April 30, 2024 • 44 mins
Make smarter choices when deciding how to price your product or service by arming yourself with an understanding of the psychology that contributes to consumer behavior. Behavioral economist, author, and Brainy Business Podcast host Melina Palmer joins On Leadership to share how to build consumer curiosity, present information in a clear and concise manner, and get out of your own way when making tough decisions about pricing in your business.
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(00:10):
Hello and welcome back toFranklinCovey's twice-weekly podcast,
On Leadership withScott Miller. That's me,
I'm your host each week whereon Tuesdays and Fridays.
We shine FranklinCovey's spotlightglobally onto different thought
leaders. FranklinCovey, of course,
the most trusted leadership firm in theworld. Many of you have read our books,
you've attended our work sessions,
(00:31):
and many companies have our all-accesspass infused throughout your
culture,
all designed to help build betterleaders and create cultures where people
choose to stay and choose to stay engaged.
Our guest today is Melina Palmer.
Melina is the host of TheBrainy Business Podcast.
She is a renowned behavioral economist.We'll learn more about what that is,
(00:54):
and the author of a series of books,
the most recent of which we arefocusing on today titled The Truth
About Pricing:
How to Apply BehavioralEconomics So Customers Buy.
Who doesn't want to learn more about that?
So if you are in any way involved inhow pricing is set for your products,
your services, your content,your value proposition,
(01:16):
whether you're in operations or marketingor thought leadership or product
development or sales. Oh wait,
we're all involved in sales.
This is going to be a greatconversation for you. Melina Palmer,
welcome to On Leadership.
Oh, thank you so much for havingme. I'm delighted to be here.
Melina, you and I have known each otherfor several years. I've been a follower,
listener, subscriber to your podcast.
(01:38):
You have very graciously invitedme to be a guest on some occasions,
and I've read your books andbeen a fan of your writings,
but I'm still not sure I reallyknow what a behavioral economist is.
You've tried to teachme on several occasions,
but will you reintroduce yourself to ourlisteners and viewers around the world
and reeducate everybody, what doyou do and why is it so important?
(02:01):
Absolutely, and thank youso much for having me.
It's a joy to be here on theshow in the space of behavioral
economics and I'm in that applied side.
So actually using the informationversus being academic research,
it's really in understandinghuman behavior, why people do the things they do,
why they buy the things they buy. And yes,
(02:21):
that's on the customer facing side likewe said in the truth about pricing,
but it's also in whatgets employees to buy in,
understanding how the brain really worksand being able to better communicate as
we're all human,
we all have brains and things would goa lot better if we're able to understand
how people really make decisions insteadof how we think that they should so
that we can communicate in a way thatmakes it so people are naturally more
(02:44):
likely to want to work with and for usand buy our products and services that
are going to help them in a positiveway. So that's the really short answer,
I guess,
to what behavioral economics is and kindof why I think the field is important.
Melina,
I'm going to ask you to pull some insightsout of your first two books and then
we'll get a little deeper intoyour current most recent release,
(03:06):
the Truth about Pricing. But first,
how did you explore this journey?
What was it that interested and fascinatedyou to really dedicate your expertise
when you are the essence of a flywheel,as Jim Collins calls it, this concept,
true or not, around 10,000 hours,
you have more like a couplehundred thousand hours.
Why have you put the full force of yourwriting, your teaching, your podcasting,
(03:30):
your consulting, your keynoting, yourcoaching, your coaching around this topic?
Why do you find it so interesting?
I love the question. Thankyou. I would say that,
so in the beginning of time I was lookingat potentially getting into some area
of psychology when I decided I didn'twant to be a professional singer,
but that's why I do a podcastand things like that these days.
(03:52):
Be up on the stage, dothe keynotes and things.
In the case of I was getting adegree in marketing and I was
reading,
there was this one book that had thissection about psychology of buying
decisions, why peopledo the things they do,
and it just fascinated me and I wouldsay I've always been a really curious
person being beeninterested in why someone
(04:14):
said something that way or howyou can be persuasive and having a
conversation and how to naturallymake it so people want to engage and
continue talking with you and wonderingwhy in this case something worked and
something we thought should havebeen perfect was a big flop,
or if something took offthat we weren't expecting,
(04:35):
why did that happen And not just sittingin this space of believing that I'm
always right and whateverthat happens to be.
And so in the space of finding behavioraleconomics and the greater behavioral
sciences, seeing that it's notjust that there's an art to it.
So I know that we both,
we have that background and kind ofa root in that marketing space and
(04:58):
marketing kind of gets written off asbeing fluffy to a lot of people that
there's not a science behind it. And youget into a lot of going with your gut,
which for some people can really get youin the right path and it works for you
for a really long time and sometimesit takes people down the wrong path and
where people have said forever,
if we knew if there was a science to itor something, then that would be great,
(05:21):
but there isn't anything we just haveto go with what we believe is going to
work and finding in the greater behavioralsciences and in behavioral economics
that really when we understandhow the brain makes decisions,
when we can unlock the rulesthat it's using, it can be very,
very predictable and wecan see how a tiny shift,
(05:41):
just one word here or there can havea tremendous impact on what someone
chooses to do.
And I find that to be so fascinatingand then in being able to help people to
then apply that in a way that theycan have this immediate and tremendous
uplift in the work that they're doingin the conversions that they're getting,
whether that's not getting ghosted onan email internally or getting buy-in on
(06:05):
their project or it has to do with, again,
getting customers a hugeresponse to an ad that has been
pretty stagnant for a long time.
It's just a really amazing thing to see.
And to be able to share those lessonsagain and again for people in a way that
they're able to go implement is somethingthat I can't help but keep finding
(06:26):
all the new things about how our brainswork so that I can share it with the
rest of the world.
Melina,
let's build on that and let's water skiacross your first two books and then
dive a little deeperinto your pricing book.
I believe your first book was WhatYour Customer Wants and Can't Tell you.
Give us a few golden nuggetsfrom that book so that people can
(06:48):
decide if that's a greatfirst place to start,
What Your Customer Wantsand Can't Tell You.
Absolutely.
So this book is really the more ofan introduction into what behavioral
economics is,
how our brains really work and a deepdive on some of these concepts as you want
to try to apply them. Soknowing that our brains are,
(07:08):
we humans make an average of35,000 decisions every single day.
And so knowing that the bulk of thoseare done on a subconscious level,
you don't remember making35,000 decisions yesterday.
And so if we think about thedecisions that you can remember,
it's hard to when we focus on those.
So using these rules to be ableto know how you can start to
(07:31):
apply things like a concept of framingthat how we say something matters more
than what we say.
One of my favorite examples herebeing you go to the grocery store,
you see two stacks, you're goingto get some, we'll say hamburger,
you have to go,
and there are two stacks almost identicaland you're trying to decide which one
you want.
The only difference between them isthat one is labeled as 90% fat free,
(07:54):
the other as 10% fat,
which one do you want to buy?
Most people around the world,
when I've given this exampleand others have done similar,
everybody says 90% fat-free isthe one that we want, right?
Logically we know they're the same,
but they feel completely differentin the way that they're presented.
(08:18):
So what's really empowering in this isto know that if something's not taking
off, it's not necessarily that theproduct is wrong or the price is wrong,
which I know we'll get to,
but it might just be that you'retalking about it in 10% fat terms.
And if you were to reframe that and beable to communicate as 90% fat free,
someone might be overjoyed to buy in,
(08:38):
they just didn't realize that itwas a fit for them. And again,
that's not a change that hasto cost a bunch of money.
You can just tweak the wayyou're talking about it,
find that reframe that's going to becompelling and it's going to encourage
people to be excited to buy.
Is there something in particular thatcustomers want but can't tell you that you
(08:59):
might service to the top.
I think it's the key point with thisbeing that because our brain is in
these two systems, they don't actuallyspeak very well to one another,
so we don't realize whywe're buying things.
And if we ask someone,
you do a focus group ora survey and you say,
(09:21):
hey, we are going to do this toothpaste,it's going to have baking soda in it,
would that make you want to buy it?And they say, oh yeah, absolutely,
I would buy that. They don't really know.
And it's not that they'relying to you on purpose,
but they don't understand how the brainis really making a buying decision.
And research has showed youput someone in an FMRI machine,
(09:41):
the brain lights up as if it's lying toitself when you see it trying to answer
a question like that. And so whenyou ask somebody would you buy this?
Would you be upset if we did this? Thethings they say are often not right,
not because they are again lying,
but they don't really know what they woulddo in that moment and what behavioral
economics does and in What YourCustomer Wants and Can't Tell You,
(10:03):
I give you 16 key conceptsfrom the hundreds that exist to
be able to start and have atoolkit to begin to apply it
yourself. And so understanding thoseand there's a recipe to follow.
I have a framework called behavioralbaking as you go into start applying these
concepts into your workand really using it,
(10:24):
but knowing that these types ofconcepts like humans are loss averse,
we don't like to give things up.
And so what someone may tell you is thatthey would hate if you had a message
that said that something was going awayand that you better not do that because
I'm not going to buy from you anymoreand I'm going to be really mad.
And then if you test it,
the thing that's the most compellingthat most people end up clicking on that
(10:48):
gets them to buy is often somethingthat has that loss aversion messaging.
We have fomo, right? We don't want tomiss out on the thing that's there.
So it motivates behavior in a way thatwhen we sit and think about it on this
logical conscious level would say,I hate that. I wouldn't want it,
that wouldn't work for me.But when push comes to shove,
(11:08):
when the moment actually is upon us,it impacts behavior in a different way.
So this is why understanding the rulesand then having a really good setup of
using it as a lens so you can becontinually testing this type of work is
impactful in being able to havemore value to your business.
Well,
you see this play out in almost everycelebrity cosmetic launch is that it's
(11:32):
sold out in the first hour and allis they may have sold 12 lipsticks or
12 million,
but they scarcity forced itinto small amounts so that it
would sell out immediately. And thenof course there'll be more next week.
To our listeners andviewers On Leadership,
this podcast is not a book review podcast.
(11:52):
We only interview authorswhen we do frequently a lot of our guests are authors.
I rarely walk you through the historyof their books, but in this case today,
Melina has,
I think these books that really nicelybuild on each other as part of a series.
And so I want to take a little deeperdive now into your next book and then
we'll talk about the pricing book.
(12:13):
Your second book I believe was calledWhat Your Employees Need and Can't Tell
You, give us a short idea on that.
Share one thing maybe that employeescan't tell us and then we'll go deep in
pricing.
For sure. This book isyes, the second one,
and it is looking at how ourbrains really react to change and
how we can be more impactful as theleader inside of an organization.
(12:36):
So if you're wanting to encouragepeople to buy in on an idea,
trying to get budget, tryingto get a new team member,
you're trying to get aproject off of the ground.
Often you're trying to influencepeople that don't report to you,
which can be reallydifficult, but if you have,
it may feel like you justneed to be charismatic.
And if you don't havethat natural tendency,
(12:58):
you have no hope in gettingpeople to buy in on your ideas,
you're just sort of stuck andit's an uphill battle forever.
But really if you understand how changeworks and the way that we communicate
the message can make it so it's easierfor people to naturally buy in on
whatever idea it is thatyou're selling them.
And so in this book I talk about howchange really works and I talk about
(13:20):
how you can present information to makeit so people are more likely to want to
buy in on those ideas. And I wouldsay that some of the key stuff here,
it's all intertwined again that we don'tknow how we would react and what we
think we want isn't something wecan necessarily explain properly and
how we're actually goingto act in the moment.
(13:41):
In the case of leadershipmanagement, working with teams,
interpersonal communication, we havea lot of times where people will say,
oh, people know what I mean.They know I'm a good person,
they know I have good intentions,I'm just busy. But they get it right.
They should know, they should understandthe logic behind this decision.
(14:01):
They should be making all these complexcalculations, they should just get it.
And if they don't, that's on themto figure out it's not about me.
And what this book really shows iswhether we would like it to be that way or
not our brains have a lot of immediateresponses and the way that we look at
information, how it's presented to us,
that absolutely impactshow we feel about people,
(14:24):
their ideas and whether wewant to buy in on them or not.
And so if you can make acouple of small tweaks,
if there are a few moments where you canbe more thoughtful in the way that you
present your information, itcan make all the difference.
So I give an example onein the book of a previous
boss and I had been at this company for,
(14:46):
it was under 90 days,
so I was still in that very keywindow of probation and things
and I got an email fromthis boss at 10:00 a.m.
on a Thursday that said, we needto talk, be in my office at 2,
and that is a terrifying emailto get. It is really scary.
(15:08):
And of course I spent the next fourhours looking at every project I had been
working on, every person I wastalking to, anything and everything,
binge snacking as I'm preparing to gointo whatever battle is awaiting me at
2:00 p.m. and then I go in,
she gestures for me to sit downat two o'clock and says to me,
I'm going to be out of the officetomorrow and I wanted to let you know that
(15:30):
yours is the name I'm puttingon my out of office responder.
And that was it. That was the bulkof what we were talking about.
I'm sure we talked aboutother things in that meeting.
I don't remember any of them,
but imagine if she had been tryingto communicate a change to me,
even something that shethought was objectively good,
I'm in no way prepared to hear thatinformation because of how it was all set
(15:53):
up. The concept at the core of this isone called priming that something that
happens before a decision reallyimpacts someone's behavior.
And so if she, it's easyto say, I came to learn,
there was a meeting on Thursday morningsthat it made it more likely I was going
to get emails like this, but I wasalways wondering is this the time?
Did I actually do something wrong?
It really impacted myability to do great work,
(16:16):
I would say whereas maybe she savedtwo minutes writing that email,
I've lost hours of productive time bythinking and dwelling and considering
this. If her email had said, I'm goingto be out of the office tomorrow.
Do you have some time attwo o'clock to discuss it?
Totally different experience.So hours more of productivity,
(16:38):
a better working relationship,
I'm more likely to want to buy in onsomething when we have that meeting,
if there is some newidea or a change coming.
There's just a lot that comes froma little bit of thoughtfulness.
We could have a whole podcastepisode unpacking that one email
because I would've been stricken withparanoia for three and a half hours that I
(17:00):
was going to be firedthat afternoon. Yeah.
Let's talk about pricing.
For those who are listeningtoday and aren't on video,
there's an interestingtchotchke behind Melina's
head that looks to besomething like a gold octopus.
In fact, that is anicon that you purchase,
(17:23):
that you write about in theopening of this most recent book,
The Truth About Pricing. Talk aboutwhy the heck you bought a gold octopus.
Yes, and why the first chapter of thetruth about pricing is in fact called The
Golden Octopus, which is atactic in building curiosity,
in getting someone interested that theywant to continue to read and pick that
(17:46):
thing off the shelf. But in this case,
The Golden Octopus issomething that I had seen at a
store for a long time and Ialways loved it. It's beautiful.
Octopus is my favoriteanimal and I just loved it.
I never really thought about buying it,
but then we were movingout of the city and kind of
(18:08):
saying goodbye to the oldneighborhood, my husband and I,
and eventually we went into that favoritehome goods store that we would always
frequent on walks that we usedto take and he encouraged me,
nudged me to go ahead and buyit saying I was on the brink,
we were moving to a new place.
I was going to be starting consultingfufull-timell time. And he said, hey,
(18:28):
you should just buy it.
It'll be this symbol of rememberingwhat was and what's to come in your new
life in this space.
As I was also starting to studybehavioral economics more at the time too.
And so I bought it and I love it andI have it here on the shelf behind me.
It's one of the fewthings that I still have.
(18:49):
We're not quite minimalists aroundhere, which for those on video, again,
my shelf has lots of things on it,
but trying to be more inthat essentialism space,
it's one of the few things that I haveand I don't remember how much I paid for
it. I don't have that memory of whatit was even when I racked my brain,
I'm not sure. I think it'ssomewhere $35, maybe $50.
(19:09):
So it's obviously notreal gold this octopus,
but it doesn't matter because I wouldn'tsell it if someone offered me $50 for
it, I wouldn't sell it to them. Ifthey offered me a hundred dollars,
I don't think that I would sell itor $250 and it gets a little bit
ridiculous. Why wouldn'tyou sell it? It's a thing.
(19:30):
You could probably get somethingjust like it if you wanted.
You could replace it with the same thing,
but it's become a big piece of myidentity. I've bonded with this thing.
What would I be sayingabout myself, the dream,
the journey if I gave it up for some cash,
right? So when we think about this,
it doesn't make sense on alogical level and understanding
(19:53):
what motivates a purchase and whypricing isn't about the price.
It's not about the number on the tag,
but all the things that happen beforethe price matter more than the price
itself. And then this book,
The Truth about Pricing is talkingabout all those aspects of psychology,
all the things to consider that matterbefore the price so that by the time it
(20:13):
gets to someone seeing theprice, it really becomes a non-issue for them almost.
It's just so excited to move forwardand get whatever that item is
like my golden octopus.
Melina,
in your book you open with a story aboutchocolate chip cookies and you actually
come back to it several timespulling on some of the lessons.
(20:34):
Will you retell thatstory, don't truncate it,
and let people unpack some orextrapolate maybe some examples
in their own businesses from some of theteaching moments that you're talk about
in this chocolate chip story?
Absolutely.
So the framework I use for pricingand change are the same it's called,
(20:56):
it's not about the cookie.
So I want you to imaginewe're walking down the street,
we're having a lovely conversation andwe haven't seen each other in a while,
really engrossed in that chat andthen at some point we start to smell,
there's this amazing scent that comeswafting down the street ahead of us
and while we're still talking toeach other, it is now guiding us.
(21:19):
We're a little bit distracted, right?
We're like cartoon characters withour noses dragging us down the street.
So we're trying to find the source ofthis scent and eventually we see that it's
a bakery,
it's like it's sweet and it's got ahint of chocolate and sea salt and we
realize it's these chocolate chipcookies that are baking and then we see
there's a line in front of the store.
We find ourselves in the line andthen when we get there they say, oh,
(21:43):
today we have free samples and it'sbuy three get one free for today
only. Before we know it, wewalking out of the store,
each eating a cookie and with a bag thathas an undisclosed number in it for us
down the road that we're goingto be eating. That's story one.
Now we're going to go back,rewind, we're on the same street,
(22:04):
same conversation, andthis time someone comes up,
shoves a coupon in ourface and says, hey, hey,
hey you today only we've got thesecookies for sale and if you buy four,
you only have to pay for threeof them. I've got samples.
This guy, right? Didn't he see whata good conversation we were having,
how rude is he? Now we're talking aboutbad sales experiences and one-upping
(22:29):
conversations. As we'retalking about this experience,
we get in front of thestore, we see the line,
and we're pitting those people that haveworse standards than us and by the time
we finally smell the cookies,
it's like that last thing thatnudges us over the edge and say,
I'm going to write a Yelp review abouttheir bad sales practices and how I would
never buy from them.
What we want to know and realize hereis that it could have been exactly the
(22:53):
same cookies in both scenarios.
In the first one we're almostdefinitely buying. In the second one,
we're almost definitely not.So it's not about the cookie,
it's also not about theprice. In the first case,
they could have been $3 a piece, maybethey were 25 cents in the second.
That wasn't really a factor inwhether or not we were buying.
(23:14):
What's really interesting isthat all the same things happened
in the two stories, but theyhappened in a slightly different way.
And one of the key pieces, it's thatpriming I was talking about a minute ago,
that scent of the cookies needs to pullyou in early and that's to attract that
subconscious brain that's making mostof the decisions, getting excited.
(23:36):
It's going to be focusing our attentionto say, look at this, we want this.
We're excited about this. Where'sthat delicious scent coming from?
And it doesn't just comefrom the scent of cookies,
so no worries for those who are insales-oriented businesses or you're all
online or something like that.
But we also had a way inthat we framed the sale.
(23:57):
So by saying buy three, get onefree, versus if you buy four cookies,
you only have to pay for three of them.When things are said more clearly,
when they rhyme, we believe themto be more truthful, more honest,
and we believe in the person that'sselling to us. Also, we talked,
there's a little bit of scarcitywith that with that today only,
we had some herdingbehavior with the line,
(24:18):
with the reviews that are out therebecause we're a herding species,
so there are a lot of littleacts in there that matter,
and the book really breaks down everythingthat comes before. And then again,
this framework of it's not about thecookie in how you implement and in the
truth about pricing,
of course it's about products andservices out to customers in what your
(24:39):
employees need and can't tell you. AsI said, it uses that same framework,
but it's in talking about howwhen you're presenting a change,
all the same things really apply and youjust use them in a slightly different
way.
Melina,
I want people to buy this book becausethere are so many great stories and
examples of how to apply it in so manydifferent circumstances, services,
(25:00):
products, consulting and such.
I kind of want to turn the mic over toyou for a few minutes and just have you
teach us what are some of thecommon pricing mistakes or
successes that people make right or wrong
that today's listener and viewercan just be thinking about. Okay,
so does it really matter ifmy price is $4.99 or $4.98?
(25:23):
Does it matter if I say buy one,
get two free versus get two free?
If you just take thatwherever you'd like to go,
there are a couple of surface thingsthat might get people thinking about what
they're doing right orwrong on their own pricing.
Absolutely. Thank you.
And so I'll first address the numberthing because this is a question I get all
(25:45):
the time. Is it should I end my pricesin a five, a seven or nine or a zero?
And how do I know I'm feeling like thisis the one decision that is the most
important thing in the book.
Another thing I'm going to touch on ishow we kind of get in our own way when it
comes to pricing, but to addressthis one item of the number.
In general,
(26:06):
it doesn't matter nowhere near as muchas we feel like it does for that exact
number, but if you are going to choose,
there's a differentiation to knowingwhat type of business you are.
I spend a lot of time in the booktalking about deciding not are we selling
products or services? Are we inperson or virtual, things like that,
but instead to say,
are you a business that's builton quality or one that is built on
(26:30):
value?
And that fundamental decisionis one of the most defining
ones in the book. And when it comesto thinking about your pricing,
so a quality based business,these are yes, your luxury brands.
If you're selling to celebrities high end,
you want to be seen for your expertise,
you are one that you have specialaccreditations or your extra
(26:53):
sustainable investing inresearch and development.
That quality side has a whole differentvibe and way that we apply those
concepts in the, it's not aboutthe cookie framework to that model.
So in the book, I givean example of Supreme,
the brand that is based in clothing,
(27:15):
but they've gone into so many differentareas now and when they have their logo
on something, people get reallyexcited and want to buy it.
Even like a Pyrex measuring cup,
they did a collab with which theregular measuring cup costs five bucks.
Essentially theirs was $25,
and the only difference is a smalllogo that has says Supreme on it,
(27:37):
but it sold out almost immediately becauseof the way they leveraged scarcity.
And then it goes on the resale marketfor a couple hundred dollars of people
wanting to buy this very simple measuringcup that functionally you could get
the exact same one for only $5,
but it's what it says about our identityand people want to invest in that.
The quality of that kind ofa brand, it feels different.
(28:01):
And so the other side being a value,
so this is the Costco, the Walmart,
both aspects of a business are very,
they're really good strategies,amazing businesses on both sides.
So again, Costco, Walmart,
and if you go on those value sides whereyou're looking for a deal for people,
(28:24):
it's a discount the bargain.
This is the type of brand where roundingdown your price is going to really say
something. $499 feelsvery different than $500.
And knowing that when itcomes to your pricing,
so do you want to be on value or doyou want to be a brand of quality is a
key decision to then determine if youtypically do whole number pricing or
(28:47):
you're typically going to round down.
If you're on the side thatyou're going to be rounding down,
then whether you wantnines or eights or fives,
it typically doesn't make a difference.
You can pick whichever one works for youor you feel good about and move forward
with that, but there are also,again, different decisions here.
The way we tweak or implement is differentwhen we're on one side or the other,
(29:10):
and I know everyone who's listening,you're thinking, but I want both.
I want to be quality and value,and this herein lies the problem.
When we live in that gray,
it becomes a big cognitiveweight for people.
It's hard to classify you becauseit feels a little bit confusing and
they're not going to say, well, you'retalking about a brand of quality,
(29:33):
but then I'm seeing these value-basedpricing models that feels a little bit
different in the way thatyou're discounting or something.
No one's going to say that. They'rejust say they need to think about it.
They want to go evaluate a littlebit more in a way that they shouldn't
necessarily need that additional time.
And so really owning and having everythingyour brand stands for be something of
(29:54):
quality. Like I mentionedCostco on the value side,
so they are a warehouse andit feels like a warehouse.
They're not investing inexpensive furnishings,
that they're not investingin expensive ads, right?
They are putting everything they can intovalue for their members and they have
things like $1.50 hot dog combos andthe $4.99 rotisserie chickens that will
(30:19):
never go up in price even though theylose tens of millions of dollars on this
every single year.
It's because they care about their membersand they're willing to be in it with
you to get that good deal. But don'tworry, Costco makes plenty of money.
On the quality side,
you're going to go to Tiffany tobuy an engagement ring and they have
(30:39):
special champagne that they're giving youand this little cakes that you're able
to get for free,
it's plush chairs and their websiteis so beautiful and all these
things that's investing in that experiencein a different way that goes all the
way through everythingthat the brand does.
So understanding what type of businessyou are and owning one, picking one,
(31:03):
committing to it if you learn nothingelse or remember nothing else from
this podcast and the conversation doingthat and doing everything you can to
be all in and not get pulled intothe other one on the quality side,
you probably shouldn't run a bunch ofdiscounts and sales even when everyone
else is doing something atthe holidays or something.
(31:25):
Being able to have those differentiatedchoices is really important,
and as I said,
as far as a thing that people getwrong most of the time when it comes to
pricing beyond this is people justreally hate pricing in general,
especially in smaller businessesand service-based businesses.
When you're having to price your own time,
it feels really stressful and our brainsdo a weird flip and cause us to focus
(31:49):
on the wrong stuff.
We spend a whole bunch of timedoing what's called bike shedding,
but really dwelling onsomething not very important.
It's productively procrastinating onsomething small like the exact number at
the end of the price and not reallyfocusing on investing in all the things
that really do matterthat can move the needle.
These psychological impacts that youcan be focused on that are going to have
(32:13):
a bigger bang for your buck at the end,
where if you waste enough time inthat productive procrastination,
the things that kind of feel important,you're putting it off forever though,
to really make those decisions.
One day you wake up and your launches inthree days and you haven't finished the
price yet, and so you just picksomething out of thin air and say, okay,
we'll just go a dollar less than everybodyelse and we'll deal with this again
(32:35):
in six months when we have more time,
but you'll never have more time becauseyour brain wants to keep putting this
off. So knowing what matters,getting out of your own way,
knowing that often you're going to dwellon the wrong things if you don't have a
guide to help you know what to focus on.
That's what I tried to put into thebook in the same way where we help our
clients to do this whenit comes to pricing,
(32:56):
being able to know what matters,make the right decisions,
and to be able to move forward confidentlyso you can talk about those sales in
a way that someone is going to feelyou're exuding that confidence that
makes it easier to buy from you.
Melina, thank you for that. Iwas riveted listening to you.
I've always been fascinatedwith how things are priced.
(33:19):
I know that when I buy a tennis racket,
it's going to be somewherebetween $85 and $210 and a pair of
athletic shoes are going to besomewhere between $85 and $150 or
golf balls are X, I know what a rotisseriechicken costs generally speaking,
and then you go into Louis Vuittonor Gucci or Hermes or Dior or
(33:42):
whatever it is,
and you see a purse for $1,865
or $2,400 or
$3,915 or
$6,400. And I always,
my wife has a couple of these pursesshame on me, and I've always wondered,
(34:02):
I mean,
I know what that cow costs and I knowhow much they're paying that artesian
stitchery in Italy per hour,
and I can generally cost ofgoods it up to about $400 a
purse, but I'm also wondering how muchis the brand equity worth in that purse?
Is it really worth $4,000?Is it worth $9,000?
(34:23):
When you get into the luxury goods market,
which everybody has some levelof that whether that's your car,
it's your wallet, it's your scarf,
how do these higher level productswhere we know the cost of goods is
minimal? How does, and I don'twant to pick on one brand,
but how does Gucci decide thatperson is worth $8,465 versus
(34:45):
$7,248? Where does thatpsychology come about?
Yeah, it's hard to,
obviously each one has its own specificmodel as to how they're going to pick
their specific and exactprice, but in that,
you gave the exampleof saying something is
$8,015.
That roundup is also really impactfulof what it says about something
(35:10):
versus if it was
$7,985. The $15 up
is not the same as $15 down or apenny one way or the other, right?
So that's important onsome of the psychology.
In the book I talk about thisin terms of grilled cheese
sandwiches, and this is one ofmy favorite examples in there,
(35:32):
so hopefully it can humorme a little bit here,
but it really applies in this case.
When we think about a grilled cheesesandwich, even people that can't cook,
this is probably something that youcould sit down and make yourself right.
There's not too much fancy goinginto the grilled cheese and if you
were going to buy those ingredients,
(35:53):
be a dollar maybe to make yourown grilled cheese at home.
And so I want the audience now takea moment. You're listening here.
Think about if you really neededa grilled cheese, you want one,
you're going to invest in whatfeels like a fancy grilled cheese.
You're excited. You see one on the menu,
(36:13):
how much are you willing to payfor that grilled cheese sandwich?
When I ask this question oftenI'll hear people say, oh,
I mean $10, $15, $20.Sometimes I hear $25,
I've even heard $30, $35 before. Whenwe're talking about the grilled cheese,
sometimes they'll ask, does it havetomato soup with it or whatnot,
(36:36):
but it's somewhere in that range.
I think $35 is the highest I'veheard someone say back. Now,
there is a restaurant in New YorkCity, it's called Serendipity 3.
They have a grilled cheesesandwich that they sell.
It's on their menu for $214for a grilled cheese sandwich.
Yes, it does have a sideof a tomato type of soup,
(36:58):
and they sell it. People buy this.
Serendipity 3 also has a $1,000vanilla sundae and they have
$200 french fries that they sell.It's not all that they sell.
They have other things thatthey have available on the menu,
but people are going to buy these.When they introduced the $200 fries,
(37:19):
which was something they did coming outof the pandemic to celebrate that they
were still open or thatthey were reopening,
they had a wait list of eight to10 weeks of people wanting to get
$200 french fries, which is justmind boggling when we think about it,
right? Because how fancy canthey really be? But also,
I know when I tell this story, peoplego, well, I kind of want to try it.
(37:42):
What's going on with thisgrilled cheese sandwich?
Why are these fries so expensive?
You want to be in and partof that special experience,
you have a wait list because they'rescarce. Not everyone can get one.
You have to order it in advance to beable to get them because the ingredients
are so special and supreme and extreme and
extravagant to get them.
(38:04):
And even if you just go eat there andyou order something else on their menu,
you may get one of thoseother sandwiches that's $45
because you're not going to go all theway in on a $200 grilled cheese sandwich,
but you're part of it and you wantto share about it on social media.
The thing is,
that sandwich you bought is way more thanwhat you would have otherwise because
you're anchored in on thebrand what it says about you.
(38:26):
You want to be part of the experiencein the know part of that in-crowd.
It all wraps up in this vibe that says
different about those whobuy from Serendipity 3. And then just to help again,
when we think about theboxes we put ourselves into when it comes to pricing and
wanting to get out of our own way,
is while that has won a Guinness WorldRecord as the most expensive sandwich at
(38:48):
$215, it's actually not the mostanyone has ever paid for one.
If we remember the Virgin Marygrilled cheese, which went on eBay,
it was a 10-year-old sandwich that awoman took a bite, saw the Virgin Mary,
and it put it on her nightstand withcotton balls and it didn't get a speck of
mold for 10 years, andthen decided to sell it,
(39:09):
and it sold for $28,000 or $38,000 on
eBay, and it had 38 bids, I think,
to be able to buy this sandwich. Andso not everyone's going to buy that.
Not everyone's thatcustomer, but someone is,
and you only need one personto buy the $30,000 sandwich.
You don't need everyone to buy the$214 sandwich. And the point is,
(39:31):
whatever you think is the max ofwhat people would be willing to pay,
whatever you think is that upperlimit, it's probably not true.
And so getting out of our own wayand seeing what opportunity exists,
taking that step back is really importantwhen it comes to understanding what
our brand can be about and how we cancreate this really amazing experience that
(39:51):
becomes a cool virtuous cycle for anybody.
And it's not just for raising prices,right? Because I said about Costco,
we can do this in a way that's talkingabout member value and things that we
maybe are looking for ways to lowerour prices but still have this amazing
experience or whatever thathappens to be for people.
So knowing that you want to own whateveryou're about and that whatever you
(40:12):
think the limit is of the model of howyou can sell or how people are willing to
buy in your industry or anything likethat, or what they're willing to pay,
doesn't have to be true ifyou don't want it to be.
In fact, one of the insights,
many insights I took from The Truth aboutPricing was that sometimes we'll have
clients or customers that arepushing back on our pricing,
(40:32):
and it may simply be they're not ourcustomer, they aren't the right customer,
and we should be thoughtful aboutmaybe inoculating ourself against their
pushback and say, gosh,they're not my ideal customer,
so I'm really not going to entertain orallow their pushback to make me second
guess my pricing. Give us a minuteon that and we'll let you go.
Oh yeah, absolutely.Definitely not everyone is your customer, and that's okay.
(40:56):
And knowing who you are for andwhat it's a fit for and being able
to frame it in a way that someone canimmediately see that it's not for them is
ideal. But if you have the confidencethat you know it's the right price,
the value's there for the rightperson that you're a fit for.
That if someone says, well,why would you charge that much?
That's not expensive. That's tooexpensive. You can say, oh, no problem.
(41:19):
It's not a fit for you. Thanks so much.
I know someone else you could workwith or whatnot. Having that ownership,
that belief in what you're worth and thevalue and what someone should pay for
this and how that works,knowing other people do,
is a huge piece in helping people tofeel comfortable to buy when they are the
right fit for you,
and you can make sure you're investingin those people that are going to love to
(41:42):
work with you and do business with youand get it right that they love that
experience. And for those whoaren't, when you are willing to say,
you know what? I can tell we're notgoing to be a fit for each other,
and this isn't the right mix for you, so
we don't work with clients.
We don't want you to invest money ifit's not going to be a great win for you,
so let's go our separate ways andwe know someone you could work with.
(42:06):
That's something that'sgot a lot of integrity that people respect when it comes
to a company, and so there's alot of value in that as well.
Melina Palmer, you are the hostof The Brainy Business Podcast.
You are a behavioral economist,
and your most recent book istitled The Truth About Pricing:
How to Apply BehavioralEconomics So Customers Buy.
(42:29):
Melina, thank you for investing in us.First of all, you're a great storyteller.
And second of all your stuff,
I think many of our listeners andviewers today will go out and are already
buying this book because there's so manygreat examples on how to apply these
concepts. Whether you own an Etsystore, whether you are eBaying,
you're having a garage sale,
you have a consulting service whereyou're selling your expertise,
(42:53):
fantastic series. What's nextfor you? There's got to be,
you need a book that's red oryellow, so what's next for you?
Or purple, right? My brandhas a lot of purple in it.
I'm actually delighted right now.
I'm preparing to do myfirst TEDx at TEDxPortland,
which is going to be talking abit about how we get stuck on
things and how to get out of our own waywhen we want to be more productive or
(43:17):
implement what we learned in thegreat book and the amazing podcast,
some quick tips, which I talkabout in all of the books,
but being able to have in a lovelynine minute talk is going to
be a lot of fun. So that is a bigarea of focus right now, is that TEDx,
and we'll see if that turns intothe purple, red, or yellow book.
How exciting. I have interviewedsomeone from the C-suite at TEDx,
(43:41):
and I know how rigorous the preparation,well, the process of selection is,
but also the preparation forthat. So congrats to you.
Delighted to have you back withthe purple book in a year or two.
Sounds good. Thank you so much.
And we'll see you back here next weekfor a new conversation On Leadership.
Hello and welcome back toFranklinCovey's twice-weekly podcast,
On Leadership withScott Miller. That's me,
I'm your host each week whereon Tuesdays and Fridays.
We shine FranklinCovey's spotlightglobally onto different thought
leaders. FranklinCovey, of course,
the most trusted leadership firm in theworld. Many of you have read our books,
you've attended our work sessions,
(00:31):
and many companies have our all-accesspass infused throughout your
culture,
all designed to help build betterleaders and create cultures where people
choose to stay and choose to stay engaged.
Our guest today is Melina Palmer.
Melina is the host of TheBrainy Business Podcast.
She is a renowned behavioral economist.We'll learn more about what that is,
(00:54):
and the author of a series of books,
the most recent of which we arefocusing on today titled The Truth
About Pricing:
How to Apply BehavioralEconomics So Customers Buy.
Who doesn't want to learn more about that?
So if you are in any way involved inhow pricing is set for your products,
your services, your content,your value proposition,
(01:16):
whether you're in operations or marketingor thought leadership or product
development or sales. Oh wait,
we're all involved in sales.
This is going to be a greatconversation for you. Melina Palmer,
welcome to On Leadership.
Oh, thank you so much for havingme. I'm delighted to be here.
Melina, you and I have known each otherfor several years. I've been a follower,
listener, subscriber to your podcast.
(01:38):
You have very graciously invitedme to be a guest on some occasions,
and I've read your books andbeen a fan of your writings,
but I'm still not sure I reallyknow what a behavioral economist is.
You've tried to teachme on several occasions,
but will you reintroduce yourself to ourlisteners and viewers around the world
and reeducate everybody, what doyou do and why is it so important?
(02:01):
Absolutely, and thank youso much for having me.
It's a joy to be here on theshow in the space of behavioral
economics and I'm in that applied side.
So actually using the informationversus being academic research,
it's really in understandinghuman behavior, why people do the things they do,
why they buy the things they buy. And yes,
(02:21):
that's on the customer facing side likewe said in the truth about pricing,
but it's also in whatgets employees to buy in,
understanding how the brain really worksand being able to better communicate as
we're all human,
we all have brains and things would goa lot better if we're able to understand
how people really make decisions insteadof how we think that they should so
that we can communicate in a way thatmakes it so people are naturally more
(02:44):
likely to want to work with and for usand buy our products and services that
are going to help them in a positiveway. So that's the really short answer,
I guess,
to what behavioral economics is and kindof why I think the field is important.
Melina,
I'm going to ask you to pull some insightsout of your first two books and then
we'll get a little deeper intoyour current most recent release,
(03:06):
the Truth about Pricing. But first,
how did you explore this journey?
What was it that interested and fascinatedyou to really dedicate your expertise
when you are the essence of a flywheel,as Jim Collins calls it, this concept,
true or not, around 10,000 hours,
you have more like a couplehundred thousand hours.
Why have you put the full force of yourwriting, your teaching, your podcasting,
(03:30):
your consulting, your keynoting, yourcoaching, your coaching around this topic?
Why do you find it so interesting?
I love the question. Thankyou. I would say that,
so in the beginning of time I was lookingat potentially getting into some area
of psychology when I decided I didn'twant to be a professional singer,
but that's why I do a podcastand things like that these days.
(03:52):
Be up on the stage, dothe keynotes and things.
In the case of I was getting adegree in marketing and I was
reading,
there was this one book that had thissection about psychology of buying
decisions, why peopledo the things they do,
and it just fascinated me and I wouldsay I've always been a really curious
person being beeninterested in why someone
(04:14):
said something that way or howyou can be persuasive and having a
conversation and how to naturallymake it so people want to engage and
continue talking with you and wonderingwhy in this case something worked and
something we thought should havebeen perfect was a big flop,
or if something took offthat we weren't expecting,
(04:35):
why did that happen And not just sittingin this space of believing that I'm
always right and whateverthat happens to be.
And so in the space of finding behavioraleconomics and the greater behavioral
sciences, seeing that it's notjust that there's an art to it.
So I know that we both,
we have that background and kind ofa root in that marketing space and
(04:58):
marketing kind of gets written off asbeing fluffy to a lot of people that
there's not a science behind it. And youget into a lot of going with your gut,
which for some people can really get youin the right path and it works for you
for a really long time and sometimesit takes people down the wrong path and
where people have said forever,
if we knew if there was a science to itor something, then that would be great,
(05:21):
but there isn't anything we just haveto go with what we believe is going to
work and finding in the greater behavioralsciences and in behavioral economics
that really when we understandhow the brain makes decisions,
when we can unlock the rulesthat it's using, it can be very,
very predictable and wecan see how a tiny shift,
(05:41):
just one word here or there can havea tremendous impact on what someone
chooses to do.
And I find that to be so fascinatingand then in being able to help people to
then apply that in a way that theycan have this immediate and tremendous
uplift in the work that they're doingin the conversions that they're getting,
whether that's not getting ghosted onan email internally or getting buy-in on
(06:05):
their project or it has to do with, again,
getting customers a hugeresponse to an ad that has been
pretty stagnant for a long time.
It's just a really amazing thing to see.
And to be able to share those lessonsagain and again for people in a way that
they're able to go implement is somethingthat I can't help but keep finding
(06:26):
all the new things about how our brainswork so that I can share it with the
rest of the world.
Melina,
let's build on that and let's water skiacross your first two books and then
dive a little deeperinto your pricing book.
I believe your first book was WhatYour Customer Wants and Can't Tell you.
Give us a few golden nuggetsfrom that book so that people can
(06:48):
decide if that's a greatfirst place to start,
What Your Customer Wantsand Can't Tell You.
Absolutely.
So this book is really the more ofan introduction into what behavioral
economics is,
how our brains really work and a deepdive on some of these concepts as you want
to try to apply them. Soknowing that our brains are,
(07:08):
we humans make an average of35,000 decisions every single day.
And so knowing that the bulk of thoseare done on a subconscious level,
you don't remember making35,000 decisions yesterday.
And so if we think about thedecisions that you can remember,
it's hard to when we focus on those.
So using these rules to be ableto know how you can start to
(07:31):
apply things like a concept of framingthat how we say something matters more
than what we say.
One of my favorite examples herebeing you go to the grocery store,
you see two stacks, you're goingto get some, we'll say hamburger,
you have to go,
and there are two stacks almost identicaland you're trying to decide which one
you want.
The only difference between them isthat one is labeled as 90% fat free,
(07:54):
the other as 10% fat,
which one do you want to buy?
Most people around the world,
when I've given this exampleand others have done similar,
everybody says 90% fat-free isthe one that we want, right?
Logically we know they're the same,
but they feel completely differentin the way that they're presented.
(08:18):
So what's really empowering in this isto know that if something's not taking
off, it's not necessarily that theproduct is wrong or the price is wrong,
which I know we'll get to,
but it might just be that you'retalking about it in 10% fat terms.
And if you were to reframe that and beable to communicate as 90% fat free,
someone might be overjoyed to buy in,
(08:38):
they just didn't realize that itwas a fit for them. And again,
that's not a change that hasto cost a bunch of money.
You can just tweak the wayyou're talking about it,
find that reframe that's going to becompelling and it's going to encourage
people to be excited to buy.
Is there something in particular thatcustomers want but can't tell you that you
(08:59):
might service to the top.
I think it's the key point with thisbeing that because our brain is in
these two systems, they don't actuallyspeak very well to one another,
so we don't realize whywe're buying things.
And if we ask someone,
you do a focus group ora survey and you say,
(09:21):
hey, we are going to do this toothpaste,it's going to have baking soda in it,
would that make you want to buy it?And they say, oh yeah, absolutely,
I would buy that. They don't really know.
And it's not that they'relying to you on purpose,
but they don't understand how the brainis really making a buying decision.
And research has showed youput someone in an FMRI machine,
(09:41):
the brain lights up as if it's lying toitself when you see it trying to answer
a question like that. And so whenyou ask somebody would you buy this?
Would you be upset if we did this? Thethings they say are often not right,
not because they are again lying,
but they don't really know what they woulddo in that moment and what behavioral
economics does and in What YourCustomer Wants and Can't Tell You,
(10:03):
I give you 16 key conceptsfrom the hundreds that exist to
be able to start and have atoolkit to begin to apply it
yourself. And so understanding thoseand there's a recipe to follow.
I have a framework called behavioralbaking as you go into start applying these
concepts into your workand really using it,
(10:24):
but knowing that these types ofconcepts like humans are loss averse,
we don't like to give things up.
And so what someone may tell you is thatthey would hate if you had a message
that said that something was going awayand that you better not do that because
I'm not going to buy from you anymoreand I'm going to be really mad.
And then if you test it,
the thing that's the most compellingthat most people end up clicking on that
(10:48):
gets them to buy is often somethingthat has that loss aversion messaging.
We have fomo, right? We don't want tomiss out on the thing that's there.
So it motivates behavior in a way thatwhen we sit and think about it on this
logical conscious level would say,I hate that. I wouldn't want it,
that wouldn't work for me.But when push comes to shove,
(11:08):
when the moment actually is upon us,it impacts behavior in a different way.
So this is why understanding the rulesand then having a really good setup of
using it as a lens so you can becontinually testing this type of work is
impactful in being able to havemore value to your business.
Well,
you see this play out in almost everycelebrity cosmetic launch is that it's
(11:32):
sold out in the first hour and allis they may have sold 12 lipsticks or
12 million,
but they scarcity forced itinto small amounts so that it
would sell out immediately. And thenof course there'll be more next week.
To our listeners andviewers On Leadership,
this podcast is not a book review podcast.
(11:52):
We only interview authorswhen we do frequently a lot of our guests are authors.
I rarely walk you through the historyof their books, but in this case today,
Melina has,
I think these books that really nicelybuild on each other as part of a series.
And so I want to take a little deeperdive now into your next book and then
we'll talk about the pricing book.
(12:13):
Your second book I believe was calledWhat Your Employees Need and Can't Tell
You, give us a short idea on that.
Share one thing maybe that employeescan't tell us and then we'll go deep in
pricing.
For sure. This book isyes, the second one,
and it is looking at how ourbrains really react to change and
how we can be more impactful as theleader inside of an organization.
(12:36):
So if you're wanting to encouragepeople to buy in on an idea,
trying to get budget, tryingto get a new team member,
you're trying to get aproject off of the ground.
Often you're trying to influencepeople that don't report to you,
which can be reallydifficult, but if you have,
it may feel like you justneed to be charismatic.
And if you don't havethat natural tendency,
(12:58):
you have no hope in gettingpeople to buy in on your ideas,
you're just sort of stuck andit's an uphill battle forever.
But really if you understand how changeworks and the way that we communicate
the message can make it so it's easierfor people to naturally buy in on
whatever idea it is thatyou're selling them.
And so in this book I talk about howchange really works and I talk about
(13:20):
how you can present information to makeit so people are more likely to want to
buy in on those ideas. And I wouldsay that some of the key stuff here,
it's all intertwined again that we don'tknow how we would react and what we
think we want isn't something wecan necessarily explain properly and
how we're actually goingto act in the moment.
(13:41):
In the case of leadershipmanagement, working with teams,
interpersonal communication, we havea lot of times where people will say,
oh, people know what I mean.They know I'm a good person,
they know I have good intentions,I'm just busy. But they get it right.
They should know, they should understandthe logic behind this decision.
(14:01):
They should be making all these complexcalculations, they should just get it.
And if they don't, that's on themto figure out it's not about me.
And what this book really shows iswhether we would like it to be that way or
not our brains have a lot of immediateresponses and the way that we look at
information, how it's presented to us,
that absolutely impactshow we feel about people,
(14:24):
their ideas and whether wewant to buy in on them or not.
And so if you can make acouple of small tweaks,
if there are a few moments where you canbe more thoughtful in the way that you
present your information, itcan make all the difference.
So I give an example onein the book of a previous
boss and I had been at this company for,
(14:46):
it was under 90 days,
so I was still in that very keywindow of probation and things
and I got an email fromthis boss at 10:00 a.m.
on a Thursday that said, we needto talk, be in my office at 2,
and that is a terrifying emailto get. It is really scary.
(15:08):
And of course I spent the next fourhours looking at every project I had been
working on, every person I wastalking to, anything and everything,
binge snacking as I'm preparing to gointo whatever battle is awaiting me at
2:00 p.m. and then I go in,
she gestures for me to sit downat two o'clock and says to me,
I'm going to be out of the officetomorrow and I wanted to let you know that
(15:30):
yours is the name I'm puttingon my out of office responder.
And that was it. That was the bulkof what we were talking about.
I'm sure we talked aboutother things in that meeting.
I don't remember any of them,
but imagine if she had been tryingto communicate a change to me,
even something that shethought was objectively good,
I'm in no way prepared to hear thatinformation because of how it was all set
(15:53):
up. The concept at the core of this isone called priming that something that
happens before a decision reallyimpacts someone's behavior.
And so if she, it's easyto say, I came to learn,
there was a meeting on Thursday morningsthat it made it more likely I was going
to get emails like this, but I wasalways wondering is this the time?
Did I actually do something wrong?
It really impacted myability to do great work,
(16:16):
I would say whereas maybe she savedtwo minutes writing that email,
I've lost hours of productive time bythinking and dwelling and considering
this. If her email had said, I'm goingto be out of the office tomorrow.
Do you have some time attwo o'clock to discuss it?
Totally different experience.So hours more of productivity,
(16:38):
a better working relationship,
I'm more likely to want to buy in onsomething when we have that meeting,
if there is some newidea or a change coming.
There's just a lot that comes froma little bit of thoughtfulness.
We could have a whole podcastepisode unpacking that one email
because I would've been stricken withparanoia for three and a half hours that I
(17:00):
was going to be firedthat afternoon. Yeah.
Let's talk about pricing.
For those who are listeningtoday and aren't on video,
there's an interestingtchotchke behind Melina's
head that looks to besomething like a gold octopus.
In fact, that is anicon that you purchase,
(17:23):
that you write about in theopening of this most recent book,
The Truth About Pricing. Talk aboutwhy the heck you bought a gold octopus.
Yes, and why the first chapter of thetruth about pricing is in fact called The
Golden Octopus, which is atactic in building curiosity,
in getting someone interested that theywant to continue to read and pick that
(17:46):
thing off the shelf. But in this case,
The Golden Octopus issomething that I had seen at a
store for a long time and Ialways loved it. It's beautiful.
Octopus is my favoriteanimal and I just loved it.
I never really thought about buying it,
but then we were movingout of the city and kind of
(18:08):
saying goodbye to the oldneighborhood, my husband and I,
and eventually we went into that favoritehome goods store that we would always
frequent on walks that we usedto take and he encouraged me,
nudged me to go ahead and buyit saying I was on the brink,
we were moving to a new place.
I was going to be starting consultingfufull-timell time. And he said, hey,
(18:28):
you should just buy it.
It'll be this symbol of rememberingwhat was and what's to come in your new
life in this space.
As I was also starting to studybehavioral economics more at the time too.
And so I bought it and I love it andI have it here on the shelf behind me.
It's one of the fewthings that I still have.
(18:49):
We're not quite minimalists aroundhere, which for those on video, again,
my shelf has lots of things on it,
but trying to be more inthat essentialism space,
it's one of the few things that I haveand I don't remember how much I paid for
it. I don't have that memory of whatit was even when I racked my brain,
I'm not sure. I think it'ssomewhere $35, maybe $50.
(19:09):
So it's obviously notreal gold this octopus,
but it doesn't matter because I wouldn'tsell it if someone offered me $50 for
it, I wouldn't sell it to them. Ifthey offered me a hundred dollars,
I don't think that I would sell itor $250 and it gets a little bit
ridiculous. Why wouldn'tyou sell it? It's a thing.
(19:30):
You could probably get somethingjust like it if you wanted.
You could replace it with the same thing,
but it's become a big piece of myidentity. I've bonded with this thing.
What would I be sayingabout myself, the dream,
the journey if I gave it up for some cash,
right? So when we think about this,
it doesn't make sense on alogical level and understanding
(19:53):
what motivates a purchase and whypricing isn't about the price.
It's not about the number on the tag,
but all the things that happen beforethe price matter more than the price
itself. And then this book,
The Truth about Pricing is talkingabout all those aspects of psychology,
all the things to consider that matterbefore the price so that by the time it
(20:13):
gets to someone seeing theprice, it really becomes a non-issue for them almost.
It's just so excited to move forwardand get whatever that item is
like my golden octopus.
Melina,
in your book you open with a story aboutchocolate chip cookies and you actually
come back to it several timespulling on some of the lessons.
(20:34):
Will you retell thatstory, don't truncate it,
and let people unpack some orextrapolate maybe some examples
in their own businesses from some of theteaching moments that you're talk about
in this chocolate chip story?
Absolutely.
So the framework I use for pricingand change are the same it's called,
(20:56):
it's not about the cookie.
So I want you to imaginewe're walking down the street,
we're having a lovely conversation andwe haven't seen each other in a while,
really engrossed in that chat andthen at some point we start to smell,
there's this amazing scent that comeswafting down the street ahead of us
and while we're still talking toeach other, it is now guiding us.
(21:19):
We're a little bit distracted, right?
We're like cartoon characters withour noses dragging us down the street.
So we're trying to find the source ofthis scent and eventually we see that it's
a bakery,
it's like it's sweet and it's got ahint of chocolate and sea salt and we
realize it's these chocolate chipcookies that are baking and then we see
there's a line in front of the store.
We find ourselves in the line andthen when we get there they say, oh,
(21:43):
today we have free samples and it'sbuy three get one free for today
only. Before we know it, wewalking out of the store,
each eating a cookie and with a bag thathas an undisclosed number in it for us
down the road that we're goingto be eating. That's story one.
Now we're going to go back,rewind, we're on the same street,
(22:04):
same conversation, andthis time someone comes up,
shoves a coupon in ourface and says, hey, hey,
hey you today only we've got thesecookies for sale and if you buy four,
you only have to pay for threeof them. I've got samples.
This guy, right? Didn't he see whata good conversation we were having,
how rude is he? Now we're talking aboutbad sales experiences and one-upping
(22:29):
conversations. As we'retalking about this experience,
we get in front of thestore, we see the line,
and we're pitting those people that haveworse standards than us and by the time
we finally smell the cookies,
it's like that last thing thatnudges us over the edge and say,
I'm going to write a Yelp review abouttheir bad sales practices and how I would
never buy from them.
What we want to know and realize hereis that it could have been exactly the
(22:53):
same cookies in both scenarios.
In the first one we're almostdefinitely buying. In the second one,
we're almost definitely not.So it's not about the cookie,
it's also not about theprice. In the first case,
they could have been $3 a piece, maybethey were 25 cents in the second.
That wasn't really a factor inwhether or not we were buying.
(23:14):
What's really interesting isthat all the same things happened
in the two stories, but theyhappened in a slightly different way.
And one of the key pieces, it's thatpriming I was talking about a minute ago,
that scent of the cookies needs to pullyou in early and that's to attract that
subconscious brain that's making mostof the decisions, getting excited.
(23:36):
It's going to be focusing our attentionto say, look at this, we want this.
We're excited about this. Where'sthat delicious scent coming from?
And it doesn't just comefrom the scent of cookies,
so no worries for those who are insales-oriented businesses or you're all
online or something like that.
But we also had a way inthat we framed the sale.
(23:57):
So by saying buy three, get onefree, versus if you buy four cookies,
you only have to pay for three of them.When things are said more clearly,
when they rhyme, we believe themto be more truthful, more honest,
and we believe in the person that'sselling to us. Also, we talked,
there's a little bit of scarcitywith that with that today only,
we had some herdingbehavior with the line,
(24:18):
with the reviews that are out therebecause we're a herding species,
so there are a lot of littleacts in there that matter,
and the book really breaks down everythingthat comes before. And then again,
this framework of it's not about thecookie in how you implement and in the
truth about pricing,
of course it's about products andservices out to customers in what your
(24:39):
employees need and can't tell you. AsI said, it uses that same framework,
but it's in talking about howwhen you're presenting a change,
all the same things really apply and youjust use them in a slightly different
way.
Melina,
I want people to buy this book becausethere are so many great stories and
examples of how to apply it in so manydifferent circumstances, services,
(25:00):
products, consulting and such.
I kind of want to turn the mic over toyou for a few minutes and just have you
teach us what are some of thecommon pricing mistakes or
successes that people make right or wrong
that today's listener and viewercan just be thinking about. Okay,
so does it really matter ifmy price is $4.99 or $4.98?
(25:23):
Does it matter if I say buy one,
get two free versus get two free?
If you just take thatwherever you'd like to go,
there are a couple of surface thingsthat might get people thinking about what
they're doing right orwrong on their own pricing.
Absolutely. Thank you.
And so I'll first address the numberthing because this is a question I get all
(25:45):
the time. Is it should I end my pricesin a five, a seven or nine or a zero?
And how do I know I'm feeling like thisis the one decision that is the most
important thing in the book.
Another thing I'm going to touch on ishow we kind of get in our own way when it
comes to pricing, but to addressthis one item of the number.
In general,
(26:06):
it doesn't matter nowhere near as muchas we feel like it does for that exact
number, but if you are going to choose,
there's a differentiation to knowingwhat type of business you are.
I spend a lot of time in the booktalking about deciding not are we selling
products or services? Are we inperson or virtual, things like that,
but instead to say,
are you a business that's builton quality or one that is built on
(26:30):
value?
And that fundamental decisionis one of the most defining
ones in the book. And when it comesto thinking about your pricing,
so a quality based business,these are yes, your luxury brands.
If you're selling to celebrities high end,
you want to be seen for your expertise,
you are one that you have specialaccreditations or your extra
(26:53):
sustainable investing inresearch and development.
That quality side has a whole differentvibe and way that we apply those
concepts in the, it's not aboutthe cookie framework to that model.
So in the book, I givean example of Supreme,
the brand that is based in clothing,
(27:15):
but they've gone into so many differentareas now and when they have their logo
on something, people get reallyexcited and want to buy it.
Even like a Pyrex measuring cup,
they did a collab with which theregular measuring cup costs five bucks.
Essentially theirs was $25,
and the only difference is a smalllogo that has says Supreme on it,
(27:37):
but it sold out almost immediately becauseof the way they leveraged scarcity.
And then it goes on the resale marketfor a couple hundred dollars of people
wanting to buy this very simple measuringcup that functionally you could get
the exact same one for only $5,
but it's what it says about our identityand people want to invest in that.
The quality of that kind ofa brand, it feels different.
(28:01):
And so the other side being a value,
so this is the Costco, the Walmart,
both aspects of a business are very,
they're really good strategies,amazing businesses on both sides.
So again, Costco, Walmart,
and if you go on those value sides whereyou're looking for a deal for people,
(28:24):
it's a discount the bargain.
This is the type of brand where roundingdown your price is going to really say
something. $499 feelsvery different than $500.
And knowing that when itcomes to your pricing,
so do you want to be on value or doyou want to be a brand of quality is a
key decision to then determine if youtypically do whole number pricing or
(28:47):
you're typically going to round down.
If you're on the side thatyou're going to be rounding down,
then whether you wantnines or eights or fives,
it typically doesn't make a difference.
You can pick whichever one works for youor you feel good about and move forward
with that, but there are also,again, different decisions here.
The way we tweak or implement is differentwhen we're on one side or the other,
(29:10):
and I know everyone who's listening,you're thinking, but I want both.
I want to be quality and value,and this herein lies the problem.
When we live in that gray,
it becomes a big cognitiveweight for people.
It's hard to classify you becauseit feels a little bit confusing and
they're not going to say, well, you'retalking about a brand of quality,
(29:33):
but then I'm seeing these value-basedpricing models that feels a little bit
different in the way thatyou're discounting or something.
No one's going to say that. They'rejust say they need to think about it.
They want to go evaluate a littlebit more in a way that they shouldn't
necessarily need that additional time.
And so really owning and having everythingyour brand stands for be something of
(29:54):
quality. Like I mentionedCostco on the value side,
so they are a warehouse andit feels like a warehouse.
They're not investing inexpensive furnishings,
that they're not investingin expensive ads, right?
They are putting everything they can intovalue for their members and they have
things like $1.50 hot dog combos andthe $4.99 rotisserie chickens that will
(30:19):
never go up in price even though theylose tens of millions of dollars on this
every single year.
It's because they care about their membersand they're willing to be in it with
you to get that good deal. But don'tworry, Costco makes plenty of money.
On the quality side,
you're going to go to Tiffany tobuy an engagement ring and they have
(30:39):
special champagne that they're giving youand this little cakes that you're able
to get for free,
it's plush chairs and their websiteis so beautiful and all these
things that's investing in that experiencein a different way that goes all the
way through everythingthat the brand does.
So understanding what type of businessyou are and owning one, picking one,
(31:03):
committing to it if you learn nothingelse or remember nothing else from
this podcast and the conversation doingthat and doing everything you can to
be all in and not get pulled intothe other one on the quality side,
you probably shouldn't run a bunch ofdiscounts and sales even when everyone
else is doing something atthe holidays or something.
(31:25):
Being able to have those differentiatedchoices is really important,
and as I said,
as far as a thing that people getwrong most of the time when it comes to
pricing beyond this is people justreally hate pricing in general,
especially in smaller businessesand service-based businesses.
When you're having to price your own time,
it feels really stressful and our brainsdo a weird flip and cause us to focus
(31:49):
on the wrong stuff.
We spend a whole bunch of timedoing what's called bike shedding,
but really dwelling onsomething not very important.
It's productively procrastinating onsomething small like the exact number at
the end of the price and not reallyfocusing on investing in all the things
that really do matterthat can move the needle.
These psychological impacts that youcan be focused on that are going to have
(32:13):
a bigger bang for your buck at the end,
where if you waste enough time inthat productive procrastination,
the things that kind of feel important,you're putting it off forever though,
to really make those decisions.
One day you wake up and your launches inthree days and you haven't finished the
price yet, and so you just picksomething out of thin air and say, okay,
we'll just go a dollar less than everybodyelse and we'll deal with this again
(32:35):
in six months when we have more time,
but you'll never have more time becauseyour brain wants to keep putting this
off. So knowing what matters,getting out of your own way,
knowing that often you're going to dwellon the wrong things if you don't have a
guide to help you know what to focus on.
That's what I tried to put into thebook in the same way where we help our
clients to do this whenit comes to pricing,
(32:56):
being able to know what matters,make the right decisions,
and to be able to move forward confidentlyso you can talk about those sales in
a way that someone is going to feelyou're exuding that confidence that
makes it easier to buy from you.
Melina, thank you for that. Iwas riveted listening to you.
I've always been fascinatedwith how things are priced.
(33:19):
I know that when I buy a tennis racket,
it's going to be somewherebetween $85 and $210 and a pair of
athletic shoes are going to besomewhere between $85 and $150 or
golf balls are X, I know what a rotisseriechicken costs generally speaking,
and then you go into Louis Vuittonor Gucci or Hermes or Dior or
(33:42):
whatever it is,
and you see a purse for $1,865
or $2,400 or
$3,915 or
$6,400. And I always,
my wife has a couple of these pursesshame on me, and I've always wondered,
(34:02):
I mean,
I know what that cow costs and I knowhow much they're paying that artesian
stitchery in Italy per hour,
and I can generally cost ofgoods it up to about $400 a
purse, but I'm also wondering how muchis the brand equity worth in that purse?
Is it really worth $4,000?Is it worth $9,000?
(34:23):
When you get into the luxury goods market,
which everybody has some levelof that whether that's your car,
it's your wallet, it's your scarf,
how do these higher level productswhere we know the cost of goods is
minimal? How does, and I don'twant to pick on one brand,
but how does Gucci decide thatperson is worth $8,465 versus
(34:45):
$7,248? Where does thatpsychology come about?
Yeah, it's hard to,
obviously each one has its own specificmodel as to how they're going to pick
their specific and exactprice, but in that,
you gave the exampleof saying something is
$8,015.
That roundup is also really impactfulof what it says about something
(35:10):
versus if it was
$7,985. The $15 up
is not the same as $15 down or apenny one way or the other, right?
So that's important onsome of the psychology.
In the book I talk about thisin terms of grilled cheese
sandwiches, and this is one ofmy favorite examples in there,
(35:32):
so hopefully it can humorme a little bit here,
but it really applies in this case.
When we think about a grilled cheesesandwich, even people that can't cook,
this is probably something that youcould sit down and make yourself right.
There's not too much fancy goinginto the grilled cheese and if you
were going to buy those ingredients,
(35:53):
be a dollar maybe to make yourown grilled cheese at home.
And so I want the audience now takea moment. You're listening here.
Think about if you really neededa grilled cheese, you want one,
you're going to invest in whatfeels like a fancy grilled cheese.
You're excited. You see one on the menu,
(36:13):
how much are you willing to payfor that grilled cheese sandwich?
When I ask this question oftenI'll hear people say, oh,
I mean $10, $15, $20.Sometimes I hear $25,
I've even heard $30, $35 before. Whenwe're talking about the grilled cheese,
sometimes they'll ask, does it havetomato soup with it or whatnot,
(36:36):
but it's somewhere in that range.
I think $35 is the highest I'veheard someone say back. Now,
there is a restaurant in New YorkCity, it's called Serendipity 3.
They have a grilled cheesesandwich that they sell.
It's on their menu for $214for a grilled cheese sandwich.
Yes, it does have a sideof a tomato type of soup,
(36:58):
and they sell it. People buy this.
Serendipity 3 also has a $1,000vanilla sundae and they have
$200 french fries that they sell.It's not all that they sell.
They have other things thatthey have available on the menu,
but people are going to buy these.When they introduced the $200 fries,
(37:19):
which was something they did coming outof the pandemic to celebrate that they
were still open or thatthey were reopening,
they had a wait list of eight to10 weeks of people wanting to get
$200 french fries, which is justmind boggling when we think about it,
right? Because how fancy canthey really be? But also,
I know when I tell this story, peoplego, well, I kind of want to try it.
(37:42):
What's going on with thisgrilled cheese sandwich?
Why are these fries so expensive?
You want to be in and partof that special experience,
you have a wait list because they'rescarce. Not everyone can get one.
You have to order it in advance to beable to get them because the ingredients
are so special and supreme and extreme and
extravagant to get them.
(38:04):
And even if you just go eat there andyou order something else on their menu,
you may get one of thoseother sandwiches that's $45
because you're not going to go all theway in on a $200 grilled cheese sandwich,
but you're part of it and you wantto share about it on social media.
The thing is,
that sandwich you bought is way more thanwhat you would have otherwise because
you're anchored in on thebrand what it says about you.
(38:26):
You want to be part of the experiencein the know part of that in-crowd.
It all wraps up in this vibe that says
different about those whobuy from Serendipity 3. And then just to help again,
when we think about theboxes we put ourselves into when it comes to pricing and
wanting to get out of our own way,
is while that has won a Guinness WorldRecord as the most expensive sandwich at
(38:48):
$215, it's actually not the mostanyone has ever paid for one.
If we remember the Virgin Marygrilled cheese, which went on eBay,
it was a 10-year-old sandwich that awoman took a bite, saw the Virgin Mary,
and it put it on her nightstand withcotton balls and it didn't get a speck of
mold for 10 years, andthen decided to sell it,
(39:09):
and it sold for $28,000 or $38,000 on
eBay, and it had 38 bids, I think,
to be able to buy this sandwich. Andso not everyone's going to buy that.
Not everyone's thatcustomer, but someone is,
and you only need one personto buy the $30,000 sandwich.
You don't need everyone to buy the$214 sandwich. And the point is,
(39:31):
whatever you think is the max ofwhat people would be willing to pay,
whatever you think is that upperlimit, it's probably not true.
And so getting out of our own wayand seeing what opportunity exists,
taking that step back is really importantwhen it comes to understanding what
our brand can be about and how we cancreate this really amazing experience that
(39:51):
becomes a cool virtuous cycle for anybody.
And it's not just for raising prices,right? Because I said about Costco,
we can do this in a way that's talkingabout member value and things that we
maybe are looking for ways to lowerour prices but still have this amazing
experience or whatever thathappens to be for people.
So knowing that you want to own whateveryou're about and that whatever you
(40:12):
think the limit is of the model of howyou can sell or how people are willing to
buy in your industry or anything likethat, or what they're willing to pay,
doesn't have to be true ifyou don't want it to be.
In fact, one of the insights,
many insights I took from The Truth aboutPricing was that sometimes we'll have
clients or customers that arepushing back on our pricing,
(40:32):
and it may simply be they're not ourcustomer, they aren't the right customer,
and we should be thoughtful aboutmaybe inoculating ourself against their
pushback and say, gosh,they're not my ideal customer,
so I'm really not going to entertain orallow their pushback to make me second
guess my pricing. Give us a minuteon that and we'll let you go.
Oh yeah, absolutely.Definitely not everyone is your customer, and that's okay.
(40:56):
And knowing who you are for andwhat it's a fit for and being able
to frame it in a way that someone canimmediately see that it's not for them is
ideal. But if you have the confidencethat you know it's the right price,
the value's there for the rightperson that you're a fit for.
That if someone says, well,why would you charge that much?
That's not expensive. That's tooexpensive. You can say, oh, no problem.
(41:19):
It's not a fit for you. Thanks so much.
I know someone else you could workwith or whatnot. Having that ownership,
that belief in what you're worth and thevalue and what someone should pay for
this and how that works,knowing other people do,
is a huge piece in helping people tofeel comfortable to buy when they are the
right fit for you,
and you can make sure you're investingin those people that are going to love to
(41:42):
work with you and do business with youand get it right that they love that
experience. And for those whoaren't, when you are willing to say,
you know what? I can tell we're notgoing to be a fit for each other,
and this isn't the right mix for you, so
we don't work with clients.
We don't want you to invest money ifit's not going to be a great win for you,
so let's go our separate ways andwe know someone you could work with.
(42:06):
That's something that'sgot a lot of integrity that people respect when it comes
to a company, and so there's alot of value in that as well.
Melina Palmer, you are the hostof The Brainy Business Podcast.
You are a behavioral economist,
and your most recent book istitled The Truth About Pricing:
How to Apply BehavioralEconomics So Customers Buy.
(42:29):
Melina, thank you for investing in us.First of all, you're a great storyteller.
And second of all your stuff,
I think many of our listeners andviewers today will go out and are already
buying this book because there's so manygreat examples on how to apply these
concepts. Whether you own an Etsystore, whether you are eBaying,
you're having a garage sale,
you have a consulting service whereyou're selling your expertise,
(42:53):
fantastic series. What's nextfor you? There's got to be,
you need a book that's red oryellow, so what's next for you?
Or purple, right? My brandhas a lot of purple in it.
I'm actually delighted right now.
I'm preparing to do myfirst TEDx at TEDxPortland,
which is going to be talking abit about how we get stuck on
things and how to get out of our own waywhen we want to be more productive or
(43:17):
implement what we learned in thegreat book and the amazing podcast,
some quick tips, which I talkabout in all of the books,
but being able to have in a lovelynine minute talk is going to
be a lot of fun. So that is a bigarea of focus right now, is that TEDx,
and we'll see if that turns intothe purple, red, or yellow book.
How exciting. I have interviewedsomeone from the C-suite at TEDx,
(43:41):
and I know how rigorous the preparation,well, the process of selection is,
but also the preparation forthat. So congrats to you.
Delighted to have you back withthe purple book in a year or two.
Sounds good. Thank you so much.
And we'll see you back here next weekfor a new conversation On Leadership.
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The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.