Psychology and B2B pricing part 1: getting the elephant to smile

From "How the elephant and Rider help you sell more" https://www.ecosystems.us/site/b2b-sales/

Why are we often less than completely rational? Delving into psychology, one can think of the brain as having two types of circuits: system 1 and system 2 (Kahneman) or elephant and rider (Haidt):

·       The elephant (system 1) acts quickly and seemingly automatically, following a set of pre-programmed rules. It’s in control when you react to seeing a family member, catch a ball thrown at you, answer simple questions like 2+2 and make associations like “bread and b….”.  Practice and experience “trains” the elephant and results in situations like driving home from work and not quite knowing how you did it.

·       The rider (system 2) is our “executive thinking”. It’s logical, deliberate and slow, taking concentration and effort. It’s in control when you are engrossed in a movie, look for someone in a crowd, solve a problem, or do almost anything for the first time. When the rider is active you may lose track of what’s going on around you, letting the elephant get on with mundane activities.  However, the rider is lazy: if it thinks the elephant has things under control, it will go with the flow.

The elephant helps us with routine tasks and is particularly attentive to possible threats. The elephant is continually offering up suggestions to the rider, which it usually accepts. The rider’s ability to look more deeply and sometimes override the elephant makes us the creative, problem solving species that we are. 

We tend to underestimate the power of the elephant compared with the rider. The elephant controls a huge part of our lives, and it takes concentration and effort for it to be overridden. The elephant and the rider work together and influence each other, but the elephant is the stronger partner.

Pricing elephants?

What does this have to do with pricing?

Pricing elephants?  amazon.co.uk search results for plush elephants 

The elephant will have an opinion on the price of something immediately, before the rider has a chance to engage.  For routine decisions, the elephant’s decision often holds. And even for more complex or important decisions, the elephant sets the starting point and context from which the rider will work.

As the seller, you’d like to start from a favorable position for the rider’s decision-making process. So while B2B purchase decisions are generally more logical than consumer purchases, getting the elephant on your side can make a big difference to the outcome.

Influencing the elephant to get better pricing outcomes

As mentioned earlier, the elephant in your brain works with a set of simple rules that it follows more or less without question.  Understanding the elephant’s heuristics can help you influence a buyer’s thinking when evaluating an offer.  The examples below are based on Kahneman’s book Thinking Fast and Slow - see if they make sense to you:

Heuristics the elephant uses	Tips to leverage
Priming or Anchoring : evaluates the current situation to history or context	Use language and cues to set the context for the customer’s decision making
Loss Aversion : threat of loss is treated more seriously than chance to gain	Avoid raising risk factors, except when you have a strong counter-argument. Emphasize risk-avoidance. Offer guarantees.
Seeks out patterns : looks for patterns, sometimes finding them where they don’t exist	Have a coherent story. Explain reasons for price changes or discounts in a way that feels intuitively correct
Focus on averages: tends to compare numbers to an expected value. Bad at summing up individual elements beyond the simplest	Unbundle low value options or accessories from an offer (they add to the price but their value is generally underappreciated)
Lazy : logical thinking takes time and is avoided if not thought necessary	For ongoing sales, don’t make changes that might trigger a threat response.
Confirmation bias : once an opinion is formed, resists changing opinion and is overconfident of its validity, resisting contradictory information	Work to make a good intuitive first impression. Treat your most loyal customers really well.
Emphasizes easily available information : tends to ignore missing or difficult to access information	Make supportive information visible and accessible.

Building a strong foundation for pricing decisions

We all take short-cuts in decision making that can lead to less than rational results. Being aware of these short-cuts lets you use tactics that make them work for you. This can make a difference in your close rate and price performance, even in the more rational B2B space.

Be careful how you use this. These tactics are no substitute for offering a solid value proposition to your customers. Taking advantage of inherent blind-spots and biases might win you a few deals, but if and when you get caught out, you may find the confirmation bias working against you.

In the next blog, we’ll explore ways to measure the reaction of the elephant to specific pricing scenarios, and in the blog after that specific tactics that utilize these heuristics.

Is your company using these techniques effectively? Do you have any examples where they worked for (or against) you? Or need some help on how to use these techniques?  Let me know at ian@eenconsulting.com.  

Learning to ride an elephant.  Google search results