Price Promotion: The pain of promoting better pricing

Do you think Freud was right when he said: “What decides the purpose of life is simply the program of the pleasure principle?”

Freud may be onto something here as research consistently finds that: People consistently approach pleasure and avoid pain.

Post Freud, researchers, psychologists and even some of the world’s best price promotion experts have been examining these incredibly important and fundamental truths about human behaviour.

In this article, we will be exploring these basic human drives to understand how they influence your mindset, behaviours and even pricing transformations without you even realising it.

 

What’s your approach to changing legacy pricing?

In what business cultures are you most effective? Are there some leaders that strengthen – or undermine – your drive to succeed? Pricing leaders and teams respond to these questions in different ways.

Psychologists have found that, in general, people have one of two approaches to life’s challenges and events, which they refer to as: promotion or prevention. Our research finds that these approaches are also adopted by pricing leaders and teams too.

Some pricing leaders and teams pursue price promotion in a business in order to compete and win. Others delay or avoid trialling better pricing altogether in order to prevent mistakes and stay (seemingly) safe.

The former promotes and role models better pricing thinking and practices to reach new and complex pricing outcomes while the latter prevents the risk of failure by choosing not to play; which in the instance means not learning or implementing better pricing in case it fails or goes wrong.

Putting this in context: A price promotion oriented team might adopt value based pricing in order to drive profitability in a highly competitive and disrupted market. A prevention based pricing team, on the other hand, are likely to reject value based pricing (i.e., “It will never work in this business or industry, we are a commodity business”) because they fear a negative outcome and consequence. The predominant focus here is on safety and security.

A prevention oriented pricing team is likely to continue to use cost plus pricing even when they know is not be the most effective method. They are likely to be driven by risk aversion because they fear getting value based pricing wrong.

 

Price promotion: A fear of getting pricing wrong

 

For prevent driven pricing teams, goals are responsibilities. The imperative is staying safe. They worry about what might go wrong if they don’t work hard enough or aren’t careful enough. They are vigilant and play not to lose and this may mean avoiding the inevitability and getting it wrong. No pricing teams is perfect 100% of the time. All pricing teams deal with resistance, push back from stakeholders and customers.

Business culture is a massive influence on our response to success

A business culture can affect which outlook a pricing team is likely to adopt. A collaborative business culture, for instance, attracts leaders and teams that are often promotion driven: i.e., they:

  • Works quickly and fail fast
  • Consider lots of pricing options and are great ideators
  • Optimists and determined
  • Plan for positive outcomes and scenarios

A risk averse culture, on the other hand, attracts leaders and teams that are prevention driven: i.e., they:

  • Work slowly and deliberately
  • Tend to be accurate
  • Are prepared for the worst outcomes
  • Are stressed by short deadlines
  • stick to tried and tested cost-plus methods, and overly complex pricing operations

Finding your focus & people

Success and failure evoke different emotions in different pricing teams and organisations. Success makes promotion based pricing team motivated and focused, and failure makes them (sad). Prevention driven pricing team feel calm when they’re successful and anxious when they fail.

Both promotion and prevention pricing teams achieve successful outcomes and make mistakes. One is not inherently better than the other. Knowing your own motivations can help you pick problem-solving strategies that work best for you and keep you more engaged.

Different cultures attract people that are sensitive to different approaches.Leaders cannot use a one-size-fits all leadership style. What motivates you, might not motivate your colleagues or team. Personality matters to drive better pricing outcomes.

Working out team chemistry is of utmost importance. Using better recruitment and evaluation methods will help you to bring together the right mix of skills, styles and capabilities. Learning how to deal with different personality types will be crucial to achieve the pricing outcomes you are looking for.

If you are in a middle of a pricing transformation and are adopting more agile approaches and systems to manage pricing and revenue, bear in mind that promotion-oriented pricing teams are likely to achieve more complex pricing outcomes while also making more mistakes.

Is your business culture really set up to handle an agile pricing approach?  

In times of change, agility means failing fast, making mistakes and learning from success and failure. A reluctance to change will mean less mistakes in the short term. However, the downside here is that your team will eventually lose their competitive edge, energy and motivation to be better. Both approaches need to be considered in terms of their true impact on net profitability, culture and organisational pricing competency.

 

See our recent blog on stress in the pricing community in price pressure. See our blog on pricing science – for a more technical view.