Pricing Strategy: Organising a business for better pricing decisions
Pricing Strategy: Everyone wants to make the best pricing strategy decisions (i.e. dynamic pricing models etc); and in the heat of the moment (and sometimes without the right skills, support and information and time available), what we actually end up doing is making okay decisions and a fair few mistakes when making a business plan.
How much do these decision cost us: i.e., in terms of our pricing professionals careers (promotion, compensation), our team (team performance, morale, job loss and redundancy) and our organisations (cost cutting, extreme values and toxic, silo-ed culture, impact on pricing power)?
Is there some way to avoid preventable pricing mistakes to improve pricing strategy? And, do all good pricing decisions have to lead back to buying very expensive pricing software solutions?
Pricing strategy – latest research
Beshear and Gino propose an alternative solution: Alter business environments in ways that encourage teams and leaders to make better decisions. Thaler and Sunstein call this,” Choice Architecture” whereby the goal is to improve people’s decisions by carefully structuring how information and options are presented to them.
Google uses behavioural economics like “Choice Architecture” to motivate and adapt unhelpful patterns of thought. First they understand the underlying problem leading to unprofitable or unhealthy decisions. Then, they design the behavioural solution, which essentially “nudges” employees in a certain direction without, they claim taking away their freedom to make decisions for themselves (a matter of debate, I think…).
As people, we like to think that we recognise when we make the wrong decisions. We like to think we know right from wrong in real time. However, as many big businesses like DOW, Google, DuPont, IBM know all too well: real time decision making is extremely difficult for us humans and at times unprofitable and destructive for the individual, team and business.
Latest research has shown, for instance, that we are basically biologically pre-wired to not even know ourselves and our weaknesses, mistakes or foibles.
We all (whether we like to admit it or not) rationalise, deny, blame and basically react in ways that push us away the reality of our mistakes. Our ultimate comfort zone is to think we are righteous and magnanimous in most situations. However, our responses and subconscious behaviours (i.e., try thinking back to your 360 feedback from colleagues and customers for a moment if you are finding this difficult to believe) and even annual financial results can all indicate quite a different picture to the picture of reality we would hold firmly in our heads…
The human brain finds it extremely difficult to rewire itself to undo the patterns that lead to our mistakes.
If you thought learning new things was difficult, research shows that people are actually much better at learning how to make the right decision for the first time than undoing that learning and replacing it with a better way or thought pattern.
Why you ask? Competitive plasticity research explains why our bad habits and mistakes are so difficult to break or ‘unlearn’. Most of us think of the brain as a container and learning as putting something in it. But, when we learn a “bad” habit that eventually leads to a mistake, it takes over a brain map, and each time we repeat the mistake, it claims more control of that map and prevents the use of that space for “good” habits and “preferred” decisions. And, it is this space or map in our minds that drives pricing strategy in market (not pricing software tools).
That is why “unlearning” is often a lot harder than learning, and why finding the right people with the right mindset is critical for building high functioning teams. The fewer bad habits a person has the less unlearning needs to occur. Likewise, think very carefully about providing new recruits targeted pricing training and readiness training because it’s best to get team on the right track early, before the “bad habits” get a competitive advantage and destructive team norms set in.
The next question is can we change and overcome our biology? Yes…
We can overcome our cognitive circuit breakers and make much better pricing options decisions in the following ways:
- We work in high functioning price management teams that coach and remind us of our strengths and goals.
- We encourage people with a performance mindset and learning agility to be the best vision of themselves and make this the norm
- We do not beat ourselves up when people are not the right fit for the new vision.
- We support compassionate leaders that know how to create positive environments in which people thrive.
- We choose to identify with ‘healthy’ organisations that value and care about people (not just profitability, hierarchy, or brand value).
- We learn and accept that we need to fail fast and safe to eventually arrive at the right decisions because this is the only way we ‘innovate’ and achieve shared organisational visions.
To discuss the science behind building high functioning value pricing teams, feel free to contact me via LinkedIn or call: (+61) 2 91994523. Taylor Wells’s pricing assessments, capability workshops and pricing development programs enable you with the critical understanding of your people – their strengths, areas for development, passion for competitive pricing and individual pricing capability. Leverage over a decade of scientific research into pricing teams and get the most from new or established pricing teams while supporting them to get the most from their careers.
See our blog on team set up.