1 00:00:06,770 --> 00:00:11,650 Hi and thank you all for joining us for a pricing podcast with 2 00:00:11,650 --> 00:00:13,210 the Professional Pricing Society. 3 00:00:13,210 --> 00:00:16,570 My name is Megan Ford with the Professional Pricing Society and 4 00:00:16,570 --> 00:00:19,290 we're excited that you all are listening to us on today. 5 00:00:19,690 --> 00:00:23,250 Today's topic is going to be one for the books. 6 00:00:23,250 --> 00:00:26,610 We are excited to feature Dr. Florian Bauer and we're 7 00:00:26,610 --> 00:00:30,250 discussing behavioral pricing, shifting the paradigm from value 8 00:00:30,250 --> 00:00:35,080 based pricing to leveraging behavioral economics in B to C&B 9 00:00:35,080 --> 00:00:38,600 to B pricing. Now Dr. Florian Bauer is a great 10 00:00:38,600 --> 00:00:42,160 friend of PPS and he's also a featured speaker at our upcoming 11 00:00:42,360 --> 00:00:45,200 global and European Virtual Pricing Conference this 12 00:00:45,200 --> 00:00:48,080 December. So learn more about this full 13 00:00:48,080 --> 00:00:50,080 lineup is going to be extremely exciting. 14 00:00:50,080 --> 00:00:53,040 Three days with exclusive content just for our European 15 00:00:53,040 --> 00:00:57,080 market with global presenters, workshops and the opportunity to 16 00:00:57,120 --> 00:01:01,320 earn CPP credits. You can follow along the hashtag 17 00:01:01,860 --> 00:01:06,380 PPS Euro EU ro two one across all social media platforms to 18 00:01:06,380 --> 00:01:11,020 learn more or visit us directly at the AT the Pricing Society 19 00:01:11,020 --> 00:01:15,620 website, which is www.pricingsociety.com back 20 00:01:15,620 --> 00:01:18,100 slash European conference. You'll get more information 21 00:01:18,100 --> 00:01:19,700 there. We cannot wait to welcome you 22 00:01:19,780 --> 00:01:22,780 and all of your teams. Registration is now open. 23 00:01:23,060 --> 00:01:26,660 You can also learn more about Dr. Florian's offers and 24 00:01:26,660 --> 00:01:28,940 contributions. He has several content 25 00:01:29,600 --> 00:01:32,680 contributions within our vault within our website. 26 00:01:32,680 --> 00:01:37,000 So go to our membership website and search Doctor Bauer for more 27 00:01:37,000 --> 00:01:41,920 of his pricing contributions. But today we're excited to talk 28 00:01:41,920 --> 00:01:44,800 about shifting the paradigm. So before we jump into 29 00:01:44,880 --> 00:01:47,680 interviewing Dr. Bauer, let's learn a little bit more about 30 00:01:47,680 --> 00:01:50,560 him. Doctor Florian Bauer studied 31 00:01:50,560 --> 00:01:53,520 psychology and economics at the Technical University of 32 00:01:53,520 --> 00:01:58,280 Dormstop, the Massachusetts Institute of Technology, MIT and 33 00:01:58,280 --> 00:02:01,920 Harvard University before going on to complete his doctorate at 34 00:02:01,920 --> 00:02:04,880 TU Darnstock. Having spent four years working 35 00:02:04,880 --> 00:02:08,560 as a strategy consultant for Booz Allen Hamilton, he joined 36 00:02:08,560 --> 00:02:13,960 with three partners in 1999 to found the Bocatas A G Bocatas is 37 00:02:13,960 --> 00:02:17,360 an international consulting company focused on developing 38 00:02:17,560 --> 00:02:21,280 and implementing behavioral economics based pricing and 39 00:02:21,280 --> 00:02:25,680 sales strategies across B to C&B to B Industries. 40 00:02:26,620 --> 00:02:30,100 Dr. Bauer is a sought after expert on pricing psychology and 41 00:02:30,100 --> 00:02:32,900 behavioral pricing and has authored numerous articles and 42 00:02:32,900 --> 00:02:35,420 books on pricing strategy and pricing research. 43 00:02:35,820 --> 00:02:39,900 He is also an Honorary Professor at the Technical University of 44 00:02:39,900 --> 00:02:42,380 Munich. We're excited to welcome you 45 00:02:42,380 --> 00:02:44,180 today. Dr. Bauer, thank you for joining 46 00:02:44,180 --> 00:02:46,620 us. Thanks for having me, Megan. 47 00:02:46,940 --> 00:02:48,420 Hi. Yeah. 48 00:02:48,420 --> 00:02:51,630 So let's jump right in. First question for you, you know 49 00:02:51,630 --> 00:02:54,590 that you are speaking at our upcoming pricing conference. 50 00:02:54,590 --> 00:02:58,390 Thank you very much and your workshop is entitled was talking 51 00:02:58,390 --> 00:03:01,470 about shifting the paradigm from value based pricing to 52 00:03:01,470 --> 00:03:06,510 behavioral pricing by leveraging behavioral economics for B to 53 00:03:06,510 --> 00:03:09,670 B&B to C pricing. Can you tell us why pricing 54 00:03:09,670 --> 00:03:13,270 strategies powered by behavioral economics are much more 55 00:03:13,270 --> 00:03:15,750 effective than the value based approach? 56 00:03:16,870 --> 00:03:18,150 Yeah, sure. My pleasure. 57 00:03:18,860 --> 00:03:23,980 Well, I mean stating that we want to shift the paradigm is a 58 00:03:23,980 --> 00:03:27,780 quite strong statement. So let's ask ourself what, when 59 00:03:27,780 --> 00:03:31,740 is it worthwhile to shift the paradigm to take a new 60 00:03:31,740 --> 00:03:35,180 perspective on pricing? What do we have to do? 61 00:03:36,660 --> 00:03:41,300 Well, generally speaking, I would say an approach is is 62 00:03:41,300 --> 00:03:45,740 ready to shift the paradigm if it provides better answers to 63 00:03:45,740 --> 00:03:51,070 the question why do people pay? Or for what do people pay? 64 00:03:51,550 --> 00:03:56,150 And exactly here behavioral pricing goes one step further 65 00:03:56,150 --> 00:03:58,950 than value based pricing. What do I mean by that? 66 00:03:59,870 --> 00:04:02,270 What is the notion of value based pricing? 67 00:04:02,270 --> 00:04:04,830 When it comes to the question what do people pay for? 68 00:04:05,350 --> 00:04:09,310 Very clearly, if the answer is people pay for value. 69 00:04:09,310 --> 00:04:13,590 Within this paradigm, people do pay for objective value and 70 00:04:13,590 --> 00:04:17,250 subjective value. That is basically incorporated 71 00:04:17,250 --> 00:04:21,610 in the product and its features and it's basically the 72 00:04:21,610 --> 00:04:26,650 preferences of customers that define how much confronted with 73 00:04:26,650 --> 00:04:30,330 that value in these features and the products people are willing 74 00:04:30,330 --> 00:04:32,290 to pay. And that's what we do in value 75 00:04:32,290 --> 00:04:35,010 based pricing. We measure people's preferences 76 00:04:35,010 --> 00:04:36,930 to predict their willingness to pay. 77 00:04:38,780 --> 00:04:43,180 Now, behavioral economics, or behavioral pricing, does not 78 00:04:43,180 --> 00:04:45,820 reject the idea that people pay for value. 79 00:04:45,820 --> 00:04:48,980 Not at all. People do pay for value, but 80 00:04:49,180 --> 00:04:54,260 people do also pay for how they make decisions, being 81 00:04:54,260 --> 00:04:59,100 predictably irrational. So within their decision making 82 00:04:59,100 --> 00:05:03,740 process, people make predictable mistakes that reflect nothing 83 00:05:03,740 --> 00:05:07,660 else than an additional potential for marching or 84 00:05:07,660 --> 00:05:11,340 conversion rate. And in behavioral pricing, we do 85 00:05:11,340 --> 00:05:15,940 measure on the one hand the willingness to pay resulting 86 00:05:15,940 --> 00:05:20,580 from value, on the other hand the price acceptance resulting 87 00:05:20,580 --> 00:05:23,050 from the fact. That people are making 88 00:05:23,050 --> 00:05:26,410 predictable mistakes when they are buying something. 89 00:05:27,170 --> 00:05:30,650 So sometimes people are not perfectly informed about price 90 00:05:30,650 --> 00:05:34,570 or product, so some of the price acceptance results from that. 91 00:05:35,090 --> 00:05:41,010 Sometimes people want to avoid some cost, so some marching 92 00:05:41,010 --> 00:05:44,940 results from from that. Sometimes people are influenced 93 00:05:44,940 --> 00:05:48,940 by the choice architecture in which they make a decision, so 94 00:05:48,940 --> 00:05:52,180 part of their prices acceptance results from that. 95 00:05:52,820 --> 00:05:55,460 So basically behavioral economics says that there are 96 00:05:55,460 --> 00:05:59,940 more sources of price acceptance than the ones result from 97 00:05:59,940 --> 00:06:03,420 product features alone. And this is what we do in 98 00:06:03,420 --> 00:06:06,580 behavioral pricing. We take all sources of price 99 00:06:06,580 --> 00:06:10,460 acceptance into account, no matter whether they result from 100 00:06:10,460 --> 00:06:12,740 the value people see in a product. 101 00:06:13,440 --> 00:06:16,840 Or from the fact that they make decisions in a certain way. 102 00:06:17,160 --> 00:06:19,760 So basically we look at 2 dimensions. 103 00:06:20,120 --> 00:06:23,360 What do people want? What are the preferences? 104 00:06:23,480 --> 00:06:27,440 What do they pay for in terms of value on the one hand. 105 00:06:27,520 --> 00:06:31,960 On the other hand hand, it's how do people make decisions? 106 00:06:32,160 --> 00:06:35,160 What kind of predictably irrational mistakes do they 107 00:06:35,160 --> 00:06:39,200 make, and how does that translate into additional margin 108 00:06:39,200 --> 00:06:43,860 and conversion potential? So when we develop a pricing 109 00:06:43,860 --> 00:06:49,740 strategy, we do not try to measure or quantify willingness 110 00:06:49,740 --> 00:06:53,820 to pay a loan, but we rather want to understand what is the 111 00:06:53,820 --> 00:06:57,620 role of the price in the customers decision making 112 00:06:57,620 --> 00:07:04,060 process And that's much better described rather than in one KPI 113 00:07:04,420 --> 00:07:08,380 in a more complex understanding. When does the price play a role? 114 00:07:08,380 --> 00:07:11,060 How do people compare? How do they come to a 115 00:07:11,100 --> 00:07:14,650 conclusion? And once we understand the role 116 00:07:14,650 --> 00:07:18,370 of the price in the customer's decision making process, we can 117 00:07:18,370 --> 00:07:23,090 also tackle another issue, another very traditional issue, 118 00:07:23,090 --> 00:07:27,530 classic issue in value based pricing, which is the clash 119 00:07:27,530 --> 00:07:31,890 between pricing and sales. Very often when you develop a 120 00:07:31,890 --> 00:07:36,370 pricing strategy using the classical tools of value based 121 00:07:36,370 --> 00:07:39,890 pricing, for example a conjoint analysis in which you want to. 122 00:07:40,430 --> 00:07:44,190 Quantify the willingness to pay based on understanding how 123 00:07:44,190 --> 00:07:50,510 people value certain features. You end up with an analytical 124 00:07:50,510 --> 00:07:54,710 result predicting that people should be willing to pay a 125 00:07:54,710 --> 00:07:57,830 certain price. You take that price, you write 126 00:07:57,830 --> 00:08:00,830 it in the price list, and then you go to sales. 127 00:08:00,830 --> 00:08:04,550 Tell your colleagues this is the price you should go out and get. 128 00:08:05,360 --> 00:08:09,600 Very often sales comes back and said that's it says that this is 129 00:08:09,600 --> 00:08:12,160 impossible. We need some more discounts to 130 00:08:12,160 --> 00:08:16,280 execute this pricing strategy because the price is too high. 131 00:08:16,440 --> 00:08:19,480 And then there's a big argumentation going on between 132 00:08:19,480 --> 00:08:22,960 pricing and sales pricing arguing with a very analytical 133 00:08:22,960 --> 00:08:26,280 process that this is the way we derived our price. 134 00:08:26,520 --> 00:08:29,440 We measured people's willingness to pay and that's why they 135 00:08:29,440 --> 00:08:32,679 should be willing to pay that and then Sales says. 136 00:08:32,880 --> 00:08:37,950 But that's not reality. And there's not much support 137 00:08:37,950 --> 00:08:40,669 coming for each of the other side. 138 00:08:41,390 --> 00:08:45,510 Now when we look at pricing from a behavioral perspective, we 139 00:08:45,510 --> 00:08:49,950 develop a pricing strategy out of understanding the role of the 140 00:08:49,950 --> 00:08:53,230 price in a customer's decision making process. 141 00:08:53,670 --> 00:08:57,710 This not does not only give us a better pricing strategy, taking 142 00:08:57,710 --> 00:09:01,590 advantage of more sources of price acceptance, but it also 143 00:09:01,590 --> 00:09:04,990 helps us. To develop tools and techniques 144 00:09:05,030 --> 00:09:09,910 to better execute a pricing strategy for sales, so we gain a 145 00:09:09,910 --> 00:09:14,150 better understanding how we can proactively support our sales 146 00:09:14,150 --> 00:09:18,270 colleagues in being more successful executing the pricing 147 00:09:18,270 --> 00:09:21,550 strategy because our understanding is much more 148 00:09:21,550 --> 00:09:25,710 holistic on the customer's decision making process rather 149 00:09:25,710 --> 00:09:29,670 than quantifying partial utilities of features of 150 00:09:29,670 --> 00:09:32,410 products. Which is traditionally done in 151 00:09:32,410 --> 00:09:36,530 value based pricing. So, in a nutshell, behavioral 152 00:09:36,530 --> 00:09:41,010 pricing goes one step further, considering more sources of 153 00:09:41,010 --> 00:09:44,730 price acceptance without neglecting the fact that people 154 00:09:44,730 --> 00:09:49,010 do naturally also pay for value, but not only. 155 00:09:49,680 --> 00:09:54,040 And we need to go and come to the conclusion that we should be 156 00:09:54,040 --> 00:09:58,120 less product centered, less feature centered in our pricing 157 00:09:58,120 --> 00:10:02,600 and sales approach and try to understand that we are not 158 00:10:02,600 --> 00:10:07,480 selling products, but what we do in pricing and sales, we want to 159 00:10:07,480 --> 00:10:13,760 manage customers decisions and that is basically the notion of 160 00:10:13,760 --> 00:10:24,650 the behavioral pricing. Thank you Dr. Bauer. 161 00:10:24,650 --> 00:10:28,530 We've got a few more questions. So let's talk a little bit more 162 00:10:28,530 --> 00:10:32,250 about the customers decision around strategies and 163 00:10:32,250 --> 00:10:36,090 motivations. Well, when we look at how 164 00:10:36,250 --> 00:10:42,130 customers make decisions, then what we found is that, you know, 165 00:10:42,130 --> 00:10:46,050 the classic take away if you read behavior economics books is 166 00:10:46,170 --> 00:10:49,490 what I just said. People make predictable mistakes 167 00:10:49,490 --> 00:10:53,810 when they're make decisions. That's quite interesting, but 168 00:10:53,810 --> 00:10:56,650 not very helpful from a practical perspective. 169 00:10:56,650 --> 00:11:00,690 From a practical perspective, we have to better understand how do 170 00:11:00,690 --> 00:11:03,810 people make decisions on the one hand and on the other hand we 171 00:11:03,810 --> 00:11:08,210 have to understand if there are differences between different 172 00:11:08,210 --> 00:11:12,410 customers in kind of what decision strategies they follow. 173 00:11:13,540 --> 00:11:17,540 And based on this, we like 15 years ago we did a huge 174 00:11:17,540 --> 00:11:22,060 international study in which we wanted to segment people in 175 00:11:22,060 --> 00:11:24,580 respect to how they make decisions. 176 00:11:25,260 --> 00:11:29,180 That is not in respect to what they want like in traditional 177 00:11:30,140 --> 00:11:34,700 marketing segmentations, but we wanted to apologize people in 178 00:11:34,700 --> 00:11:36,980 respect to how they make decisions. 179 00:11:37,380 --> 00:11:41,500 So exactly those two dimensions looking at the second dimension. 180 00:11:42,170 --> 00:11:46,970 We found that there are five distinct types of how people can 181 00:11:46,970 --> 00:11:52,730 make decisions. None of them is rational, but 182 00:11:52,730 --> 00:11:57,410 all of them are different in how irrational or in what respect 183 00:11:57,490 --> 00:12:00,770 they are irrational. So on the one hand, the first 184 00:12:00,770 --> 00:12:03,010 type we found is is the bargain hunter. 185 00:12:03,010 --> 00:12:04,530 Everybody knows the bargain hunter. 186 00:12:04,530 --> 00:12:08,690 The bargain hunter is somebody who actually buys a discount 187 00:12:08,690 --> 00:12:11,560 rather than the product. He wants to be the winner in the 188 00:12:11,560 --> 00:12:15,480 negotiation and so on. So we need to be prepared to 189 00:12:16,520 --> 00:12:20,080 sell totally different and price totally different for this type 190 00:12:20,520 --> 00:12:24,000 than for another type. So for example the second type 191 00:12:24,600 --> 00:12:28,320 is the risk avoider. The risk avoider is a customer 192 00:12:28,360 --> 00:12:33,440 or decision making strategy that is also looking at the price and 193 00:12:33,440 --> 00:12:37,120 comparing the price like the bargain hunter but result or 194 00:12:37,120 --> 00:12:40,440 based on a totally different. Motivation. 195 00:12:40,440 --> 00:12:43,760 The risk Avoid is not seeking the lowest price and the biggest 196 00:12:43,760 --> 00:12:47,440 bargain because the risk avoid is a little bit skeptical about 197 00:12:47,440 --> 00:12:50,960 two two big discounts. The risk avoid is much more 198 00:12:50,960 --> 00:12:55,520 interested in fairness and transparency, and the motivation 199 00:12:55,520 --> 00:12:58,560 in his decision is to not being ripped off. 200 00:12:59,080 --> 00:13:03,600 So rather than finding the lowest price, they seek fairness 201 00:13:03,600 --> 00:13:06,040 and transparency to make sure that they get. 202 00:13:06,600 --> 00:13:12,200 And a fair offer at the end of the day, a totally different 203 00:13:12,200 --> 00:13:15,240 decision strategy compared to the bargain hunter. 204 00:13:15,840 --> 00:13:18,040 The third type is the price acceptor. 205 00:13:18,040 --> 00:13:22,280 The price acceptor is a customer that has maybe a certain budget 206 00:13:22,280 --> 00:13:25,920 in mind, but looking at the product and diving into the 207 00:13:25,920 --> 00:13:29,040 features and understanding what different options they have. 208 00:13:29,780 --> 00:13:34,780 They might be willing to expand their budget if it's explained 209 00:13:34,780 --> 00:13:38,220 in the right way, and if it's individual in the sense that it 210 00:13:38,220 --> 00:13:43,100 better fulfills their need. The 5th, the 4th type is the 211 00:13:43,100 --> 00:13:45,660 routine buyer. The routine buyer is somebody 212 00:13:45,660 --> 00:13:48,820 who always buys the same brand, always buys the same product, 213 00:13:48,820 --> 00:13:52,820 does not really compare. Price does not even know the 214 00:13:52,820 --> 00:13:56,100 price in many situations, but always picks the same product 215 00:13:56,180 --> 00:13:58,980 and the last type is the indifferent buyer. 216 00:13:58,980 --> 00:14:02,980 The indifferent buyer is a customer that in this very 217 00:14:02,980 --> 00:14:06,060 situation, he makes the decision, doesn't really care 218 00:14:06,060 --> 00:14:09,180 about the product, know the price, he just cares about 219 00:14:09,180 --> 00:14:13,820 having a very quick. And easy to get solutions. 220 00:14:13,820 --> 00:14:15,860 So think about you. You drive your car on the 221 00:14:15,860 --> 00:14:18,140 highway. You ran out of gas. 222 00:14:18,140 --> 00:14:21,060 In that situation, you don't start to compare prices as 223 00:14:21,060 --> 00:14:24,300 different stations. And you're not looking for a 224 00:14:24,300 --> 00:14:28,500 certain station, but you just go and fill fill up your car 225 00:14:28,700 --> 00:14:30,420 without considering how much it costs. 226 00:14:30,420 --> 00:14:32,660 That's an indifferent buyer situation. 227 00:14:33,320 --> 00:14:37,600 So we have these five types of decision making that we need to 228 00:14:37,640 --> 00:14:41,040 distinguish and that's for example is one of the things we 229 00:14:41,040 --> 00:14:46,120 support sales with to identify who is in front of them and how 230 00:14:46,160 --> 00:14:50,560 they, what kind of strategies they should pursue in order to 231 00:14:50,560 --> 00:14:56,320 execute the pricing strategy. Thank you, Dr. Bauer. 232 00:14:56,400 --> 00:15:00,120 That was very thorough. A follow up to that would be, is 233 00:15:00,120 --> 00:15:03,720 behavioral pricing really still are also relevant when it comes 234 00:15:03,720 --> 00:15:06,640 to B2B? Aren't B2B decisions much more 235 00:15:06,640 --> 00:15:10,720 rational? Well, that's a question I'm I'm 236 00:15:10,720 --> 00:15:15,840 often asked because it's assumed that if people make decisions in 237 00:15:15,840 --> 00:15:19,360 their company, they are much more rational, rational than if 238 00:15:19,360 --> 00:15:22,040 they would do it at home, which is not the case. 239 00:15:22,040 --> 00:15:23,640 And there are several reasons for that. 240 00:15:23,640 --> 00:15:27,200 First of all, the kind of insights we have from behavioral 241 00:15:27,200 --> 00:15:30,710 economics. Are not falling from heaven. 242 00:15:30,710 --> 00:15:35,830 They're not just pure mistakes people make out of not thinking 243 00:15:35,830 --> 00:15:38,710 enough. But the insights behavioral 244 00:15:38,710 --> 00:15:43,990 economics showed us or brought us are based on the fact that 245 00:15:43,990 --> 00:15:47,310 our decision apparatus, our cognitive system, our 246 00:15:47,310 --> 00:15:50,750 motivational system, is shaped by evolution. 247 00:15:51,270 --> 00:15:55,670 And evolution never brings up perfect solutions. 248 00:15:56,030 --> 00:16:00,030 It just brings up. Sufficiently good or 249 00:16:00,110 --> 00:16:05,950 sufficiently for sufficient for survival solutions, so to say. 250 00:16:06,590 --> 00:16:11,310 So our decision apparatus is not attuned to utility maximization. 251 00:16:11,310 --> 00:16:15,150 That's a purely academic idea that has nothing to do with 252 00:16:15,150 --> 00:16:18,550 rationality. But if our decision apparatus is 253 00:16:18,550 --> 00:16:22,420 designed that way. We will be a we will not be more 254 00:16:22,420 --> 00:16:26,540 rational if we do B2B decisions than if we do B2C decisions. 255 00:16:26,580 --> 00:16:29,940 That's a very fundamental theoretical answer. 256 00:16:30,460 --> 00:16:33,140 I can give you a much more practical answer to your 257 00:16:33,140 --> 00:16:36,580 question. Just think about the motivation 258 00:16:36,580 --> 00:16:42,420 you have as a B2B customer. You always have two motivations. 259 00:16:42,420 --> 00:16:45,660 You want to find the best product and price for your 260 00:16:45,660 --> 00:16:48,530 company. But you also have the motivation 261 00:16:48,850 --> 00:16:53,690 of not risking your career, and those two motivations go not 262 00:16:53,690 --> 00:16:56,890 hand in hand necessarily. So you probably know the 263 00:16:56,890 --> 00:16:59,370 sentence. No one ever got fired for buying 264 00:16:59,370 --> 00:17:02,050 IBM. This is definitely not 265 00:17:02,330 --> 00:17:07,810 displaying A rational decision strategy, but something that 266 00:17:07,810 --> 00:17:09,770 very often takes place in companies. 267 00:17:09,770 --> 00:17:13,569 That's how people decide and that's the kind of decision 268 00:17:13,569 --> 00:17:16,530 strategy. By the way, translated in our 269 00:17:16,609 --> 00:17:20,329 five Crips types, which I was just explaining, that's the risk 270 00:17:20,329 --> 00:17:24,290 avoider strategy. No one ever got fined for buying 271 00:17:24,290 --> 00:17:28,329 IBM. And the third answer to your 272 00:17:28,329 --> 00:17:33,170 question is many decisions in companies are group decisions. 273 00:17:33,170 --> 00:17:37,250 They're not made by one single decision maker, but they're made 274 00:17:37,250 --> 00:17:40,050 by different roles in the company. 275 00:17:40,480 --> 00:17:45,640 And group decisions per se do not tend to be more rational, 276 00:17:45,840 --> 00:17:47,800 they rather tend to be less rational. 277 00:17:48,360 --> 00:17:54,360 So taking that all together, I would even argue that B to B 278 00:17:54,360 --> 00:17:59,200 decisions very often are even less rational in terms of being 279 00:17:59,200 --> 00:18:03,080 utility maximizing than B to C decisions. 280 00:18:03,080 --> 00:18:07,480 So behavioral pricing is as well applicable for B to C. 281 00:18:08,230 --> 00:18:14,430 At least as well As for B to B. Thank you. 282 00:18:15,590 --> 00:18:17,190 We've got only a few more questions. 283 00:18:17,190 --> 00:18:19,190 So I appreciate this fabulous interview. 284 00:18:19,190 --> 00:18:23,750 What do you think are the key SuccessFactors if someone wants 285 00:18:23,750 --> 00:18:27,510 to leverage insights from behavioral economics within 286 00:18:27,510 --> 00:18:31,750 pricing and sales? That's a very good question. 287 00:18:32,430 --> 00:18:37,910 If you listen to presentations today on behavioral economics or 288 00:18:37,910 --> 00:18:43,110 also behavioral pricing, very often they exhaust themselves in 289 00:18:43,110 --> 00:18:47,510 a long list of academic experiments, presenting you with 290 00:18:47,830 --> 00:18:50,390 one academic experiment after the other. 291 00:18:52,110 --> 00:18:56,310 And it seems to be very easy to copy and paste this academic 292 00:18:56,310 --> 00:18:59,800 experiment. To your pricing and sales 293 00:18:59,800 --> 00:19:04,440 strategy and that's a mistake and that's a big risk. 294 00:19:04,720 --> 00:19:10,320 So the key success factor is not to copy and mistake the copy and 295 00:19:10,920 --> 00:19:16,520 paste the academic insights from some some academic book to your 296 00:19:16,520 --> 00:19:21,400 marketing practice. But the success factor is to 297 00:19:21,400 --> 00:19:25,640 understand the underlying implication that has for pricing 298 00:19:25,640 --> 00:19:27,810 and sales. And that actually is what we 299 00:19:27,810 --> 00:19:30,650 spent the last 20 years of distilling. 300 00:19:30,970 --> 00:19:35,090 Out of these thousands of experiments, what do they mean 301 00:19:35,530 --> 00:19:39,410 for pricing and sales? And based on that, we developed 302 00:19:39,410 --> 00:19:43,330 a framework and a procedure to make sure we take advantage of 303 00:19:43,330 --> 00:19:48,810 these insights without making the mistake of copy and pasting 304 00:19:49,050 --> 00:19:52,410 academic experiments to your pricing strategy. 305 00:19:53,780 --> 00:19:58,860 Another success factor is the fact that you should not try to 306 00:19:58,860 --> 00:20:01,900 factor in this behavioral pricing at the end. 307 00:20:02,060 --> 00:20:08,020 So basically I saw a few charts from basically saying what's the 308 00:20:08,020 --> 00:20:11,740 pricing process. So they do a lot of really 309 00:20:11,740 --> 00:20:15,060 pricing work and then at the end you can add some behavioral 310 00:20:15,060 --> 00:20:19,650 pricing that's the wrong way. We have to start developing a 311 00:20:19,650 --> 00:20:23,410 pricing strategy based on understanding the role of the 312 00:20:23,410 --> 00:20:25,890 price in the customers decision making process. 313 00:20:26,130 --> 00:20:31,730 That is nothing you can factor in later on if you do so. 314 00:20:31,730 --> 00:20:36,210 It's a little bit like building a rocket and checking it if it 315 00:20:36,210 --> 00:20:39,290 abides the law of physics shortly before you launch it, 316 00:20:40,320 --> 00:20:44,120 that's not the right way. So if you want to take advantage 317 00:20:44,120 --> 00:20:47,560 of behavioral pricing and the additional sources of price 318 00:20:47,560 --> 00:20:51,320 acceptance and the potential of higher margin and conversion 319 00:20:51,320 --> 00:20:55,360 rates, you better start developing your pricing strategy 320 00:20:55,480 --> 00:20:59,600 based on these insights and not try to add them at the end. 321 00:21:01,400 --> 00:21:07,480 So basically what we do in behavioral pricing is answer the 322 00:21:07,480 --> 00:21:11,930 same questions as we do with other pricing approaches. 323 00:21:12,370 --> 00:21:18,050 We rather have more dimensions we look at and more levers to 324 00:21:18,050 --> 00:21:21,130 skim margin and increase conversion rate. 325 00:21:21,370 --> 00:21:24,770 And that's why it makes a lot of sense to follow this approach 326 00:21:25,050 --> 00:21:28,570 from the very beginning of designing a pricing strategy. 327 00:21:31,450 --> 00:21:35,090 Great answer our final question today. 328 00:21:35,840 --> 00:21:39,280 What are the typical projects that you're working on and how 329 00:21:39,280 --> 00:21:41,400 does your approach differ from that of others? 330 00:21:43,200 --> 00:21:46,600 Well, basically the typical projects we are working on are 331 00:21:46,600 --> 00:21:50,120 the typical projects everybody's working on in the pricing world. 332 00:21:50,120 --> 00:21:54,200 So it's about pricing new products, managing price 333 00:21:54,200 --> 00:22:00,850 increases, developing price and product portfolio, managing the 334 00:22:00,890 --> 00:22:05,450 change of price models from selling a product to managing 335 00:22:05,450 --> 00:22:10,050 subscriptions. We work on discount management, 336 00:22:10,050 --> 00:22:12,890 we work on incentive system for sales. 337 00:22:12,890 --> 00:22:17,730 So all these things that have to do with pricing and sales we 338 00:22:17,730 --> 00:22:23,310 work on just as everybody else. The, the main difference is, as 339 00:22:23,310 --> 00:22:27,190 I just said, we take into account more dimensions when we 340 00:22:27,190 --> 00:22:30,870 look at that because we understand that it's not only 341 00:22:30,870 --> 00:22:35,870 about value, it's about managing decisions of our customers, it's 342 00:22:35,870 --> 00:22:39,870 about managing decisions of our sales team when we design an 343 00:22:39,870 --> 00:22:43,910 incentive system, for example. So we look at these two 344 00:22:43,910 --> 00:22:48,830 dimensions, what do people want and how do they make decisions? 345 00:22:48,990 --> 00:22:51,950 Let me give you a concrete example. 346 00:22:53,150 --> 00:22:56,350 So let's assume you have a product that is new, that's very 347 00:22:56,350 --> 00:22:59,150 innovative. The traditional approach of 348 00:22:59,150 --> 00:23:03,190 value based pricing is basically saying going out and researching 349 00:23:03,190 --> 00:23:07,590 what do people value in terms of the features of the product, how 350 00:23:07,590 --> 00:23:09,910 much would they pay for these features. 351 00:23:10,790 --> 00:23:14,270 Now the behavioral issue with an innovative product is that 352 00:23:14,270 --> 00:23:17,230 people don't know how much they pay for a certain product. 353 00:23:17,230 --> 00:23:21,590 If it's really innovative. Just think about when the first 354 00:23:21,590 --> 00:23:24,750 iPad was presented. Nobody had to, you know, that 355 00:23:24,790 --> 00:23:27,710 was a new product that did not exist before. 356 00:23:28,030 --> 00:23:31,830 There was no willingness to pay. You could measure because it was 357 00:23:31,830 --> 00:23:34,470 totally new. People had no experience with 358 00:23:34,470 --> 00:23:37,750 that. So the challenge from a 359 00:23:37,750 --> 00:23:42,110 behavioral pricing perspective is rather to help people 360 00:23:42,110 --> 00:23:46,550 developing a price acceptance while they understand what this 361 00:23:46,550 --> 00:23:51,180 product can do. Now Steve Jobs did a tremendous 362 00:23:51,260 --> 00:23:55,220 job as you can actually see on YouTube when he was presenting 363 00:23:55,220 --> 00:24:00,060 this iPad because when he presents presented this iPad, he 364 00:24:00,060 --> 00:24:03,580 was saying okay, what kind of features this had and so on. 365 00:24:03,580 --> 00:24:07,260 And he was talking about that they did very good developments 366 00:24:07,260 --> 00:24:11,660 and they try whatsoever. So they were talking about he 367 00:24:11,660 --> 00:24:13,420 was talking about product development. 368 00:24:13,420 --> 00:24:17,820 And while he was talking in the back of his presentation, there 369 00:24:17,820 --> 00:24:24,220 was a huge screen just showing $999 as a number, as a price. 370 00:24:25,180 --> 00:24:28,100 He did not refer to that very much, but at the end of his 371 00:24:28,100 --> 00:24:30,780 speech he said OK, this is our wonderful product. 372 00:24:30,780 --> 00:24:36,500 I just explained to you now our question, what was what should 373 00:24:36,500 --> 00:24:39,570 we price it at? And then he was talking about 374 00:24:39,570 --> 00:24:42,650 the fact that they invested very much in efficiency and so on. 375 00:24:42,650 --> 00:24:47,490 And in the end he said, and you know what, it's not 999, it's 376 00:24:47,490 --> 00:24:51,170 just 499. And the 999 in his back 377 00:24:51,170 --> 00:24:55,730 disappeared and 499 came up and everybody was applauding. 378 00:24:56,490 --> 00:25:01,410 In this very moment, he presented this 999 in his back. 379 00:25:01,610 --> 00:25:06,050 He was creating price acceptance because people were thinking, 380 00:25:06,210 --> 00:25:11,090 not knowing what this product is really about that they why they 381 00:25:11,090 --> 00:25:16,770 should be willing to spend 999. So they were already going 382 00:25:16,770 --> 00:25:18,850 through part of their decision making process. 383 00:25:19,210 --> 00:25:23,610 And when he said it's not 999, it's only 499. 384 00:25:23,850 --> 00:25:27,690 People actually already bought this product and that has 385 00:25:27,690 --> 00:25:31,450 nothing to do with features. That has to do with creating 386 00:25:31,450 --> 00:25:34,750 price acceptance in the customer's decision making 387 00:25:34,750 --> 00:25:38,910 process, for example in this case, by working with price 388 00:25:38,910 --> 00:25:43,790 anchors. So it is not about defining 389 00:25:43,790 --> 00:25:47,630 prices based on understanding the value of features, it's 390 00:25:47,750 --> 00:25:51,590 about developing a pricing strategy on the basis of 391 00:25:51,590 --> 00:25:54,790 understanding the role of the price in the customer's decision 392 00:25:54,790 --> 00:25:57,510 making process. And that was just one example. 393 00:25:59,910 --> 00:26:03,180 That was an excellent example. We want to thank you so very 394 00:26:03,180 --> 00:26:05,980 much for your time today. You were an outstanding 395 00:26:06,700 --> 00:26:09,380 contributor and we want to invite everyone that is 396 00:26:09,380 --> 00:26:12,140 listening to learn more about Doctor Florian Bauer by visiting 397 00:26:12,140 --> 00:26:15,460 the Professional Pricing Society website because he is a featured 398 00:26:15,460 --> 00:26:17,900 speaker during our European conference as we've mentioned 399 00:26:17,900 --> 00:26:21,900 before and he has additional resources that you can find 400 00:26:21,900 --> 00:26:25,380 within our membership vault. Also visit the Volcatas website, 401 00:26:25,420 --> 00:26:28,300 Volcatas AG on behalf of everyone in the Professional 402 00:26:28,300 --> 00:26:30,420 Pricing Society. We wish to thank you all. 403 00:26:30,540 --> 00:26:33,020 Thank you again. Bauer for joining us. 404 00:26:33,020 --> 00:26:35,260 It was a great interview. Any final words? 405 00:26:36,260 --> 00:26:39,260 No, thanks a lot. I'm looking very much forward to 406 00:26:39,260 --> 00:26:44,300 have a lot of people joining for our workshop where where we have 407 00:26:44,300 --> 00:26:47,060 the chance to dive much deeper into the topic. 408 00:26:47,740 --> 00:26:49,460 Yes, Sir. It's gonna be a great time. 409 00:26:49,740 --> 00:26:52,340 All right, everyone. We'll see you at the PPS Euro 410 00:26:52,340 --> 00:26:55,700 event. Hashtag PPS EUR O2 one across 411 00:26:55,700 --> 00:26:58,500 social media platforms. And until next time, keep 412 00:26:58,500 --> 00:27:01,940 listening and happy pricing. Thank you, right.