SaaStock 2019 - emily ellis

SAASTOCK 2019, DUBLIN
Emily Ellis – Head of Pricing, BCG Omnia
The Life-Changing Magic
of Behavioral Pricing

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Copyright©2019byBostonConsultingGroup.Allrightsreserved.
Exit or hit the gas?

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Spark joy
In Marie Kondo's ground-breaking book, The Life-Changing Magic
of Tidying Up, Kondo explores how applying simple
organizational principles can transform your life:
Envision your ideal, and commit to change
Know where to start, and follow a sequence
Organize by category, not location
Identify items that "spark joy,"
and discard everything else
Pack and store the remaining
items in distinct groups
Remove obstacles to the
selection and use of items by
applying simple tactics
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3
4
5
6

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Does your pricing spark joy?

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Economics . Competitors
Customers
Elasticity Discrimination
Game
Theory
Consider 3 pricing lenses
Pricing must be analyzed from multiple angles
Critical lens to
unlock growth

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Consumer choice is our greatest influence

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Consumer choice is an emergent field of research
A growing body of research within behavioral economics reveals that a customer's choice is often
irrational in predictable ways; customer biases can unlock additional profits

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Consumer choice theory challenges traditional views
Traditional economic theory hinges on customers and markets behaving in rational ways, but many
economists have criticized the traditional assumptions of rational decision-making
Homo Economicus Homo Sapiens
Market-
Optimized
Pricing
Markets are
Efficient and
in Equilibrium
Complete
Customer
Knowledge
Rational,
Utility-
Maximizing
Choices
Unaffected by
Marketing,
Sales, and
Pricing Tactics
Unlimited
Time and
Patience for
Optimal Choice
Varying Pricing
Structures,
Difficult
Comparisons
Imperfect,
Heterogeneous
Markets
Incomplete
Customer
Knowledge,
Reliance on
Heuristics
"Good Enough,"
"Fair," and Relative
Choices with
Cognitive Bias
Easily Influenced
by Marketing,
Sales, and
Pricing Tactics
Limited Time
and Patience,
Choice Fatigue

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Segmentation and
value-based pricing
are not enough
Choice architecture
structures the
customer's decision-
making environment
Choice architects
design pricing for
predictable buying
behavior
Choice Architecture Toolbox
Source: Johnson, E.J., Shu, S.B., Dellaert, B.G.C. et al. Mark Lett (2012) 23: 487. https://doi.org/10.1007/s11002-012-9186-1
Alternative Overload
• Reduce # alternatives
• Technology & decision aids
Decision Inertia
• Use defaults
Myopic Procrastination
• Focus on satisficing
Long Search Process
• Stage decisions
Individual Differences
• Customized information
Naïve Allocation
• Partition the options
Attribute Overload
• Labeling to overcome
parsimony
Non-Linear Attributes
• Translate and rescale for
easier comparisons
Outcome Valuation
• Focus on the experience
Setting up the choice Describing the options

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How can we influence choice with pricing?

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Commit to change
It's easy to envision your ideal, but your greatest challenge is
committing a diverse mix of stakeholders to change:
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Pricing
Stakeholders
Product Development
Legal &
Procurement
Marketing
Suppliers & External
Vendors
Customers
Finance
Sales
Executive Team &
Shareholders

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A structured, transformational pricing program encourages commitment among a variety of stakeholders
Determine strategic
intent of price change
Set value and
profitability baselines
Identify and prioritize
customer segments
Strategic Vision Value Proposition Monetization Price Setting Implementation
2
Create or refine
product value
proposition
Conduct competitive
research and product
positioning
Refine product offering
by segment
Quantify value drivers
and differentiators
Define monetization
layers to land and
expand
Design packaging,
promotion strategy, up-
sell, and cross-sell
Tweak and refine choice
architecture, and test
with customers
Implement a pricing
change roadmap
Establish the governance
model, and empower
salesforce
Outline pricing model
and unit economics
Set target price and
price band
Create governance
model and sales
guidelines tailored to
each segment

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Once committed, examine customer motives

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 Pain Gain

$$$$
What is the
primary motivator
for each segment?
Organize by category3
Customer segmentation
should be based on factors
that motivate choice, rather
than location or channel
Which factor is most critical?
• Monetary gains or discounts
• Increased convenience and benefits
• Reduced pain and risk
This is the basis of
behavioral pricing

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A preference for monetary
gains or discounts is
associated with:
Bargain Hunting
and
Value Seeking
Promotional
sweepstakes or
giveaways to induce
FOMO
Mystery items to tempt
with a treasure hunt
Decoy products at
steep discounts to drive
traffic
Quantitative facts,
such as $ Growth or
Discount % Off
Limited time offers and
limited quantities
Count-down clocks to
capture the thrill of
the chase
Multiple references
prices to anchor
discounts
Stacked discounts,
coupons, rebates, and
promotions
Unpredictable discount
schedule or
competitive pricing
Marketing Sales Pricing

$$$$
 Pain Gain
Optimal Choice EnvironmentSpark joy4

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A preference for increased
value and benefits is
associated with:
Innovation
and
Convenience
Premium offering with
"Why"-based marketing
message
Innovative new
features previewed
with demonstrations
Convenient, time-
saving features
prominently highlighted
Sales support is
dedicated, available,
and on-demand
Premium services
offered as up-sell to
save customers' time
Flexibility on
purchases, rebates, and
returns across channels
Pricing tied to the
product's value
creation
Configurable options,
add-ons, and bundles
Special services and
support embedded in
pricing
Spark joy4
 Pain Gain

$$$$
Optimal Choice Environment

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A preference for
decreased pain and risk is
associated with:
Efficiency
and
Risk Aversion
Reputation and/or
efficiency feature in
marketing message
Customer reviews and
early access programs
for trial access before
release
Emphasis on building
mutually beneficial,
long-lasting customer
relationship
Long, flexible return
policy or money-back
guarantee
Pre-order or wait list to
reserve customer's
place in line
Customer renewal
bonuses and auto-
renewals to maximize
service continuity
Pricing tied to
customer's usage of the
product
Extended warranties
and service agreements
offered as options
All-inclusive or
prepayment options
offered to reduce pain
of paying
Spark joy4
 Pain Gain

$$$$
Optimal Choice Environment

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Packaging enriches the choice environment

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How Basecamp packages
for:
Bargain Hunting
and
Value Seeking

$$$$
 Pain Gain
Package it5

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How Trello packages for:
Innovation
and
Convenience
 Pain Gain

$$$$
Package it5

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How ClickUp packages for:
Efficiency
and
Risk Aversion
 Pain Gain

$$$$
Package it5

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Remove obstacles to choice
Clever packaging of your product is not enough for an effortless sale; empower your salesforce with
behavioral tactics, and tweak your approach for specific channels, locations, and customers
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Sales Model Sales Approach
Sales Tactics
and Tweaks
Bargain Hunters,
Value Seekers
• Low Touch
• Self-Service until
Cancellation
• Limited Time Offers
• Deal-Making in Rebuttals
• Persistent Follow-Up
• Price discrimination by
location effective
• Regional & Local
Promotions
Innovators,
Convenience-
Seekers
• Moderate Touch
• Demonstration &
Configuration
• Sell the "Why"
• Default most convenient
(and profitable)
configurations
channel effective
• Channel urgency (Mobile
vs. Web vs. Sales Rep)
Efficient,
Risk Averse
• High Touch
• Early Access & Trials
• Pre-order, waiting list
• Auto-renewals are opt-out
• Customer Success builds
long-term relationship
customer loyalty effective
• Customer Reward
Programs & Promotions
 $$$$
 Gain
 Pain

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"Keep only those things that speak to your heart.
Then, take the plunge, and discard all the rest.
By doing this, you can reset your life and embark on a new
lifestyle."
Marie Kondo

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Your turn
You can apply many of Marie Kondo's principles of tidying up to
the choice architecture presented to your customers:
Envision your ideal, and commit to change
Organize by category, not location or channel
Identify what "sparks joy" for each segment
Package and present choices for each segment
based on motivation and buying behaviors
Remove obstacles to choice using differentiated sales
tactics by segment
Behavioral pricing will reveal hidden growth opportunities using
life-changing, subtle shifts in your pricing approach
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5
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bcg.com
Emily Ellis
Ellis.Emily@bcg.com

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