S1 Ep1 - Why price never feels fair

We just say they're protecting themselves from regret in some way. And it's a risk, right? If I pay that much for this, am I being silly? Is it risky? And we're going to get what I want? Is it going to say it's going to do what it says? Am I going to feel the way I want to feel? Is it worth it? Welcome to ThinkShift, the podcast where neuroscience meets business. This episode is for you. If you sell products, services or subscriptions, you'll walk away knowing why price triggers emotion and how to design pricing so it feels fair without racing to the bottom. Leigh Ann, when people say that's too expensive, what are they really saying? And they say it like that, right? I say it like that. Yeah, we all do. So what do we say? We think it's, we do think it's too expensive, but is it really? Right? So is it really? The thing is, the brain needs a reference. It's too expensive compared to what, what is it? And unfortunately, we often don't actually know. It's something that we've seen. It's something that we've heard. It's a number that we've just recently looked at or read. And we get angered to that number. And then we look at this and go, well, that's really, really expensive. But often we're not comparing apples with apples. Sometimes we're comparing apples with oranges, even apples with passion fruit. So the thing is, is that we need to be really careful in the value that the product or services offering and comparing that to what the price actually is. So it's all about, what do I get for that money? What do I get for that price? Is it reasonable to me? Is it risky? Is it over the top? And we need to, you know, compare that to what we're used to. Often we say that because we're expecting something to be cheaper, not really knowing what we're going to get. So being expensive is not about that. It's about that's different to what I expected to be. Would you say they're protecting themselves from regret in some way? That is a risk, right? Am I, is it risky? Am I going to get what I want? Is it worth it? Is Am I going to get regret this afterwards? But also past experience, right? I mean, how many times do you bought something? It's been, oh, I'm been told, you know, you get what you pay for. And that's true. We'll talk about that a little bit more. And then it's not, right? It's not going to go, oh my gosh, what did I do? And that's the problem that now this expensive, this term has become very different in our language. It's, it should be, am I getting value for money? Would you say it's also a bit of a protection mechanism due to the judgment society has on us as a consumer? So protecting us from buying something and then we have an automatic fallback by saying, I have to expense. Yeah, it's used as an excuse, right? Or we say, I know it was, but these disclaimers, the disclaimers that actually kill me. I know it was expensive, but for that, I got, you know, this, that, you know, you haven't got that. I've got this feature, that feature, something that I did wasn't expecting. So we start justifying. As I have about we just own it and say, look, it was expensive, but that's it's solving my problem. It's solving, it has a purpose. It's what I need. The reason why it's a bit more, and I'm also willing to negotiate with myself to spend a little bit more because I believe that it's going to be a better product. So all in all, you know, why are we protecting ourselves and we're negotiating with ourselves? We're not negotiating with the vendor and with the shopper. We're actually negotiating with ourselves. And you know, what, it's okay to be expensive. And it's okay to pay more if it's what you want and what you need. Let's talk about the science for a minute. We'll go to the science. Yeah. What happens in the brain when someone sees a price? What's going on? So the first thing is they value weight it. And again, that what I said before about reference pricing, what am I comparing this price to? Is it too much? Is it too little? And often we don't know because, just because the same product, just say an apple is a dollar and this apple is two dollars within, that's expensive, but this might be a very exclusive reading. Fantastic apple. Yeah. So everyone's as good in that. Trice is good. Trice is good. Yeah. And this apple also compliments Kevin B. She's or you know, is great for on the palate when you're having certain lines. Like what, what's the product? It's not just an apple. It looks like an apple. If you want just an apple, go and get your buy your, your dollar, yeah, your apple for a dollar. But if you want that other experience and you want that other taste, then you buy the more expensive one. But we have to justify that. So the brain needs to determine and make a decision, yeah, that's what I want. I'm not just going to settle for the dollar apple. I'm going to get the two dollar apple. And that's something that, again, looking at the value, is it worth it? Am I risking myself by spending two dollars on an apple in a certain situation? No, you're not. And also there's this status. And now we're talking about apples. But I mean, we all, you know, eat apples. They could for you. We're at least we can compare apples with apples. That's right. Exactly. And we are here, right? So for, there's this status as well. This, this, what we call signalling and status bias, where will my apple is better than yours? But also proceed value of apple. Yeah. Gee, that apple must be bloody good. Two dollars. It's double the price. It's going to be better. It's got to taste good. It's got to complement. Which we'll talk about in other episodes. Yeah, we'll keep too much away. So, yeah, so this is what the brain does. So if it's, and if we see it's worth it, what do we do? So what would, so if that apple, two dollar apple, you bought, because you were pairing it with these cheeses and wines. Thanks for the invitation, by the way. Pairing. And you're bearing. Pairing. And it was everything that you dreamt. It to be. Would you buy it again? Probably. Cushion wood. Of course you would. And I'd expect another invitation to come over to eat that phenomenal two dollar apple. So, yeah, so it's around and that repetitiveness of the brain now understanding. So the brain now has a new reference and a new anchor. Yeah. So we're talking about apples and we'll stay on apples. They go. Dollar apple. Suddenly it's a dollar ten. Mm. Why does that small increase trigger such a massive adverse reaction? Yeah. So the first thing we do is go into the fruit shop or we go into the supermarket and go, well, last week it was a dollar. We did. We did. And we'll continue to. Or we'll continue to. Yeah, we will. Of course we will because we're all human rights. How the brain operates. And now it's a dollar ten. And going into a supermarket's pretty tricky because they can't put up a sign saying the reason why the apple is now one dollar ten is. But there is a general consensus around certain things that, you know, cost of living is increasing. And so we get an understanding, aha, that's why the apples have gone up. But in general, if we bring it back to business, there needs to be a clear indication why did that particular price of this product or service go up, whether it's materials, whether it's an expert that's coming into help with a particular service delivery. There has to be click. You don't have to be super, super transparent and, you know, explain more in peace. But there has to be a certain explanation to the customer, the consumer to go, aha, now I understand why that apple is now one dollar ten and not a dollar. I mean, we were on the way in here into the studio. Clint, you and I were talking about fuel. And we were talking about what's happening, unfortunately, in the world. And the fact that fuel is going to go up. Now, this is not a great, you know, at this time of recording the podcast, it's not a great thing that's happening. But there is a clear understanding, you know, sad or not, of why there is going to be an expectation of the pricing going up. Not going to affect logistics, etc. It is. Yeah. And you know what, that's life. That's what happens. We need to understand why these prices increase. And also for comfort, our brain needs to be okay with that. That's our job, right? What you and I do is to help people understand why. There's a term called pain of pain. What is pain of pain in layman's terms? Yeah. So the pain is, I don't want to pay a dollar 10 for that apple. I was happy paying a dollar. And I'm really uncomfortable paying that extra 10 cents. And I don't see how that apple is now worth it. So the pain of pain is understanding, the understanding or misunderstanding of why I need to spend more of my hard earned cash or money for something that I previously bought and was okay. So we tend not to. So what might happen is we might go, well, I'm not paying that much for that apple in this case. I'm going to pay a less amount that I'm happier with for a product that isn't as good. What generally happens is we get an understanding that, actually, I should have been better. I should have actually paid the extra 10 cents. Got the better apple. But there is that pain behind it. And also, what are we, there's risk. Am I willing to bet that the apple is better or am I willing to pay a little bit more knowing what's going on there? Am I willing to pay a little bit more? Am I or am I okay with just paying for a lesser product? And sometimes as a lesson, it's a hard lesson for us. We go, no, I'm not paying that more, that, you know, it's more expensive, not paying that. I'm just going to buy a different product and then we shouldn't have done that. Wish me out. Yeah, we should have. Yeah. Yeah. So there is that pain. We need to overcome that. Is the gain better than the loss? Generally, if it's something that you seek comfort in, that's what you normally buy, the pain, the gain, it will outweigh the pain. And then we go, "Okay, I understand now." And then off we go. Why do people call something overpriced when they can afford it? This is something that always comes up, particularly with things like 99 cent apps on the app store. Suddenly, there's a $2.99 app and I was like, "Well, gee, that's expensive." So, but coming back to it, why do people call something overpriced when they literally can afford, I mean, a couple of coffees, five levels. So what's a 99 cent or a $2.00 app on the app store? Yeah. So, why is it overpriced because of the perception of what people think it should be or what they've paid before, called priming or anchoring? This is what it was before, was perfectly fine. Now I'm getting something that's similar for a different coffee. I like how you use that example because it is. It's like, "Well, I pay $5 for a cup of coffee, but here I'm $7.00, do the coffee better be good?" You know, you are so overpriced. Now, if someone sees the value and the coffee is much better, "Ah-ha, now I understand." But also comes down to service. So it's how the human brain feels. 95 percent, and we know we talk about you and I often the works of Daniel Kahneman, and we'll probably reference this a lot during ThinkShift. Daniel Kahneman and Tversky, the works that they did, Kahneman won a Nobel Prize for this. Very famous, behavioral scientists, around the dual process theory, around how the brain thinks fast and slow, system 1, system 2, 95 percent of all decisions that we make are emotional. It's around what we feel. So if we had a much better experience at that other coffee shop with that $7 coffee, so the coffee was better, the experience was better. We're okay with that. You know, there's where I live, there is a fantastic coffee shop, and because of, you know, cost of living and things in general, people put, the coffee shop had to put their prices up just because. And they did give a bit of an explanation why, but because the quality of the coffee that they, that everyone gets is so good. And the service is phenomenal. I mean, I go up there now, they just look at me and go, lian, blah, blah, blah. Absolutely. In fact, I don't drink coffee or drink tea or have a chai, or an o-chai. And they actually put the price together. I think it was a dollar. And I asked them, did anyone complain or say anything? And he said to me, the only off the coffee shop said, very few. And I said to him, well done to you guys, because it's not just the product and the price. It's the overall experience, the journey, the feeling that people get. In fact, people said, you could have put the price up. More, I still would have come. Still would have got my coffee every morning. So again, it's not just about that number. We think it's the number, but it's not. It's about the way we feel. So going back 95% of decisions are emotional. How does the customer or you, how do you clint feel when you're buying something? That means a lot more than the logic behind the price. So value and pricing alignment is the key outtake there. It's huge. And I see it so often, particularly in, I guess, small business cafes, things of that nature, where there's an increase. And you're going, hold on a minute, I'm not seeing the value in that increase within the way you treat me, the way you operate the shop. There needs to be that alignment. I think if most businesses could get that alignment correct, there wouldn't be any pushback at all, or any public outcry. Not at all. Not at all. And a lot of the clients that we work with, they also, they put their prices up. People go, because it's really hard to value yourself and value product and services. And unfortunately, people think the cheaper I am, the more accessible I am. And it's actually the opposite. The cheaper you are, the more incompetent you look. You just value. You just value. You just like everybody else. So it's not a, I always say, and people laugh at me, but you can laugh away, but it's not about the price and it actually isn't. It's about how someone feels about what they're getting. You could charge a lot of money and the person will have the best experience of their life and they will keep coming back. We've talked a lot about the science. We're going to talk a bit about business now. Let's turn it into some practical moves. What are the most common pricing mistakes you see brands make? Okay. Yeah, it's a good one. Gosh, hiding prices. The illusion of something that doesn't actually come to fruition. I think I'm going to receive this particular product or this particular service. It's not at all vague inclusions. Yeah, vague inclusion. Saving fees, hiding admin fees, logistic fees, not so much shipping you see that, but all of a sudden, for instance, I mean, think about it when you're buying something online, all of a sudden, you've got the price and then you've got, especially in the overseas market, pops up, $30 or $40 shipping fee. Often, you'll actually pull away. Absolutely. Yeah, it's a, it's a, it's a, it's a loss deal. It's a loss deal. So not saying that they need to, to do that upfront because it's a little bit hard because obviously they need, you know, geography comes into place. You've got to put your postcode and they've got to work that out. There's obviously a behind the scenes calculator for shipping, but it does make you go, it does. It does. Hang on a minute. Suddenly you're looking for that coupon code. Yeah, look at the, you're looking for the coupon code to counteract the, the, the unexpected fee. So yeah, whether it's shipping, whether yeah, that's right. So the misuse of pricing, the, the constant, you know, discounts, you know, we're going to talk about discounts too in another episode, but that constant discounting, well, you know, why are you charging the full price at the first place? Why is it retail? There's, there's a lot of things that, that people do, but it's the misconception and misunderstanding of pricing and it's hiding. Hiding the pricing doesn't get you in trouble. Hiding pricing throws you, it projects you into boiling water. It's, it's only bad. It's only bad news. So you need to be clear with your pricing. You need to be upfront with your pricing. If you think that your pricing is not right, you need to sort it out. You don't hide it. I know you just said we're going to talk about discounting in another episode. I'm saying it to about right now. Yeah, good. Excellent. Yeah. Because we get asked about discounting a lot. I mean, I would get asked almost on a daily basis. You do too. And we've talked about this a lot. Have a week. So discounting by default, I would say is a huge mistake the brands use and a lot of the bigger brands use it. And to the point where, you know, I won't go and buy a pair of socks or underwear from this particular brand that they'll, they'll shall not be named because I know they're always on sale. So why would I bother ever getting it until it's on sale? You know, I think you've had a similar experience with, yeah. Another brand with the Jarvis. A bit of Jarvis, yeah, yeah. Because we were talking about the other day. So I have two sausage dogs, two gorgeous little sausage dogs, a little blondie and a little whiteery, both pedigree, Daphne and Audrey. Actually, Audrey at recording this Audrey is almost six months. And so as a nutter sausage dog owner, because we all are, my husband and I, we wear sausage dog pajamas and there is a brand out there that does a lot of, we're at the pajama brand and the brand is a sausage dog. So one thing and I'm not saying whether it's good or bad here and they have great pajamas and we love them. We're advocates for them, but there wasn't special. There wasn't sale always. So it's got to the point now we'll look at something and it'll be full price and I'll say to Chris, just wait for it to go on special, which will and that might be their model and that's okay. But around discounting, why would I pay full price when I know that there's perpetual discounts happening with this particular business and this particular brand? So do they lose my loyalty? No. Won't I pay full price? No. Yeah. So I wait for that. Now if that's what they want to do, that's fine. However, in the service, like this is, you know, ongoing product, in the service industry, it's, it's, it's commercial suicide. Discounting is, is, you know, don't even go there. It's, it's something that is only going to hurt you, not enhance you. It's interesting. We've talked before and you teach us in your course around value based pricing and whatnot and Apple though, never discounts, anything, never discounts, a thing. Ever. No. And in fact, even if you get the GST back when you fly overseas, it's 5%, not 10%. So they don't even get full Jeepers and and it works. It does. Do people still buy Apple price? They do. They like, they like about the door down the street. So amazing. Very interesting model and we do, we do teach that in the course around Apple being a value based model, not a quality based model. So there's two, two models that Fortune 500 companies run by which we teach. Quality based modeling and value based modeling and everyone thinks that's a quality based model because they are expensive products. But in fact, the way they operate is value based because they go through a lot of product and a lot of people. But yet, the product is quality and people are willing to spend the money. And that is because it is a good product. The expectation is what people, they get that experience. It's what they expect. The experience is fantastic. To a point where I know internationally there are certain clubs where they are. where people keep their packaging. And it's like the Apple packaging club. And they compare the packaging that they've kept from the day of inception of Apple. - I can't see you that. - And they can try, and they can try, oh, and they tried the packaging. - Okay, I'll do that. - I can't just, I can sell it later. But that's the only reason. - But it has value. - Not in museum. - I mean, think about it. Think about this phenomenon that Apple has created. But having said that, the products are excellent. - Correct. I just want to jump to fairness now. What makes a price feel fair? - Well, we touched on that before, right? Value for money. Is in the way that we see it. Is something, there's something seem cheap, because something seem cheap. Is just as detrimental as something being overpriced. So, am I, is the value that I'm getting worth it? Can I see it? Is it performing the way that intended? Does that pricing feel fair? Fairness can work the other way too. That I paid all this money, and the product didn't work as intended, or I paid a lot less, and the product has over-delivered. That can also work against you too, that also doesn't feel fair. In fact, it's, where's the mistake? There's a lack of, there's a bit of mistrust here. Is there something that I've got? Nothing. Is this a boo-boo? Have they mispriced the product? That also isn't fair. So, it works both ways. So, the pendulum swings both ways. But it's mainly around, am I happy with what I got? Has my problem been solved in a way that I expected? Yes, the price is fair. - I think as well, consistency from ad to checkout, particularly for agencies out there listening. When I see an ad, I need that to be a consistent experience from the ad to the landing page, all the way through that checkout process, and then package arrives in hand, and it all matches. If there's an inconsistency amongst all of that, suddenly fairness has gone out the window. I'm out there on product review sites, two stars, for those kinds of reasons. - So, consistency and will delivery in pricing in messaging, branding that all comes into the brain interpreting what it considers as fair, and what it considers as safe. So, in a way, fairness of pricing is the safety of pricing. Do we feel safe giving this particular company our money? Do we feel safe spending that amount of money? What is okay? What is it? - Still on fairness. How should you handle a price rise without any backlash? - Mm-hmm. - So again, unexplaining. So, why is the price rising? Being a little bit transparent, again, not too transparent. Transparency is a way overused word. We don't need to spill our guts to our customers. There are things that we need to keep in-house, but they do have a right to know. If you want to charge a certain amount, depending what's going up, you need to explain that. So, giving a bit of an explanation about the reason why. Also, not piggybacking, which is, is I believe a no-no? Piggybacking price is going to increase, so by now, well, it still is. So, if we go back to the Apple description, what we're talking about, the price of these apples are going up to $1.10, but by the amount of dollar while you can. Are they going up or not? Are these poor apples? Clearly, they're old apples. Because they're not the new batch that are coming in their more expensive. So, you've got to be careful of price perception here. What am I getting or what am I losing? Again, what am I gaining? What am I losing? By, yeah. So, don't piggyback and leverage and think, I'm going to increase sales or because my price is going up. Put your price up because you need to and explain why. Would continue with the continuity and improvement be a good reason for that. Innovation, different materials. Better quality, such and such, bringing in a trusted or a subject matter expert into product development or something like that. There's got to be an improvement. The consumer needs to see that's in their best interest and that it's going to be better for them in the long run. If they can see that, absolutely. Again, it's not about the price, about the value. So, are they going to pay $1.10? Absolutely. They're going to pay $1.20. Yeah. So, I see this quite often with health. Health insurance companies putting their price up all the time. But without any change in value or continuity or improvement. Yeah, what's it for me? What's it for me? Yeah. So, that's obviously, that's something we can't do much about though. No, no. So, just a continual bad experience. It is. The thing is, is you need insurance? Yeah. They know that. So, they have a ginormous pool of customers that they can risk losing some that I want to, but they're okay with it. Yeah. So, it's a bit of a numbers game for them. Spreadsheets says what can. Yeah, it is. Spreadsheets says we can. It's a bit of a numbers game. Now, that's a minority. Also, it's detrimental to brand reputation. And it's also why we have a lot of insurance companies. Well, why do, let's talk about this. Why do people insurance shop? So, I get something from insurance. I'm going to ring them, firstly, and say, I've been a member for 20 years. Is there some kind of discount? Or then you say, I'm going to go elsewhere. Suddenly, the price goes down. Funny, isn't it? Isn't that just? Or, then you go somewhere else. I mean, I know people that go, actually, they do insurance shopping. They shop around. But also to the point where they will diligently change insurers, insurance companies, every single year because of the, now that's a lot of work. But willing to put in the work, sometimes the reduction in cost is ginormous. And people will change and go from one to the other to the other to the other because of the pricing. But unfortunately, the insurance companies bank on that. They do. They build that into their spreadsheet. They build that into their forecasting. And they're okay with that. Is that okay to be okay with that? I don't believe so. But they can. They're huge organizations. We're going to talk about an interesting thing you raised there about once you'd leave. Suddenly, they're offering, they chop their trousers. If you like it. But, you know, there's a duck patent behavior that happens in a lot of subscription-based services when you go to exit their plan and they say, "Hold on a minute. If you're hanging around, we'll give you 50 percent off." But we'll talk about that in another episode. One critical question I have for you here is, should you ever discount? Oh. Oh. I suddenly feel nauseous. The answer to that technically is no. However, we were talking about this earlier. When you might have an exclusive promotion or there's certain boundaries around something that you do that is short-term or something special, sure, you can put an offer together. But to answer your question, absolutely not. You do if you need to reduce your pricing, which is not discounting, reduce your pricing as you reduce the scope. So you certainly don't deliver the same thing for a reduced price. If you're reducing your price, something else needs to give service. Don't have specifically service here. Yeah, it's a service here. Absolutely. Yeah, with your service. With a product, again, if your model is to constantly discount, it's dangerous. I would advise against it. It creates the wrong perception about your business. In fact, this particular business that I was talking about where they're constantly discounting, you start looking for things. Is the quality the same? It trains people to wait too. They're just hanging around waiting for their discount. That's right. But is the quality the same? You start thinking if something happens to the product, all the reason why it's because they've discounted. Now, there might not be the reason why. But we have to justify. Now, Brian needs to justify why there is a discount. Also there's reputational risk. Purely for yourself individually, but also your business and your company and your organization. If you discount once, you discount again. You become a discounter in inverted commas. Then word gets around. Advocacy is a really important phase in your customer journey map. We'll talk about that later. The advocacy phase, people are saying how great you are. People are also saying how much you discount. If you discount for someone, you're going to discount for someone else. They discount. Now, get all of it. Let them know you're a friend of mine. They might give you a discount. Reputational risk. Reputational risk. No, but however, if you are running a campaign or you're doing a VIP, that's good for VIPs because then that feels that they're getting something special. That's different. That's a whole different ecosystem around value, but in a nutshell, no, you shouldn't. If you're reducing your price, you're reducing your scope. 100%. So the fix isn't clever pricing tricks. It's clarity, trust, fairness cues. Anything else I've missed there? Value. Value. Here's the shift. Price is not a number. It's a signal. It signals fairness. It signals risk. It signals whether you can trust what happens next. Impact to go action for the listeners out there. This week, open your pricing page. Find the first moment someone might feel uncertain and remove it. Make the offer clearer. Make the trade off. explicit. That's in shift. I'm Clint. I'm Leanne. One idea, one shift in on the 30 minutes. If this changed how you think, share it with someone who makes decisions for a living and we'll be back next episode. This is a much-made media production.