Impact Pricing Blog

I am so lucky.  When I was 23 years old, I was madly in love.  My fiancé tenderly captured my heart. Then, on a Friday the 13th, she ripped it out, threw it on the sidewalk and stomped on it!  OK, maybe that was a little dramatic, but that’s what it felt like.  And looking back, it is probably the single biggest event in my life that helped me understand pricing.  This one event was simultaneously one of my worst experiences and one of my best.

At 23 years of age, I was engaged to Kathy. We lived in Columbus, Ohio where I was working as an electrical engineer and she was a nurse in the OR (Operating Room). You know that feeling when you’re so in love, all you can do is think about being with that person? I had it bad. I bought a $2,000 ring (in 1983) and proposed.  She said “Yes”. I was the happiest person on the planet. We told my parents. They rejoiced in our engagement.

We were about to have dinner to tell her parents, but her Aunt in Florida got sick. They traveled down there to take care of her, so we didn’t have a chance to tell them. Shortly after that, Kathy’s grandmother in Kentucky got sick, so Kathy would drive to Kentucky on weekends to take care of her. We had less and less time together, but that didn’t matter. We were in love.

Then, one Friday the 13th, I called her hospital around 4 pm (that was before cell phones) and they told me she was scrubbed in, meaning in an operation. She called me an hour or so later and I asked where she was, wondering if she had made it back to her apartment yet. She said three little words that would change my life forever, “I’m in Kentucky.”

It’s at least a 3-hour drive to Kentucky from Columbus. There is no way she is in Kentucky. I drove to her apartment and there she was. She confessed.  “I’m still seeing Alex. My parents like him better.” Alex is a doctor she was dating before me. It turns out, her aunt wasn’t sick. Her grandma wasn’t sick. In fact, she had told me dozens of lies which I found out about over time.

You’re now thinking, “Mark, what does this have to do with Pricing?” Patience, I’m almost there.

I was deeply depressed. So much so that I didn’t eat for 3 days, which for me is a big deal. Over and over, I would cry to my mom, “Why did she do this to me?”  Eventually, my mom said these profound words,

Of course, those words didn’t make me feel better immediately, but I used them to slowly get over Kathy. I internalized that while making short term decisions, it was easier for Kathy to lie to me than tell me the truth. I generalized this concept. Not everybody lies, but they do make decisions in their own self-interest.

Looking back, the fact that I internalized this concept had a profound impact on how I see the world. Having this concept so deeply ingrained in my psyche is my pricing superpower.  I strongly believe that:  Every person makes every decision in their own self-interest!  

My belief in this has only strengthened over the years.  It’s OK if you don’t believe it.  I do and it is one thing that makes me a good pricer.

Let’s be explicit about how this helps pricing.  In pricing, the single most important piece of information is how much is the buyer willing to pay. Charge too much and they won’t buy.  It’s not in their self-interest.  Charge less and they may buy.  Now it may be in their self-interest.  Pricing decisions need to come down to how do people decide what’s in their own self-interest?

So many business people say or think things like, “we need to get this margin” or “this will fill our factory” or “we can’t sell this below our costs” or “let’s price for share”.  These have nothing to do with the buyer and how they think.  Every time I hear anything like that, I immediately put myself in the place of the buyer.  What decision would they make? How does that buyer perceive value?

This belief is valuable in all aspects of life, not just pricing. Product managers, what features are you putting in your products?  You have to understand how your buyers will perceive them. Marketers, what messages are you using to reach your market?  You have to know what’s going on in the mind of your buyer. People in relationships, you need to understand how your partner thinks about their own self-interest.

One of the worst events in my life provided me with a pricing superpower. Hopefully, you learn this valuable lesson a little less painfully than I did.  But it’s true.  If you want a pricing superpower, here it is: Consistently put yourself in the mind of the buyer and know that each buyer is making the decision they think is best for themselves.

Thank you, Kathy.  (sarcasm)