3. Part 2 - Pricing and Sales through the lens of neuroscience with Prof. Dr. Kai-Markus Mueller

Speaker A: Hi, everyone. I'm, um, Anda Huzeu, and you are listening to the Sweet Spot by Pricing Works, the podcast about pricing excellence and its potential to transform B2B. This is part two of our conversation with brain scientist Dr. Kai Marcus Mueller, where we look at all things pricing and sales through the lens of neuroscience. And without further ado, this is part two. So, Kai, there is a paragraph in the book that I thought was so well put. It goes like, salespeople cannot steer prices until they understand how prices steer people. And that includes yourself, not just the buyers. Could you expand on that a little bit?

Speaker B: Yes, we've already been elaborating on this quite a bit. Prices can lead to cognitive dissonance. Prices can make you feel agitated in the sales conversation and in sealing a deal, and they can be very critical elements of a sale. But beyond that, prices are an emotional topic. Think about yourself. Think about you getting a good deal. You're very happy. Um, and that's, by the way, also been shown with brain scans. The, um, pleasure centers of the brain are much more active when we get a good deal. And the areas associated generally with negative feelings or pain, they're active when something's too expensive. And they're particularly active, obviously, when you get, uh, cheated out of your money. So that being said, prices have also some really impressive features when it comes to product perception because prices can actually influence the product quality perception. There are two very, very cool studies that I quickly would like to go over. So the first experiment that I would like to explain was run by Helke Plassmann, um, at Caltech in California. And she recruited experts in wine, sommeliers and people like that. And she put them into the MRI scanner. And in the MRI scanner, she gave them little bit, little droplets of red wine to drink. And she, um, the information was, um, this is a wine of whatever brand. And, um, in the liquor store, it costs $5. How does it taste? And then these sommeliers gave it a rating, and also their brains were scanned and the next wine came up, and it was a wine for a different wine for 45, um, euros. They gave it a rating and so forth. And, uh, this. So they tested, uh, all these supposedly different wines, uh, supposedly different tastes, um, and supposedly different prices. But of course, there were no different wines. It was all just one of the same wine. But the price information was different. It turns out they say it tastes better, but also, um, areas in their brain that are generally associated with having a better taste in your mouth were more active. And that's crazy. That's. Yeah. There you see how a price can steer a person, um, can steer quality perception and so forth. Um, and the second study that has a similar outcome was done at MIT where, um, students pain threshold was tested. Basically they got a little electric shock until they said, stop. Um, it's too much. I can't take this anymore. And then they got a placebo pill, but they were told it is the latest, greatest painkiller and it cost €2 per pill. And they had to let it wait, let it sink in for 20 minutes. And then they had a brain threshold. The pain threshold was tested again. It turns out that the pain threshold was much higher. The control group got a discounted pain, uh, pill for just 10 cent. And their pain threshold, um, the placebo effect was much lower. Right. So as you can see here in that study, even, even things like the placebo effect, even things like our perception of pain can be steered by prices.

Speaker A: That's so interesting. That's, uh, really, really fascinating. And it's important for salespeople to be aware of that when they talk about prices, when they present prices, to try and anticipate what is in the client's mind when they hear that price. So there's so much you can learn or you can associate with a price, with a number. And it has a big influence on people and their perception. So, um, that's fascinating. Onto my next question then. The book cites an article in the Entrepreneur magazine that declared that discounting is like addiction. And that looking through that lens, it can be difficult for people to avoid surrendering to the pressure to offer a discount. Now, addiction is a very strong word and I'm not quite aligned with that comparison. However, the tendency to discount or to over discount is indeed seen as being problematic by senior management at most B2B companies. So I wanted to ask you, how are management trying to rein in this behavior? What are they doing wrong and what should they be doing instead?

Speaker B: Well, so this is not my own quote, which is why, uh, we, um, clearly stated it's a quote. And uh, it's maybe a bit of an exaggeration, but there is maybe some kernel of truth to that. Why? Because generally salespeople are rewarded for discounts, right? They get, um, a pat on the back, they get a deal, um, and that activates, uh, their reward system. And so when the reward system is activated, you know, you want to do something again. Right. And this is what also what happens, uh, in addiction, unfortunately. Right. It triggers the reward system. Um, so big companies try to try to rein in this behavior by making it very hard for the salesperson to give discounts, right? And they make salespeople fill out paper forms and they have to go to the extra, um, extra, I don't know, form that they have to fill out on the it or they have to escalate it to, to the boss or the boss's boss or the boss's boss's boss, whatever. And so they try to do everything to, to make it very hard for people to get these uh, to get to these uh, discounts, right? But you know, they always find their way, right? And there are many ways, right? They split the bill or whatever, you know, so they have, don't have to fill out the form because then it's a smaller, a smaller deal and uh, uh, you, they have more power over the deal, etc. There's all these kinds of things that you can do and uh, uh, that can happen. And let me go back to what, what we've earlier explained with the dominant response. Like remember the 100 meter race where people are very good when they're very excited and the chess problem where they're very bad when they're very excited. So why is that? It is because, um, you're doing the simple thing, right? And in a chess problem, if it's a real problem, it's not the simple thing that you find out, it's a counterintuitive thing. That's the definition of being hard, right? So what we suggest in the Invisible game, what we suggest here is that salespeople learn that saying no is the easy thing, is the dominant response is a straightforward thing to do, right? So saying no is a counterintuitive thing unless you are totally over trained in doing that. And we have also examples also in the book, um, for example, say somebody who works as a firefighter, right? You have to do a lot of counterintuitive things as a firefighter. Um, you have to run into the smoke, you have to um, potentially run through the fire to get to where to get to a place that is safe, etc. Um, that's why firefighters totally over train these situations so that once they are in the real, in a real emergency situation or really in a burning house or so they know what to do. And it's totally overtrained. Um, and there are many of these, many of these um, jobs, you know, think about an emergency doctor or a soldier, uh, in a stressful situation and all kinds of jobs that are in stressful situations. Sports, um, people is a great example. All These professional uh, sports people are completely over trained on, on very, very tricky things. And um, this is uh, what we recommend. You over train saying no and it becomes your natural response, right? It becomes your natural response. And by the way, here's something um, that we did not all too much elaborate on the book, but it's known from psychotherapy. Uh, you know there are uh, for some people it starts to become a psycholog because they say yes to everything, right? And then it's a typical thing that you train them to say no, right? And you use and it becomes normal at some point. And then there are these kind of funny things where they have to be like learning to be ashamed and becomes normal for them. Like they have to go, for example, put an entire cart of things, uh, at the line, you know, on a Saturday afternoon where there's 20 people in line and they put and buy everything at the supermarket. And the end they have to say oh sorry, I forgot my wallet, we have to put everything back. And these kinds of things, you know, just so that certain things that are, yes, shameful or so, but become normal to them, right? And that's how you start. But then as a really good salesperson and a really, the top seller, you become really, this becomes your second nature. I mean not such odd things like the, you know, at the supermarket, but you know, saying no and asking something from your customer or for example, um, anchoring your customer with a high number and doing this bold and not sweating and not uh, stuttering around or so just uh, make this your natural dominant response. As Robert Zeng, the scientist who studied that would say,

Speaker A: that's super, super interesting. So um, if I understood well what you're saying is that instead of making it harder for salespeople to get a discount approved internally, so putting all these hurdles so that they have to justify it and fill in forms and you know, have these old processes that they have to go through instead of focusing on doing that, which we have seen doesn't always work because people find way to bypass. That is to say, train your people to be comfortable with saying no, over train them with that. Because it's not the intuitive response today, but it can be trained, it can be learned. Um, um, if you practice and if you focus on that.

Speaker B: That's exactly it. Yes.

Speaker A: Excellent. Okay. Another quote from the book that I really liked goes like this. Salespeople should consider themselves to be influencers, not information providers. Can you briefly explain the role of a salesperson today and how that has changed and also how they can expand Their comfort zone. You touched on this a little bit earlier and it's related to doing things that you're not comfortable with. But I love that you use this distinction between uh, leaving your comfort zone, which a lot of people would say I don't want to leave. My comfort zone is where I'm comfortable. Um, I'm looking for comfort. And I love that you've renamed this or called it something different. That seems so much more accessible in my mind as well, which is to expand your comfort zone.

Speaker B: Yes. Um, this is basically hard work, right? You want to be, as I said before, you want to be bold, you want to um, pull out real, real numbers. You want to have a good deal and you should be comfortable with it. Right? And if somebody asks you repeatedly for a discount, you should be comfortable with um, with saying no. Also the quote, uh, that salespeople are more influencers, um, these days. What has changed due to automation and due to um, digitalization, a lot of rebuying processes have been automatized. That means that the salesperson is not being asked for every time when they uh, when, when the company does a straight rebuy. However, um, that means it's all the more important that salespeople struck that first deal. That is important. And that first deal starts long before you meet the client for the first time. It starts on you pushing the technology, um, you being for example active on LinkedIn. Like, I mean um, this is something the invisible game is not just written for the big B2B key accounters that sell 100 million um, dollars a year, but it's also for the small business owners. It's written for, um, somebody who owns an advertising agency, a lawyer, an architect, um, a consultant. These people need to make potential customers aware of the services. They need to make clear that they are experts in their field. Uh, and you do this with for example publications, you do this with um, social media, um, etc. Um, and then once you come and have that chance to strike that deal, that potentially can lead to a long term straight rebuy procedure which is then done by it and so forth and not by the salesperson anymore. But when you get and have that chance, then it's so much more important than in earlier days to really understand consumer psychology. And I find this so interesting because consumer psychology, I mean that's what I teach at university, Consumer psychology is, actually has the wrong name. Why? Because it deals with consumers. Right. Um, and what if you are working in consumer psychology today, in real consumer psychology, say for example, for an FMCG uh, corporation. It's nice to know a few consumer psychology tricks and choice architectures and know how to put this. It's nice to know all that, but quite frankly it's not that relevant. Why? Because you can test everything. You have such high turnover and if you do E commerce, it's nice to know a few things. But in the end you can also test it. Right. And does this theory really now apply here? Exactly. Or how do I do it? Exactly. Um, again, it's nice to know, but you can also test it. So, um, what is it good for? It's good to know how to analyze the data, which is what you also learn in consumer psychology. But in B2B or um, if you have a small number of um, um, huge deals that could also be B2C. Say um, a real estate agent, for example, it works in B2C. But anyway it's more typical of B2B. And then you get there and you have that chance. You've been an influencer, you've done your homework, your social media exposure and so forth. People understand you're an expert. Um, you go and have the chance to strike the deal. It's really, really, really critical to understand consumer psychology. It's, it's really very, very relevant to understand how do I structure the deal, how do I structure the proposal, how do I, what do I offer? Do I. For example, a simple thing is, um, something that's been well studied in consumer psychologies, uh, is choice overload and decision paralysis. So if you uh, give for example people 30 choices, they start to not work with you anymore. They just start to uh, say this decision is too complicated. If you just give them one choice, it may not be enough. Right. But say something like two, three, four choices. You give the other brain the chance to feel like they decided something. And uh, that will be, then that will be supporting that decision and that will be strengthening the decision and strengthening their psychological commitment to the decision. Um, but uh, if it's too much, it's bad, and if it's not enough, it's also bad. So you have to strike that uh, right in the middle. And um, these are typical findings from consumer psychology that then need to be applied in those few B2B chances, uh, or big deal chances that you have.

Speaker A: Yes, yes. So, uh, it's uh, almost like a different role. I guess it has evolved with the times as well. The role of a salesperson. And uh, you know, I have a lot of empathy for sales. Um, I think uh, it's not an easy role. And I think there's a lot you need to know and understand about your client and how they think and what they like and what they're willing to do and pay, um, to do a really good job. So, um, it pays off to know everything you've just said and understand how to use it with today's, um, today's challenges. So that leads me to my last question. I have many questions, but unfortunately we have limited time. So another example that I've picked up from the book, which I think is very relevant today, because a lot of businesses are looking to pass cost increases or to, to do price increases to, to that for their clients. And I really like this example about anchoring and how to set a new anchor. It was about a business that was being asked by a client to reduce its prices. So this is the opposite of what a lot of businesses are looking to do today and your advice about how the business should respond in that case. So could you briefly explain what anchoring is and then expand on this example and what we can learn from it?

Speaker B: Yes, um, anchoring is basically the fact that our expectation or our idea about a number can often be changed. And in prices this is particularly striking. So if you, um, are seeing a new product and you don't know what it's worth, right. Let's say you think about buying the invisible game. And I say, you know, uh, other sales books, especially when they're um, uh, when they're soft cover, you know, you can get it for around €7. At which price would you pick this up at the airport? It would influence you very much. But if I say, you know, I've just recently finished this textbook here in the back, you know, a textbook, especially when they're in about consumer psychology, they cost around €60. And this is actually an applied version. This is like much better, uh, for you to read on a flight. How much would you pay for it? Your price perception goes up by a lot. Um, in both cases, when I say this is 2290, it sounds like a very good deal in the second case and sounds like a very bad deal in the first case. So you see, um, our idea about a price is, um, not something that's set in stone. And our evolutionary history is in no way has selected us for being able to put a number on a thing or a service. Right. That is something that we're trying to grasp with brain areas that have been, that have developed to find fruit on, to find fruit on trees or maybe maybe develop uh, for a joint hunting strategy or so, um, so this is anchoring. You know, your perception of a number is very much influenced, um, by a previous number. Now, if a customer comes and says, well, we want a 30% discount, what do you do? And you have a team, maybe a sales team, a key accounting team, um, that you work with. The question is, what do you do? So the first thing that we recommend is not Talking about these 30% all the time, because the more you talk about it, the more it sinks in. In the end, you just give them a 25% discount and you are so happy. Basically, you have one on the terms of the purchaser, right? You have one in the frame of the purchaser. But actually you didn't play the game that you wanted to play, you played their game. Um, ideally you try to re anchor. So that means, like you say, look, um, there's inflation now, uh, there are problems in the supply chain, as you know, bad harvests or something like that, whatever it is, or better conditions, and this needs to be reflected in our price. Um, does that always work? It's unclear. It usually works. Well, it works much better when you give a good reason. Um, and, um, also asking for a discount without a reason is not as effective as asking for discount with a reason. Finally, I think if that happens to you, I hope you've learned your lesson. And the lesson should be make the first move. You start, you anchor people and you'll always win. Never wait and see what happens or what the other side does. Take things into your own hands and anchor your customers and take chances to anchor them. Sometimes there is, for example, um, a competitor of yours having a press release saying, we are now moving to, I don't know, better employment conditions or so, and obviously you understand better employment conditions would mean higher price, then you can just, uh, instead of calling your customer and say, but our prices don't change. You could say, look, the entire industry changes. Everything changes. I'm very sorry. Also, we have to adjust our prices, but do this first and make the first move.

Speaker A: And just to follow up on that point, um, so the idea is you try to re anchor, restructure, repackage, represent, refocus, I guess, the attention of the client where you want it to be. But do we have any chance to do that? Say the client has made the first move, so you've lost your chance of making that first move. What happens if I ignore the level that they've set for me and I try and go in at my own level, so I don't even acknowledge that and I just Try and have this conversation separately and say, here's what I propose because of reasons, but I never really talk too much about what you've proposed. I think that could help with re anchoring, uh, because you just create your own new reality, right? You're not playing with their numbers, you're playing with yours. But, uh, do you think the client would get upset by your lack of acknowledgment of their offer? Is there a chance that they feel like you're not taking their proposal into account? Because I see the pros and cons of each, um, of these, uh, uh, approaches. So what are your thoughts?

Speaker B: Um, sure. The re anchoring is a very straightforward strategy. Um, but hey, I mean, they have had the guts to ask for, ah, a price decrease. I mean, um, I think your question really alludes to the issue that we want to be all be friends, right? And we all want to be liked. And you know, how, how nice was that when we sat down with our client and had this amazing dinner and you know, uh, drank all the wine and it was so cool, you know, and they're pleased and, and yes. And, and now I'm saying something that doesn't go down so well, you know, but, but, but you have to make a choice, right? I mean, are you there for business or are you there to be liked? And by the way, by the way, look at a totally different psychological example. Um, abusive relationships. Abusive relationships between people is like, you know, um, somebody does some, I don't know, woman is always angry at the man and the man does everything for her, right? And is getting stressed out more and more and more, right? And what happens is, um, he thinks he cannot explain hiself anymore. He said, why am I doing this and why am I letting myself be abused? Oh, it's probably because I love her so much, you know, there's no other explanation, right? And so, um, on the other side, she, she feels like, you know, this guy never stands up for himself, just becomes more and more disrespectful, right? And that's. Those are, um, dynamics in abusive relationships, by the way. Same with male and female. That's just an example that I came up with. Um, and these things, ah, basically can happen to some degree in a sale as well. Um, if I don't stand up for myself and uh, I don't say no, well, I am worth this, then the question is, what kind of message does that send to the other side? Um, I've spoken to a lawyer not so long ago and he's the head of a small law firm. And what he did was, um, the clients wanted to work with him and not to the lawyers he employed. So what he said is, I'll leave my lawyer's hourly rate at 240 and I'll go up with my own rate to 300. What happened? All the clients now want to work even more with him. Right. Because they believe, like when they go on trial, they want to work with the best. Right. So, um, that sometimes I see reverse psychology plays a big role in our lives.

Speaker A: All right, so much great advice in there for our listeners today. As you can see, Kai's book is packed with amazing insights. So if you haven't yet, go and check it out. It's called the Invisible Game and you can find it on Amazon or, uh, really any other bookstore of your choice. For those of you who would like to get in touch with us, we will leave our contact details in the show notes. Kai, thank you so much for coming on the show. I really enjoyed our conversation today and I hope to speak to you again very soon.

Speaker B: Thank you so much for this opportunity to speak here. It was a lot of fun. Uh, it was very professional. It was well prepared. So any pricing experts out there, think about going on this show. This is, uh, really cool. Thanks.

Speaker A: Fantastic. Thank you. Many thanks as well to our friends at Milk who have designed beautiful art for the podcast, and to our listeners for tuning in. If you've enjoyed this episode, please subscribe to the sweet spot on your favorite podcast. If you have any questions or feedback for us, we'd love to hear from you. So please go to pricingworks IO and get in touch. See you next time.