CFO 4.0 - The Future of Finance

258. Pricing Without Guesswork: Using Behavioural Economics to Drive Better Decisions with Etinosa Agbonlahor

• Hannah Munro

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 In this episode of CFO 4.0, Hannah Munro is joined by Etinosa Agbonlahor, CEO of Decision Alpha, to break down why pricing causes so much anxiety and how finance leaders can take control of it in a structured, evidence-based way.

Together, they explore how behavioural economics, customer insight, and disciplined iteration can turn pricing from a reactive afterthought into a strategic advantage.

In this episode, they cover

  • Why pricing is the keystone of the business and what goes wrong when it is ignored
  • The warning signs that your pricing strategy is misaligned with value
  • Common pricing mistakes, including over-reliance on competitors
  • How to research willingness to pay using both qualitative and quantitative methods
  • Applying behavioural economics to frame prices, guide choices, and improve conversion
  • Why pricing should be reviewed and refined regularly, not set and forgotten

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SPEAKER_02:

Welcome to CFO 4.0, the future of finance. The CFO role is changing rapidly. Moving from cost controller to strategic visionary. And with every change comes opportunity. We are here to help you take advantage of this transition. To win at work, drive a career forward, and lead with confidence. Join Hannah Monroe, Managing Director of iTech, a financial transformation consultancy and she interviews key experts to give you real-world advice and guidance on how to transform your processes, people and data. Welcome to CFO 4.0, the future of finance.

SPEAKER_03:

Hello everybody, and welcome to this episode of CFO 4.0. As usual, I am your host, Hannah Munro, and with me today is Etiosa Aguan Lahore, who is going to talk to us all about the world of pricing, which could be a really scary place, can't it? So tell us a little bit about what are some of the challenges that people find with pricing and why does it seem like such a big deal to put together?

SPEAKER_01:

Absolutely, Hannah. First of all, thank you for having me. I'm excited for this conversation. But to your point around why it's such a big deal, it's that pricing is the keystone, right? It's one of those things that matters the most. It holds the entire business structure together, right? If you're underpriced and if you're undercharged, you can be doing all the great things, but you're still going to eventually feel like you're working hard and not having enough money in the business, you're burning out, all those kind of like negative outcomes. So pricing is sort of a keystone, meaning it holds the entire structure of your business together. I actually had a I was doing a presentation to a group of business leaders last year in 25, and I asked them what comes to your mind when you think about pricing. And they responded, and these are business leaders, so everyone is sort of high up, you know, doing something meaningful in their work. And they responded with things like fear, anxiety, dread, worry. Those are the emotions that come with this whole concept of pricing. And so that's kind of why, you know, as behavior economists, we've been really fortunate to step into this world and help bring some clarity into here's how you do it, here's how to think about it, here's what it looks like to structure pricing that works for you and also resonates with your customers.

SPEAKER_03:

And what are some of the signs as an organization that perhaps you haven't got your pricing strategy right?

SPEAKER_01:

Uh a couple of signs. You're either feeling revenue pressure, right? So that's showing up as it's bright red on the bottom line when you look at the uh your your balance sheet. So there's either revenue pressure that's coming up, or you have the wrong type of clients. You've got people who are, so this is assuming that you're undercharged, not overcharged. If you're overcharged or you're overpriced, the markets kind of tell you in the sense that you're not selling anything. So the market kind of corrects for overcharging a lot of times. But while you're undercharging, you either are feeling that on the balance sheet, or it comes across in terms of having the wrong uh types of clients, people who aren't necessarily aligned with what the organization is trying to sell, or they're they require more hand holding, more FT, more kind of like attention, etc. to kind of resource or um work with than what you would prefer. And so those are kind of two signs that maybe pricing isn't quite aligned in the business. The other thing is it takes a very long time to even just set up what the price should be for any product. So your sales team thinks one thing, finance team thinks something else, product is coming in with the voice of the customer shouting something completely different. And so it kind of ends up being this we never quite got there as fast as we should be. And it's like we meant to build a horse and we ended up with a camel kind of situation.

SPEAKER_03:

And what do you think some of the key, like so we we've so just say we've identified we've got a problem, so we hit one of those three buckets potentially. Um, you know, what are some of the key mistakes that people make when it comes to pricing?

SPEAKER_01:

The biggest one, I think, is not actually talking to customers or understanding how they perceive the value of what you have to offer, right? And value is a really interesting thing. I always talk about it in terms of everyone has a sense of what they would pay for an umbrella, for example, right? I think an umbrella should cost X, Y, Z number of pounds. But if I'm outside and it's raining, I have to get to my next meeting and it's a very important meeting to my business, I will pay whatever it takes to get an umbrella so I can get to that meeting nice and dry, right? So the value is contextual, it depends on what I'm doing and how I view the value of that umbrella in that moment. In the same way, the way your customers understand and perceive your value is gonna be contextual. How do you frame it? How do you talk to them about it? How do you surface it? Because value is such a contextual thing, if you just assume that there is one ultimate price that uh an algorithm can spit out for you and you haven't talked to customers, you haven't gotten their perspective, you're gonna miss out on A, yes, getting the right price for your business, but also B, understanding are there elements of value that my product, my service brings to my customer that I could be displaying, explaining things to them along those lines, I could be marketing in these ways, I could be touching this value attributes when I talk about this to customers, you're gonna miss out on all of that because you didn't talk to prior uh customers as the first step of setting up your pricing. So, to me, the most important thing in the pricing journey is really doing that customer research to start with. And then the second point to that is also then thinking through how do we frame the prices, right? It's not just this is the price, take it or leave it, and we walk away. You have an opportunity to turn your pricing into what we call a kind of a steering wheel, not just a simple engine, right? An engine is you raise it up or raise it down, very straightforward. A steering wheel is okay, there's a way to design my prices and design the options I put in front of my customers that could get them to choose more of this product, more of this kind of feature, to lean in here, to step away here, right? So also using, and this is where behavioral economics comes in, using that behavioral economics to help your customers or to help your team really frame up how you talk to and present that price into customers is another um mistake I don't see a lot of companies are doing or really leaning into.

SPEAKER_03:

So I'd love to explore that, and I'm gonna I'm gonna dig into that, but first I just want to go back to your first point about contextualized. So given you said obviously um value is contextual, does that mean that you should be speaking multiple times to the same customer depending on certain variables? Or is it you can go into an initial conversation with a customer and get out what you need? How do you approach that sort of customer interview process?

SPEAKER_01:

Yeah, so we do a mix of quantitative, so we have the rigor, right? The the the the sample size to have us help us have confidence in the statistics that we're um exploring. But then we also like to do qualitative. We want to sit down and understand if you weren't using this product as a customer, what would you be using instead? Right? How would you be fixing the solution? That's gonna help us get insights into not just uh the role of the product in the customer's life, but then also the value and what they're doing um as alternatives. We between that quantitative and qualitative approach, it kind of gives us like a nice, I wouldn't say it's like a completely transparent, completely clear, but like it's good enough for us to then go, okay, and aggregate across all of these different kinds of customers. Here's what we're hearing, and here's how we can feed that into the next step of then modeling how we frame it using behavioral economics and test that. So I wouldn't necessarily say it's talking to the same customer over and over again in different contexts. That might be interesting to try, but it is trying to get them to be in the context in which they might be encountering your product or exploring if you weren't encountering a product here, what would you be doing instead?

SPEAKER_03:

And what typical quests? So you've obviously mentioned a couple there. So you've mentioned obviously what would you what would you be using if you weren't using our product? Um, what you know, what's value and how do you get to the value piece? How do you help understand sort of the price value of an of what you're delivering to that customer?

SPEAKER_01:

So sometimes it can be as straightforward as asking questions to unpack that, you know, what did this product help you do in terms of time saved, in terms of money saved, what else did it help you do? Um are there things you get from if it's not a product, let's say it's a service, are there things that you've got in from working with me that um I might not know about, right? For example, I love working with my my tax um agent because we've been working together for so many years. Now I have shorthands and I have my own Excel sheets that I just sent to them instead of having to fill out all the forms they send me. So I value that they save me time because I can just send them a document that I made myself and I know how it works and I don't have to waste time. Those are things that they might not consider as valuable, but to me, I'm like, I would I'd stick with you forever because I can save time doing this thing, right? So it's kind of asking questions to extract and to get to that. What is it about the work that we've done together that helped you and made you keep coming back to work with me? That's it on the one side. On the actual pricing side, we do a mix of the standardized instruments like what we call Van Western Up um price sensitivity surveys. And those are very standard, very basic four questions. Thinking about this product, what's too high, what's too low, what's too cheap, what do you think it's a bargain? But we know that we are all, and we learned this from behavioral economics, we're all uh kind of optimistic individuals. What we say we do is very different from what actually happens. So we're in January now, so all the gym bookings, I'm sure, have gone right through the roof. And in February, they're gonna empty us again, right? What we want to do is very different than what we do. It's called the action intention gap. And so knowing that people will say to us, yes, I think that I would willingly pay 500 pounds for this product. But in reality, it might look very different when it comes for them to actually pay it. We put them into a situation, a simulation where they're actually in that situation, right? They have a budget constraint. This is what's going on contextually. Now, what does it look like? What would you be willing to pay? What's too high, what's too low? So we have ways of trying to correct for any biases that might come in through that um survey process as well.

SPEAKER_03:

And and and does this process in any way, like the customer interview, the pricing piece, vary based on whether it's a physical product, maybe a time and materials, like a professional service or a or a software? Like, is the pricing, is the interview and the customer um assessment process any different?

SPEAKER_01:

The actual the tools themselves are not very different because they fit into what we call our um decision of our pricing framework. And so that's four steps. And the first step of that is for us to do what we call mapping monetization zones. And that's when we sit with the internal team and understand okay, where is the alignment or the intersection between what your customer wants in terms of jobs to be done and what you're offering, right? And then we take all of those into the actual pricing research. So if you are a professional service, that's where things might differ, right? You might say I'm a lawyer, and what my customers want when they come to me for IP and business, you know, lawyers, they want speed, they want accuracy, blah, blah, blah, which might be different from we offer uh a database for lawyers. And so when they come to us, they want to make sure that there is um, you know, security and that we have all the certifications and they know that their data is secure, right? So those attributes we take into the research might look a little bit different, but we're still doing kind of the exact same research process. So step two of that is doing the willingness to pay research with the customers. Step three is doing the behavioral economics framing where we say if we put it this way, if we test it this way, if we've had this narrative on it, what resonates more with customers, what makes them more likely to want to purchase. And then step four is then building out a pricing roadmap. So the client, the team has a way of iterating and continues to test and grow their pricing. We talk about pricing should be a feature and not a reaction. It should be intentional, not just something changed in the world, and so we should take a look at our pricing now. So essentially to answer your question, the process is the same, but the output differs and that influences the actual details that we um we research.

SPEAKER_03:

So let's dig into that that first part of the process. Talk to us a bit about those those values, those values and what actually I'm gonna start with the basic question. What is a jobs to be done? So yeah, let's explain that to our audience.

SPEAKER_01:

Yes. So a job to be done is very simply a process where you map out the tasks that a person is to do to complete their goal. So, for example, I want to save more money, right? So ultimately I just want to open up a savings account. What do I need to do? First step is I've come to that conclusion that I want to save more money. I might start by just researching what are the options to put my money into. I maybe a money market, maybe a savings account, maybe a Hyed savings account, maybe I just live it to my checking account, right? I'm doing all of that research. That's step one. The next thing might then be I'm gonna narrow down and decide, okay, I really want it to be in the money market because it has better interest rates. And then step two might be, okay, which money market? Something in my town, do I want to be able to go? Right? So we're mapping out step by step all the processes that get your customer from the decision to the implementation. And so that then allows you to, as a as a company, start to go, well, where do we intersect here? Right? If we offer savings accounts, we might go, well, we only offer savings accounts that are higher yielded savings accounts. So there's no conversations about money markets in here. We wouldn't intersect with that customer. But a customer who had looked at and decided they wants to do a savings account, well, we only offer savings accounts that are online, we don't have any in-person branches. If it's online, how do they encounter us? What gives them the safety? What helps them feel comfortable? Where do we meet all of the needs of the customer on that process? And so then an attribute that we would take into that research is that overlap between this is an online savings account and it's got all of this XYZ security features and it's FDIC insured in the US, that just means, you know, up to$250,000, the government kind of backs your money, right? So we say, well, FDIC insured, and also you can find us online. We're easy to access. Let's take that into the research and see. Do people care about that? Do people even know what FDIC insurance means? Because we think it's a big deal, but then we go into the research and the customer goes, I didn't even know that was a thing. I'm just happy that you're online and I value that more than I value the FTIC insurance, right? So now in our pricing and in the way we talk about pricing, maybe we highlight we're online and we're, you know, very flat fees, or we give you this much in interest rates, and at teeny tiny and bottom we have and we're FTIC insured, but we don't shout it out as a big deal, and we don't base our pricing on people are going to want to pay more for an FTIC insured product, right? So that's just an example um of how that process kind of feeds into the other steps down the line.

SPEAKER_03:

So if I'm understanding, maybe if I just uh recite that by we are mapping out the the guess the process to purchase, you know, from an thought through to finding you as a as an option or how they might find an equivalent of you. And then within and within that you're you're finding out what other options at each stage they might encounter. Yeah. And then you're mapping out within that what are the features and functionality that you you add to them in in terms of their process. Yeah. What are the things that you think you or differentiate you from your exactly.

SPEAKER_01:

Exactly. And then we want to take a lot into the research and see, well, do you care about this, yes or no? And also are there things we then consider that matter to you.

SPEAKER_03:

And I can imagine a lot of the times when you're going in and speaking to customers that what they think is important to customers perhaps isn't as important. Is that something you come across a lot?

SPEAKER_01:

Absolutely. Even when we've done our own pricing research for our services, we've been building out new um services for small businesses and professional businesses. And when we've gone in to do the kind of research, the things that we think will be important, hey, we're gonna help you really understand, you know, and optimize your pricing and show you what your margins are. And what matters to them is I just want to feel that when I have two clients come to me, I can quote them confidently and comfortably. So I want to have a rubric in my mind for how I give my pricing to customers. And that's not something we thought about at all, right? So that's where the kind of the nuances start to come out when you do this kind of research and allows you to lean further into here's how we deliver value to you. It doesn't change the product, it doesn't change what we built, but helps us go more comfortably, right? Here's what we can lean into, here's how we deliver value to you.

SPEAKER_03:

And then obviously, um, a lot of people will build their pricing based on their competitors. And I think that's something that when I was reading some of the content that you'd sent through before this podcast, that's one of the biggest mistakes that people can make. Just talk to us a little bit about that. And what, you know, is it important, but at and at what point it does it become a factor?

SPEAKER_01:

It's definitely important and it should be a factor within that entire journey. But the reason you don't want to lead with that or anchor too heavily on that is because A, you don't know that your competitors aren't leaving money on the table as well. You don't know that they haven't made mistakes in their own pricing, right? So you don't want to be stuck in this weird crabs in a bucket situation where if you had the right clients, they'd be willing to pay you, I don't know, like a thousand pounds more than you're currently getting paid because you anchored to your competitor down the road who came in and because he wasn't confident, he went for a low price, and now you're all stuck at the same low price, battling each other, right? So that's the first thing is that you just don't know if they made mistakes. The second thing is that we all have this habit of naming our products and services the same thing. So uh somebody says, Oh yeah, I am a business attorney or I am a I'm a CFO and I work with small businesses. But when you say I work with small businesses, you don't just mean I do the balancing of the book. You also mean I do strategic advice, uh advice and insights, right? I don't just tell you what's going on, I help you think from a loop to the future about what you can anticipate. That is super valuable to business owners, right? But you're calling in the same thing as somebody else who only does retrospective uh work. And so even though you're delivering more value, you are anchoring to somebody who's not delivering as much value as you, and you're not getting paid for any of the things that you're delivering that actually are helping your clients, right? So that's another reason why you don't want to anchor too deeply to what competitors are doing. You just don't want to end up in that strange place where you're working hard, delivering a lot of value, but you're not getting paid for the value that you're actually delivering to competitors. Now, what should you do and how do you take competitors' pricing into consideration? In that second step of the process, when you are talking to customers, when they are helping you understand this is the value I get from you and this is what I would be willing to pay for it, now you can look on and say, okay, what are my competitors doing? Right? How do they talk about their services and their prices, right? If it's aligned to what you're hearing from customers, fantastic, you're in a good spot. If there's a massive discrepancy in that the customers you're talking to are willing to go much higher than the what your competitors are doing or how they're priced, then it allows you to go, okay, maybe I need to differentiate myself in a different bucket, put myself in a different room from the competitors so people don't go and compare my prices to their prices and worry about, well, why are you so much more expensive? Right. So I would introduce the competitor pricing as a way to sense check what you're hearing from customers and understand do I need to differentiate, or am I fine and I kind of lean into and be similar to the to the folks around me because it resonates with what customers expect.

SPEAKER_03:

And that's a really interesting piece because it sounds like if there is a big gap, because your your petitor. Might be underpricing what they're what they're providing. If you don't feel like there's a lot of differentiation between yours and yours competitors, how do you create that? Or what would be your next step to would you drop the pricing? Would you create differentiation? How would you approach it?

SPEAKER_01:

I love to have the folks we work with think about how they can create differentiation. And differentiation can happen across a couple of different elements, right? You could differentiate by niching down, right? So I tell the story of um, I just mentioned I have great tax people, I love working with them. Um a couple of years ago, I had moved, I was working in Australia and I had moved back to the US and I started investing in real estate just as a wanted to have my money doing different things. I was at a real estate conference, and this person comes up to me and starts to talk about how they are tax reps, but for real estate entrepreneurs and real estate investors who are doing a certain number of volume in real estate, and that they, you know, they have all this knowledge and they know what we can do in terms of tax advantages and all this, like such a great pitch. And so I thought to myself, okay, like it's worth hearing them out more, right? The press people who do my taxes, they kind of specialize, but they're not real estate specific. End up like going to these folks and uh choosing and opting to work with them. They're at listening, they're more expensive than my regular tax people. And so I chose to work with them because again, I'm like, and they're also more expensive. So the specialization might mean something. Turns out that they're very good at it. A turns out that for what I was in in real estate, you really didn't, I didn't need to be that sp, I didn't need a special person, but also they had real estate knowledge and nothing else. So I had to go back to my tax person during that taxes and be like, hey, I'm so sorry, but I really actually would love for you to work on this with me with a big mistake and it cost me a lot of money. But what am I saying? Because those folks came to me and they said, we specialize in this very specific group, right? We know you, we work with you. Everyone who we work with is a real estate investor like you, and we're more expensive. It made me go, oh, there's something here, right? Maybe it's worth exploring because they are so much more specialized. So that's a way of them differentiating themselves from other tax advisors, and then the same thing that your CFOs could do, it differentiates yourself from other CFOs by saying we focus on this specific group, we focus on people who are doing this, we focus on businesses who are doing that, right? And sometimes people try to use revenue as a differentiator. I think that it sometimes works solicit better if you can say, I work specifically with companies in this industry, right? I have this background, so I work specifically with people who are doing this kind of thing, versus, oh, anyone who's at two million revenue above. I I that's just anecdotal, there's no research behind that. But so differentiation, uh, nation down, and you know, specializing is one way to get to that differentiation. The other thing that you can do is in the packages that you offer, right? So we've been doing some work with uh law firms now, and something that would introduce into a lot of them is this idea of having like a monthly subscription retainer package that people can access for not a lot of money, but it gives them consistent revenue and also then allows them to separate themselves and say, Oh, we don't charge by the hour, we charge by this XYZ outcomes, and then afterwards you have the option of rolling into an ongoing advisory relationship with us where you when you need us, you can access us once a month for XYZ amount of hours, etc. Right? So thinking through and playing with the packages you offer as another way to specialize and differentiate yourself and say you can work with us in a way that delivers more value to you and is different from how you work with the other people around you. If you're a CFO, you can say, again, we've got this advisory relationship, or we special, or we can differentiate ourselves in the sense that I give you insights once a month and it's forward-looking, or we have strategy sessions once a quarter and we talk through what you want for the next quarter, all of those different ways to package up your services and say this is different. Um, and so we charge differently for it.

SPEAKER_03:

And and that's and that so if we think of through that process, because I'm very aware that a lot of our listeners might be, they might be fractional CFOs, but they also might be CFOs for for product-based organizations or professional services-based organizations. Does any of that does any of what you just said differ depending on whether it's a product, whether it's SaaS, whether it's professional services?

SPEAKER_01:

So if it's a product, I think again, playing with the who is the niche, who specifically are we trying to service and leaning into that, even if the product does the exact same thing for all of the different for anyone who uses it, right? But if you can frame up the story of this works really well for growth stage startups because XYZ and blah blah blah, and we are growing stage startups ourselves, and so we know the journey, right? If you can frame it up, the story that you tell about your pricing affects who decides to work with you. I talk about it as um the difference between being in a bazaar, let's say you want to buy a white t-shirt. If you go to a bazaar, you expect a certain kind of like all the white t-shirts are the same and they're all five pounds, right? You go up, you walk up, you pick one up. If you're buying the same white t-shirt, same quality, same hundred percent cotton in a higher-end store, in a Harrods, and a Nordstrom we have here, you might expect a different experience. You might expect you're welcomed in, you're sat down, you're given a glass of water, the t-shirts are presented to you, right? You're gonna pay way more money for that, even though functionally it's the exact same t-shirt, right? And so what you're doing is creating a narrative that then allows you to go, hey, if you're a shopper who wants the Harold's experience, you should come to us. If you're a shopper who wants that bizarre experience, you should go to them, right? It's just the ways of you how you tell that story. And this is why we talk about the framing of the price, and as well as what is a story you tell around it that allows us to go, oh, you're my person, you should come to our door.

SPEAKER_03:

Yeah. Brilliant. So well, I feel like we've gone one and two. So we've done the assessment of the value, I guess, um, positioning piece, where do we sit? Um, and then we've done our um our research with our customers and and potentially competitor research. And and the next piece you mentioned, I think, was behavioral economics. So tell us a little bit about stage three. What does that look like?

SPEAKER_01:

Yeah, so for us, this is the most fun piece because my team is a team of behavioral economists, so we love this side of things. Um, what we are doing in behavioral economics essentially is at the root of it, we know that people make financial decisions not based on, you know, the numbers, but really based on context. Our emotions, our psychology all affects the financial decisions that we're making every day. And so in bare economics, there's a couple of concepts. The first one is that we're reference dependent, meaning that we don't value things in isolation. It's the umbrella example, right? Umbrella by itself, if we do if it's a dry day, sunny day, we don't need it. We're like, eh, 10 pounds. Umbrella when I'm right, when it's raining and I'm going to a meeting, I would give you 20 pounds just give me the umbrella so I can achieve my goal of not being in this rain and in my meeting instead. Right? So value is reference dependent, right? You get a promotion, if you you're making, I don't know, 20,000 pounds more than you were making before. You're happy until you find out that everybody also got the same promotion was making 50,000 more pounds, right? So value, it really depends on what you compare it to. So we start by saying, let's research and test what do we compare this to? What is the room, right? Do we talk about this as high-reds or it's a bazaar? What is the room we want to put that uh product in or the service in? How do we talk about that? The second thing is this thing such as uh anchoring and adjustment, meaning the first price that people see will sway them one way or another and kind of serve as an anchor in their minds around and how they evaluate the other prices that they see. So, what number do we want folks anchored to? We also can test things like loss aversion. People in general, especially if they are not familiar with the product or service they're buying, tend to be loss averse, meaning that I feel the impact of a 100-pound loss more, almost twice as much as I feel the same from a game. And so we might test language that uses loss aversion. We don't expect it to work every time. We don't think it's gonna work if you're familiar with the domain and you're an expert in it. It might put some people off, but we want it tested. There's things such as social norms, there um Her Majesty's Royal, what is it, the tax collection service in the UK.

SPEAKER_04:

HMRC.

SPEAKER_01:

Yes, HMRC. They did this a great study a while ago with um the behavioral insights team, which is a group of behavioral economists down there. And they wanted folks who had been delinquent on their taxes to repay their taxes on time. And so they tested social norms where they did different levels of kind of familiarity, right? So, hey, people in your town, most people in your town have paid their taxes on time, most people in your zip code have paid their taxes on time, most people on your block have paid their taxes on time, right? And instead of most people, they probably said like 80% of people who live in the E1C zip code or whatever have paid their taxes on time. And they found that the closer you were to a person, like people on your block, people in your town, people in your zip code, people in your state, the more likely they were to actually repay their taxes on time. So we don't make decisions in a vacuum. We tend to be influenced and informed by what everyone else around us is doing. So we could also test social norms and say people like you are using this product in XYZ ways, or, you know, introducing that into the pricing language and just see does that change anything, does that sway anything? So we introduce a range of behavioral concepts like that, the framing, introducing decoys, there's lots of different things that we can do. And we want to test that and see which option are people more likely to choose when we frame it this way versus the normal way, that way versus the other way. We're using a decoy versus no decoy. What do people choose? How do they choose? How quickly do they choose? We use all of that to then go, okay, we have confidence that if you use this frame and if you talked about it in this way, if you compare it to this thing, um, you might see more conversion than if you weren't doing it, or if you weren't comparing it at all. So that is the kind of behavioral side of things in the research uh context.

SPEAKER_03:

So can you give us some examples of how you've used that behavioral um economics to maybe drive people down a route that you want them to? So some examples there about you know, targeting, keeping it close, um, your block or somebody like you. Um to explore some more examples.

SPEAKER_01:

Yeah, so some things that we've done, for example, are we worked with an ed tech company who were introducing price into they'd always worked and sold into schools and they wanted to sell into parents and students more directly. And so we looked at their pricing and we did things like first of all, let's cut the language on this pricing page right down back to like a third grade reading level. It's too complex and nobody knows what you're talking about. Um, second of all, they had one flat price, and so we worked with them to say people like to make comparisons instead of just having one price. What if we created two or three options for people to choose from? You still want them to choose that mid-the middle option is the one thing you wanted to sell anyway. You think this thing most people are gonna buy, but let's introduce a couple, two more options so people can make comparisons and understand why this option is actually the best one for them. So introducing um kind of like more of a choice set because when the option is we only have this price or we're only hourly, you're asking people to make a binary choice. Yes, I want to work with you, no, I don't want to work with you. Yes, I want to buy it, no, I don't want to buy it. When people have a couple of options to choose from, you move from that binary decision to more of a okay, which one do I want to buy? How do I want to work with you? Right. So we introduced more of a choice set to them, and we made sure that the middle option was the one that we wanted most people to choose from. And so we toggled how we talked about the other options a little bit, just to make sure most people would look at that middle option and go, this is the one we want, this makes the most sense. The other thing that we did, which is um counterintuitive, is that we actually walked them away from having a monthly subscription only because it was so low the price that it didn't make sense in behavioral economics and finance in general, we talk about this notion of the pain of paying, which is that every time you swipe or every time you really it was done more in cash, every time you pay for something, there's a little bit of a disutility, a little bit of a friction that comes with spending money. Um and our hypothesis was that when people look at their statements, not that anyone really looks at their statements that much these days, but when people are looking or getting that notification that you spent this tiny amount on this service over and over and over and over and over and over again, because the amount is so little, it almost makes a sense to just bill it quarterly or bill it annually instead of having a monthly subscription. I think a lot of people are starting to get subscription fatigue, right? So we walked them away from the subscription and said, let's have it aligned to more of the school terms. And so when you're taking that money out, you can send an email saying, you know, here's some body, here's some things to know about the upcoming school term, whatever that looks like. So that was counterintuitive, but that seems to also be working um really well for them. So those are the kind of things we'd consider when we talk about the behavioral economics and the framing of it. It's not just what is the story you're telling, it's also well, how are you packaging it? Does it resonate? Do you really need to do it this way? What if we tried it this way instead?

SPEAKER_03:

And you mentioned earlier about price fixation, because that can be a real challenge, isn't it? If you've seen something that's a particular price or cheap, and then you go to explore options and they're a lot bigger than perhaps you think. So tell us a little bit about that as a concept.

SPEAKER_01:

And anchoring is when the first price you see in an environment influences and informs what you end up choosing. So for example, charities, or even in let's go more commercial, tipping, right? I know it's not as huge in the UK as it is in America, but 10 years ago, the standard tip for everything was 15%, right? And now when you go into anything, a coffee shop, a gross, wherever it is, you're gonna present it with an iPad that has tip options, and a lot of them will start from like 18% or 22%, and then they go upwards. So what that does now is that it anchors people to tip a higher amount than they would have tipped years ago because we've changed the amounts in front of them, we've changed the kind of defaults in front of them. So anchoring is basically when you change that number that people interact with first, it changes the financial decision they make. Now, to your question, if I encountered a much lower number out there, I'm doing research for a new CFO, and somebody comes to me and says, Oh, I bill at£400 a month, and somebody else is coming to you and saying, We're£2,500 a month, what is the difference, right? Right away, you have to start thinking through, well, what do you do for me that like justifies this price? And if there's nothing, if I'm looking at them and I'm thinking they are both in the same room, they are both in the bazaar, I cannot tell the difference, then because I've been anchored to the 700 pounds, I'm walking around thinking everyone else should cost 700 pounds, right? So that's gonna sway on information one way or another. Versus if the 2500 pound CFO, and I'm making numbers up, I don't actually know what British CFOs in the UK charge. But if the um 2500 pound one is think is saying we are completely different, we only focus on people like your businesses like yours. We've been doing this for 10 years, we deliver X was the amount of value, this is how we work with you, this is the resource to expect, etc. I'm thinking about them very different from my utilitarian and cheaper option, right? So this is why we talk about the differentiation is very important. It's especially if you're trying to be more premium or introduce price, and that's a little bit different from what everyone else is doing, how you set yourself up to look different and to talk about your outcomes differently is very important. But to original question, anchoring can influence things. You just have to think about what is how what's the room they're in, what are they comparing that anchor to?

SPEAKER_03:

And and what if different in different customers have a different might have a different anchoring position? Maybe they've worked on something similar before, etc. How do you bring that into your pricing evaluation process?

SPEAKER_01:

That usually will show up in the willingness to pay research because then they can say, Oh, I've used, I haven't quite worked with a fractional CFO before, but we have had a full-time CFO before, and this was his or her annual salary, right? So when I think about working with the CFO and the across the different things it might be doing for us, I am thinking about that annual backdated to like uh an hourly rate, for example. So it shows up in the willingness to pay research, and it can also show up in those conversations, especially this that question of what else would you be doing? What have you used to solve this before? Allows us to start to like pull apart and tease apart um that that that perspective.

SPEAKER_03:

Brilliant. So obviously, then we're testing so stage three is then testing against some of these behavioral um search outcomes, you know, putting different pricing in front of customers, I'm assuming at this stage.

SPEAKER_01:

Yep, yep. And seeing what they choose, which one they um choose. Sometimes we're also looking at how quickly they choose it. Just whatever insights we can get from those interactions is really helpful. And then we run the statistical analysis on that um to come back and say, confident in this, not so much in that, didn't really see a difference here, don't think this matters so much, etc. And so go on.

SPEAKER_04:

There you go.

SPEAKER_01:

Yeah, and so where we want to get to eventually is a place where we can say the price should be between this and this based on the quantitative research we did. You want to frame it in this way and talk to those elements of value based on the behavioral research that we did. Um, and then there's also some, you know, the standard kind of demand estimation, etc. This is how much volume you're gonna sell if you implemented XYZ or if you did it this way based on uh those numbers as well.

SPEAKER_03:

Um and what's the last stage? So you said I think you said there were four stages.

SPEAKER_01:

Yeah, there were four. Yes. So the last stage is we call it like kind of a pricing roadmap. We talk about pricing. This is what I was saying about feature, not a reaction. We want people to continue to test and iterate, right? So I think that every quarter everyone should sit down and review their price. And I don't, you don't need to change anything, but just to make sure what value have we delivered? Have we shipped any new features? Are we talking about things differently? Are we doing more advisory work? What has changed and how we work with people? Are we delivering new kinds of value? Because that then sets you up for when you are ready to change prices, it's easy to communicate why we're changing them and what it looks like moving forward, right? So we say test and iterate because also when you make these changes to your price, and you might find that all right, now we're resonating with a different type of clientele. Or we made these changes, some of the customers we used to work with weren't comfortable with them and they left, but we had planned to absorb that anyway, and we're making more profit with the customers who have accepted a new pricing, right? So testing and iterating and not letting it be like we changed the price and now it's gonna sit and just kind of be in dark and in the cobwebs for another like 18 months before we go back, or another three years before we go back and say, should we change the price again?

SPEAKER_03:

So the fourth step is to go and iterate and and review it on a regular basis.

SPEAKER_01:

Exactly.

SPEAKER_03:

Fantastic. And and obviously a lot of people are going into budgeting season, they're looking to put their financial plans together for the next year. And so obviously, pricing factors massively into that. What you know, what would you you know, if somebody's looking at their pricing and thinking, um, oh, and perhaps I'm not where I need to be, what recommendations for you do you have for them to go and you know, go away and think about um in terms of their pricing?

SPEAKER_01:

Most the biggest one is go talk to customers if you can, right? Anyone who has worked with you before, who especially repeat customers, and just kind of sit down and do that pricing research with them. We have a free playbook online, it's just at playbook.decisionalpha.co. You can access this and it will show you how to ask those questions to your customers. So that's completely free. You can access it, grab that, but it will show you you know, these are the four questions. I mentioned before. This is how you ask it. This is what you do with it once you've asked those questions. But I would say having a chat with customers and letting the insights you get from them going to that planning, those planning sessions with you is a helpful step one.

SPEAKER_03:

And obviously, we've talked a lot about speaking to customers. What about the people that aren't the customers, perhaps? The ones that you actually want if you've maybe not got the mix that you're after? Would you is that customers the prospect customers, or is it the actual customers?

SPEAKER_01:

So it's a mix of you want to talk to your customers because you're gonna put your new price in front of your prospects to see what's resonating with them. Right? If there's a way, especially if you're very new, your startup, you're building something you haven't built before, then you're talking to prospects. You're not talking to actual customers, you're talking to people who you think you want them to use this and you're asking them this pricing questions. Um, but usually if you have an if you are an established firm, you have clients, you want to talk to them, and then whatever changes you make, etc., you want to put that in front of prospects first and see how your new clients or your prospective clients react to them.

SPEAKER_03:

And then roll it out through to your existing. Amazing. And um, last and not least, you know, what are your top tips for getting pricing right?

SPEAKER_01:

Couple of steps. First one is again, go talk to customers, very important. Um, after that, consider how you're framing your pricing, right? Think about what are we comparing our prices to, how are we comparing um the value we deliver to? Uh are we offering options within our prices? Are there packages we can talk to or stick to? Thinking through the story and the narrative of how you set up your pricing is also important. It's not just we've got a great price and it's cheaper than everybody else. It's how do we talk to that? How do we show that? How do we make sure that it's aligned with the things that the customer values? That's also um very important. And then the third thing is don't set it and forget it. Every so often go back, understand what is the new value I'm delivering to customers, and how do I make sure that I'm recouping um that value one way or another in my pricing?

SPEAKER_03:

Amazing. Well, you've just given us a huge amount of value in this one uh 40-minute session. But if people want to learn more from you guys directly, um, where is the best place to find you and how can they learn more about how to do pricing well?

SPEAKER_01:

Absolutely. Um, if somebody is listening and thinking I'm not fully competent in my pricing, I feel like we're guessing, we're copying competitors, the first step is to diagnose what's actually driving your prices today. We have a pricing diagnostic and we usually only use it with our play, with our paid customers. It's kind of the first step of working with us. Happy to share that with your audience completely free. Um I can tell you how to access that. And then on the other hand, for CFOs who are thinking this is great stuff, I would actually like to bring it to my own clients and talk to them about their own pricing. We are building a white label tool to help CFOs have this kind of pricing conversations with their own clients. Wherein beta I would love people to come and like play with it and test it and tell us if it's working or not. We need to do the pricing research for ourselves. So if you want either the pricing diagnostic to stress test your own pricing, or if you're curious about that too for CFOs, you can email me at EA. That's just the letter E and the letter A at decisionalpha.co.co. And I will either personally send it to you or somebody on my team will send it, whichever one you want to you.

SPEAKER_03:

Fantastic. And we'll obviously put the link in where you can go and download the playbook as well, because we did mention that earlier on in the podcast.

SPEAKER_04:

Absolutely.

SPEAKER_03:

Thank you so much for joining us, and I hope to a big thank you as well to our listeners. If you've enjoyed this podcast, then please do leave us a review. Send me a message so that we can understand if you want more on the topic of pricing. Um, and I thank you again for such a great podcast and sharing your insight.

SPEAKER_01:

Thank you, Hannah. I really enjoyed the conversation.

SPEAKER_03:

So, for me, one of the most important things about any transformation project is the partners that you work with. And whilst I'd love to list off a whole host of reasons why ITAS is the perfect partner for your transformation project, why don't I let our customers do the talking for us?

SPEAKER_00:

One really good thing working with ITAS is it's dramatically reduced my blood pressure. Um, obviously, an account system is critical to uh anyone's business. So, innovation data, without that, like every company, we can function as a company. So, you know, it's one of the most critical pieces of software, and any sort of vulnerability we have with that sort of keeps you awake at night. And now working with iTAS, I don't have any concerns about our account functionality and our account system and the usability and all of that. Working with previous partners, um, I've got some grey hairs and uh sleepless nights from that, as I say, because it's so critical. So been an absolute pleasure and yeah, long may the relationship continue.

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Hannah Munro

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