#CLASSIC The Power of Behavioral Economics in Pricing with Florian Bauer

Impact Pricing

Florian Bauer is an internationally sought-after expert and speaker on the subject of price psychology and behavioral pricing. He is an honorary professor at the Technical University of Munich and author of several books on price research. He also has a doctorate in Psychology at TU Darmstadt, MIT, and Harvard.

In this episode, Florian talks about how discounts can give you short-term gain but cost you long-term. He underscores that there are other means to incentivize customers without diminishing a products’ value perception. And that cashback is one thing to consider other than discounts. He also talks about buyers’ irrationalities and how to use Behavioral Economics to influence their decision-making and let it work in your favor.

Why you have to check out today’s podcast:

• Learn about the psychology of price structure and how it influences consumers’ buying behavior
• Find out what you can, what you should, and what you should not do when giving a discount
• Learn how Behavioral Economics can help you influence buyers’ decision-making and maximize your company’s profit

“If you want to price or sell something, you have to think in two dimensions. You have to think about what people want. That's the traditional value-based approach. And you have to think in the dimension of how they decide.”

- Florian Bauer

Topics Covered:

01:28 - How Florian got started in Pricing

02:25 - What the psychology of price structure is all about

03:22 - What a price structure looks like

04:12 - What’s the psychology behind using cashback than just lowering the price

06:03 - How do discounts differ from cashback

07:39 - The feeling of disconnect with cashback

08:20 - Cashback being an icing on the cake that can potentially make you feel more decided about your choice

10:02 - What’s the disadvantage of discounting

11:36 - What behavioral economics means for pricing

16:15 - Different people behave differently when it comes to decision irrationalities

18:00 - His thoughts on the ethical issue about Behavioral Economics

23:22 - What is Behavioral Economics showing us and why this works in the B2B world

25:38 - How heuristics simplify complex decisions

29:35 - Florian’s best pricing advice that can significantly impact your business

Key Takeaways:

“Never ever give a discount without anything the customer has to give in return.” - Florian Bauer

“That's the issue with discounting. It really works very well short-term. So, you have to gain short term, but you have to cost long-term.” - Florian Bauer

“If I want to sell somebody something, I need to know what he wants, or she wants, and I need to adapt my sales approach and my pricing model, potentially, to how he decides.” - Florian Bauer

“For me, the purpose of marketing, pricing, and sales is to influence decisions. So, there is no reason to have a marketing campaign or a marketing team if you would not have the idea that I can influence my customers' decision in my favor.” - Florian Bauer

“I think when we talk about value and price acceptance, it's very much a story. And there is not one story better than another one. People hate to make decisions, they want to be made decided and with some stories, they are quicker in deciding than in others.” - Florian Bauer

“Think about that you're not only selling value; you’re also managing decisions. If you keep that in mind when you design your pricing model, you also avoid the traditional clash between pricing and sales because you're also able to tell your salespeople how they can actually execute your pricing strategy to make the customers actually follow the decision or the directions you want them to.” - Florian Bauer

Resources / People Mentioned:

• Daniel Kahneman: https://en.wikipedia.org/wiki/Daniel_Kahneman

Connect with Florian Bauer:

• Email: [e-mail]
• LinkedIn: https://www.linkedin.com/in/profdrflorianbauer/

Connect with Mark Stiving:

• Email: [e-mail]
• LinkedIn: https://www.linkedin.com/in/stiving/