, but there’s a point in the “class” continuum where people’s mindsets shift towards spending money to get value vs. saving it. Since this is the core of your pitch, I suspect you cater to the crowd that already thinks this way. On the other hand, the very rich have less use for your material. Not sure if this is an actual marketing choice for you, or just a side effect.

    2. I don’t know the space as well as I should for this question, but I checked out Tim Ferriss’s blog and I’ve read “The $100 Startup”, which plays in roughly the same space as some of your products, and I’m aware of the general structure of MOOCs which have some relevance to your space.

    – Community: This is how you distinguish yourself from books, like $100 Startup, although MOOCs and blogs do this effectively too. Bringing together a community of like-minded people is marketable.
    – Scale of analytics: I suspect you outscale most competitors’ back-end analytics but I really don’t know. If you do, it was probably a conscious decision because it seems expensive.
    – Business team: My impression is that most teachers in the space are essentially a single individual, whereas there’s a decent-sized IWT team.

    3. Your pitch kind of reminds me of the Marine Corps pitch (disclaimer: I have no experience with the Marines and I apologize if I offend; I promise I don’t mean to):

    – Gives a sense of becoming part of an elite (“the few, the proud” Brain Trust?)
    – Promises and fosters a strong sense of community
    – Despite the elite nature, most people can in theory become Marines, by going through boot camp and so on – as such the main barrier is just wanting it enough.
    – Also, strong systems approach! “If you do what we tell you, you become a Marine.”

    I tried to go for less obvious answers but that meant answering with <100% certainty, so please let me know where I'm wrong. Very interesting question; looking forward to following the conversation.

  8. Who do I target and NOT target?
    – You target people who can pay. Ethically, credit card debt is a huge issue, especially for premium products, so excluding these individuals establishes your ethics and lays the foundation for future clients. It also tells us something about you.
    – You target people who are willing to pay a premium. These people aren’t going to nickle and dime – they are committed to your materials and are more likely to put in the effort. These are “good clients” that aren’t going to refund as soon as you ask them to take some responsibility.

    Which decisions do I make that others in my space do not?
    – You don’t price low (anymore). You charge a premium price for a premium product. Top performers are willing to invest (additionally, you educate through your free material that this is what top performers do), and that’s the kind of customer you go for.
    – You’ve diversified your products. How many finance authors have published book after book? Videos, workshops, consulting, and ongoing support communities with curated content allow you to cover off a wide variety of audiences within your market.
    – You provide a lot of content for free. This entails LONG emails that others might not invest the time to write.

    Pick one area of the IWT business — pricing strategy, marketing, positioning, productization, process, etc — and compare it to a totally different industry. For example, how does IWT’s product strategy compare to the deodorant or luxury-shoe industry?
    – dental care (this is where I have a little fun). this isn’t just any toothpaste, its a premium toothpaste. we’ve collected 100,000 data points of toothpaste use. we’ll be your most “trusted advisor” on how to take care of your teeth. This isn’t about dental health, this is about living a full oral life, with everything a great smile and fresh breath can offer you, in bed, in business, in photographs! We’re not out here mixing baking soda and sugar together to give you some foamy action, we want you to take action! We cover high level strategy of picking what to buy, and also the detailed tactics of really getting in between those teeth while flossing. We’ll give you a backstage pass to what people with really great teeth are doing, and hold you accountable. You’ll wow your friends, improve your health, get the partner you’ve always dreamed of, and keep on improving well into old age.

  9. Ramit & team, congrats on a wonderful business! I joined RBT a few months ago and have found the sign up process and further contact eye opening in terms of building a customer base than nothing else!

    1. Target- The language and tone seem to select people who already have a skill who are unsure of themselves in the greater marketplace. The content is geared toward shifting the ‘unsure about my skills’ mindset to ‘of course I can meet and exceed you expectations’ which is really a key difference. Most top performers after a certain point are no different in skill to those below them.

    2. Unlike other courses/MOOC, the courses and materials here are never discounted. In fact, some prices go UP. Though I haven’t yet read why Prada doesn’t discount, I’d bet it’s to keep it’s brand value and keep the ‘premium experience’ for a select few.

    3. IWT operates like your cities coolest nightclub. There are grand promises of life changing possibilities (or really hot people!) inside. The guest list is huge and there’s a secret entrance that you don’t know about (can’t sign up from IWT site) so people place their name down. When you’re offered entry, you GO- there’s only a limited opportunity!

    And like all exclusive things, people value things they work hard for. They also get more out of those things as well- exactly what you’d want from a premium education course that prides itself on successful students.

    So again, well done Ramit and co!

  10. Skipping the first two because they’re less interesting to answer. For the third one…

    Progressive. Yes, the car insurance company.

    Progressive’s price comparison tool is a clinic in customer selection. Progressive’s business model isn’t about insuring everyone – it’s about insuring the highest lifetime value customers. When they show their price alongside their competitors’, they’re counting on you picking the cheapest option, even if it isn’t them.

    If you’re a high-risk driver, their price will be higher than their competitors. If you don’t buy from them, that’s fine – they didn’t want you.

    If you’re a low-risk driver, their price will be the lowest. They’re fine offering you cheaper insurance because you’ll be cheap to insure.

    If you’re willing to pay more for car insurance to be a Progressive customer, your price-insensitivity means you could be a high-value customer to Progressive.

    What they lose in volume they make up for in having customers who are extremely profitable – price-insensitive customers who want higher-quality service and cost very little to insure.

    Put succinctly, Progressive’s sales funnel is designed to weed out all but the most profitable customers.

    Similarly, IWT is designed to have a smaller number of higher-value customers, and every part of the sales cycle is carefully engineered to weed out customers that aren’t worth Ramit’s time to serve.

    The big difference is in how Ramit handles people who fall out of the funnel. With Progressive, a lead who goes with a competitor is, more or less, lost. With IWT, a customer who chooses not to buy just gets put back in the top of the funnel (Ramit’s email list) and Ramit continues to invest in them (at basically zero marginal cost), until eventually they make it all the way through the funnel.

    Then Flo developed the Name Your Price tool and went after the other end of the market, but that’s another story.

    The best part of both cases is how transparent they both are about their sales process. Ramit seems to lay out his sales funnel in an email once a month.