Mark Chussil is the founder of Advanced Competitive Strategies, Inc. He is an expert in qualitative and quantitative business war games, custom strategy simulators, executive education and management development programs. Highly rated speaker, published books and dozens of articles on business and competitive strategy.
In this episode, Mark shares how simulating pricing strategies before actually implementing them can do away with costly outcomes thereby improving one’s bottom line.
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Why you have to check out today’s podcast:
- Discover the essence of the Top Pricer Tournament
- Enhance your pricing strategy by utilizing simulation techniques to mitigate potential risks and minimize losses
- Find out fascinating insights and findings from the ‘Top Pricer Tournament’ and learn what to expect when participating in this exciting event
“If we choose a good strategy that turns out to be bad, what we have actually encountered is a false positive. And what we need to do a whole lot better in business is to be able to distinguish the false positives from the true positives. And that’s what these simulations are about.”
– Mark Chussil
Topics Covered:
02:59 – Differentiating decision rules versus decisions
05:31 – Mark Chussil agreeing to what Mark Stiving says in reference to Axelrod’s ‘tit for tat’ and ‘tit for tat with forgiveness’
07:16 – Drawing inspiration from Axelrod’s work, Mark describes his own contribution
09:51 – Mark Chussil’s perspective on Mark Stiving’s assertion that companies prioritizing profit outperform those aiming for market share
11:15 – Findings about ‘tit for tat’ on why it doesn’t work
12:17 – What is ‘Top Pricer Tournament’ and how it relates to or differ from ‘Prisoner’s Dilemma’
16:07 – Surprising findings from his own ‘Top Pricer Tournament’
21:37 – Things to expect when you join Top Pricer Tournament
24:58 – Mark’s best pricing advice
27:12 – Relating strategy to a decision
Key Takeaways:
“Strategy is a bet.” – Mark Chussil
“In the Top Pricer Tournaments, and in life in general, we have situations where we can make great decisions, but somebody else has made a better decision or somebody else has come up with something that we didn’t think about.” – Mark Chussil
“I have seen people come up with strategies that I know I never would have thought of. And there’s also a few that are in the Top Pricer Tournament that no human has selected yet, and that would outperform any of the ones that humans have selected so far.” – Mark Chussil
People /Resources Mentioned:
- The Evolution of Cooperation by Robert Axelrod: https://www.amazon.com/Evolution-Cooperation-Revised-Robert-Axelrod/dp/0465005640
Connect with Mark Chussil:
- LinkedIn: https://www.linkedin.com/in/markchussil/
- Email: [email protected]
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Mark Chussil
If we choose a good strategy that turns out to be bad, what we have actually encountered is a false positive. And what we need to do a whole lot better in business is to be able to distinguish the false positives from the true positives. And that’s what these simulations are about.
[Intro]
Mark Stiving
Today’s podcast is sponsored by Jennings Executive Search. I had a great conversation with John Jennings about the skills needed in different pricing roles. He and I think a lot alike. If you’re looking for a new pricing role, or if you’re trying to hire just the right pricing person, I strongly suggest you reach out to Jennings Executive Search. They specialize in placing pricing people. Say that three times fast.
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the strategic relationship between them. I’m Mark Stiving. Our guest today is Mark Chussil, and here are three things you want to know about Mark before we start. He is the founder of Advanced Competitive Strategies, and he’s been running this for 31 years, so I’m guessing he’s successful. He has an MBA from Harvard. You have to know Mark. I always say it that way. And he started his life thinking he wanted to be a professor of political science, but where he ended up is way more fun, I got to tell you. Welcome, Mark.
Mark Chussil
Great to be here. Thanks for having me, Mark.
Mark Stiving
Hey, it’s going to be fun. I’m sorry, I just have to tell the audience what I told you just before we launched. When I was a doctoral student, I was forming these philosophies of life, and I actually believe that there are two philosophies that describe all of the world in my simplistic mind. Those two philosophies are, Darwinism and…I’m sorry, Darwinism is evolution and utility theory, right? So Darwinism and utility theory, everybody makes decisions of their own best interest, and eventually the best things work out in the world of evolution. So, in my doctoral program, I read this book by Robert Axelrod called The Evolution of Cooperation. And it was the most mind blowing book I had ever read, but I’ve never ever met anyone else who thought the same way I did. And so this is going to be a blast because just for the audience, Mark’s work extends what Axelrod did in many, many ways. So let’s start, do you want to describe what Axelrod did? And let’s see if you could do it in a nice simplistic way that everybody could understand, no pressure.
Mark Chussil
Oh, yeah. No pressure to take something as huge as what Axelrod did and just get it down to a sentence or two. Not so easy. But, to me, the key thing about Axelrod, the very first thing that came to mind from him to me was this idea of decision rules as opposed to decisions. We make decisions all the time. It’s just we have to, we’re human beings. We do that, but we don’t often think ahead, and to answer questions like if this happens, then I’m going to do that. That is a decision rule when we’re anticipating something that can happen, and when we can write down a decision rule, then we have the ability to work with that in simulation and in strategy discussions. And it is a really, really powerful thing. It’s the difference between going to work and saying, what do I think I’m going to do today? Versus having a strategy for what we’re going to do?
Mark Stiving
Yeah. So it’s thinking forward. So for the audience’s sake, let me just, I’m not going to describe what the prisoner’s dilemma is. Hopefully you know what that means. But what Axelrod did was he said, look, I’m going to play a repeated game, prisoner’s dilemma, send me your strategy for how you think you’re going to win. And he put multiple strategies up against each other, and it was pretty fascinating. But the thing that I found shocking is that tit for tat actually wins. And what tit for tat essentially says is, I’m going to cooperate with you until you do something bad to me, and then I’m going to do something really bad to you. And when I think about the world, I know some people who are just always nice, right? I mean, these are beautiful, wonderful people that you want to hang around. And I know some people that you would almost think of as evil and just do bad stuff all the time anyway. But most people I think are more like me, where I want to be nice to people until you piss me off. And, so what happened is, I took that to say, well, this is evolution, right? We, as human species evolved to say, look, I’m going to internalize this tit for tat strategy. And I think it actually lives, I mean, because of the fact that that was so successful. Now, am I way off base, or is that the way you thought about this too?
Mark Chussil
I think you are way on base.
Mark Stiving
Well, and that’s why it was so surprising to me, is because it allowed me to use evolution to say, this is why we make decisions the way we do, right? Because it’s innate. It’s not, I don’t strategically think I’m going to go punish someone for something bad. I do it because I’m ticked off. Now mind you, I’m ticked off way less often now that I’m older, but…
Mark Chussil
I know the feeling. Yeah.
Mark Stiving
By the way, he then goes on to dohe tells everybody, this is who won, tit for tat won, now come out with a new strategy. And so tit for tat still wins, which is really nice. But the one that wins slightly better than tit for tat was, I think it was tit for tat with forgiveness, right? As in, I’m going to forgive eventually, and then we’ll see if we can get back into this cooperative state where everybody’s cooperating with each other. And so that’s just kind of a nice thing to think about that tit for tat with forgiveness wins the whole thing. And that’s kind of the way we want people to behave, I think.
Mark Chussil
Yeah, I think that we would all like that as human beings, we would like to walk down the street and feel some kind of trust with other people to feel that the world is a good place and we can enjoy our lives.
Mark Stiving
Yeah. Okay. So now that I got that off my chest, and I dearly love that, that was just so fascinating. What did you do to extend what Axelrod did? Are you still using prisoner’s dilemma as the basis?
Mark Chussil
That’s a great question. When I first read Axelrod I thought about it and was wondering, does this work the same way in business as it does in just sort of the interactions that we have as humans to humans. So I thought, well, let me see if I can come up with a series of strategies the way that Axelrod and the other experts had come up with, let me try coding some of those and putting those into a computer program similar to what Axelrod was talking about. But this is going to be about business. So in business, we often have multi-person or multi organization kinds of contacts. So what if I make it to be not with two people, as in the prisoner’s dilemma, but with three companies that are competing.
And what if it’s not just a single measure of success, which in the prisoner’s dilemma is years of jail time avoided. But in business there’s multiple things that we care about. So what if you can care about profitability? What if you can care about market share, how big your business has gotten to be? And surely I’d be able to code that in just a couple of days, and then I’ll satisfy my curiosity. Well, it took more like a year to write the code and it turned out to be besides the fact that it was far more complex than I expected it to be, it was far more fascinating. So, something that you brought up just a moment ago, Mark was tit for tat and that being the strategy that works really, really well in the evolution of cooperation. One of the things that I discovered using this variation on the evolution of cooperation is that tit for tat does not work the way that we talk about it.
Mark Stiving
That’s pretty surprising to me.
Mark Chussil
It was surprising to me too.
Mark Stiving
So I got to know more about the tit for tat and why it didn’t work. I’m sure you have the answer, but I have a prediction on one of the results that you found, just given what you’ve said so far that companies who focus on profit do better than companies who focus on market share.
Mark Chussil
That is a very interesting approach to it. But the problem is that it’s okay for companies to say we want market share. And it’s also okay for companies to say we want profit. How do we know which of them is quote unquote better? So what I did in the top pricer tournament, that’s my version of the prisoner’s dilemma tournament that Axelrod came up with. So in my top Prizer tournament, what I do is to see how well a given strategy works relative to other people who had a similar goal. So if what you care about is profitability, then let’s gauge your strategy relative to other people who cared about profitability because they were also trying to get a profitability to work. And the same thing on the other side, if you care about market share and the same thing even in the middle we have a lot of people who say, I care more or less equally about profitability and market share. So I compare the results of their strategies against those that have similar preferences.
Mark Stiving
Before we go to that one, tell me about tit for tat. Why didn’t it work? Why do you think it didn’t work? What Is the finding?
Mark Chussil
Well, if I want to be mischievous and sort of professorial here, I would say, well, what do you think? But when I tried out tit for tat, what I discovered was tit for tat is great at being reactive, but it is never proactive. It never sets the stage for trying to get cooperation. So that’s something that is different there. You don’t have the opportunity to take the initiative.
Mark Stiving
Yes. And so I don’t know the underlying game, I guess I should ask that in just a second, but I could imagine in real life, if I’m playing tit for tat, it essentially says, I’m never raising prices. I’m only going to cut prices if my competitor cuts prices. But I could imagine in real life, I want to raise my prices to see if Mark can get my competitors to follow, and now we’re all making more profit. And that’s a proactive move instead of a reactive move.
Mark Chussil
Yeah, that’s right. And the top pricer tournament does allow for that. I probably should have mentioned that earlier, that in the top pricer tournament, you have the opportunity to choose decision rules that will start off with you holding your price or start off with you cutting your price or start off with you raising your price.
Mark Stiving
Nice. And so how do you know who wins a round? When we play Prisoner’s Dilemma, we play the same game a hundred times, or, so many times in a row? Is that similar to the game you’ve put together? And then how do I know who wins when I have three players there?
Mark Chussil
Well, the way that I put it together in the top pricer tournaments is to set it up so that you make a decision that it’s not just a single decision. Like, I’m going to go with tit for tat for my three-year time horizon in business. Instead, what you get to do in the top pricer tournament is to say I’m going to start off by holding, raising, or cutting my price. And then for the rest of the year, I’ve got a choice of 17 different strategies that I could take, 17 different decision rules, and then for the second year, I can make that choice again. And for the third year, I can do the same thing. So you have the opportunity to set up a strategy for your business that you are simulating. And it is in effect, you are choosing from 14,739 possible strategies. You have a lot of opportunities to design a strategy in the way that you think is going to work.
Mark Stiving
Yeah. So, what I’m trying to get to here is in the real game of prisoners’ dilemma, it’s all about did you confess or did you not confess, did you stay mum? And how many years in prison did you get based on that? So in your game, I get to choose if I’m going to raise lower or hold the price. I assume we’re playing this monthly. Is that the way the simulation works?
Mark Chussil
It’s quarterly, but that’s, yeah.
Mark Stiving
Quarterly. Okay. Yeah. And then do I win the entire market? Do I win a percentage of the market? We’ve got three different players in the market. How do you allocate the winnings?
Mark Chussil
Yeah. That was part of what made this so much more difficult than the prisoner’s dilemma? The tournament starts off with three businesses that are identical in every possible way. So they all have one third of the market. It is set up to be reasonably like real life so that if I get an advantage by having a lower price than my competitors the entire market does not flock to me overnight. It’s more like the kind of consumer markets we would be accustomed to where if a particular business starts to get an advantage over its competitors, then that will happen fairly gradually. It’s not going to happen overnight and it’s not going to be irrevocable.
Mark Stiving
Okay. And so we get some allocation of my competitor’s share, and if I’m lower than competitor A, I get some of their share. But if I’m higher than competitor B, they get some of my share even…
Mark Chussil
Exactly.
Mark Stiving
Yeah. Okay. That makes a lot of sense. And now you say that there are all of these astounding or surprising findings. Give me a couple of these. I’m excited. What is it that you found that’s really interesting?
Mark Chussil
Well, let’s see. One of my favorite stories to tell is that over 2,000 people have put strategies into this tournament. So the number of possible combinations is now in the billions. So this is running a lot of simulations. I thought I want to put my strategies into the tournament and see how well my strategies perform relative to those from other people who have chosen to enter the tournament. And I know what you’re thinking when I say that. Because you’re going to be saying, oh, that’s not fair. I mean, hey, I’m the guy who wrote the simulation. I know this stuff. I’ve been running simulations for over 30 years. I’ve been in the field of competitive strategy for 45 years. So if I don’t know this stuff he does, I mean, I’m supposed to be the expert, but I want you to know I’m fair, I’m ethical, so I figured I’m going to put my strategies in. I’m going to see how badly I crush everybody else, and then I’ll take my strategies out because of course, it wouldn’t be fair to bias the tournament using my strategies. Well, it turned out that I used some tit for tat based strategies, and my strategies performed okay, but they were not at the top. So the obvious thing that came to mind for me was that there had to be a bug in the software.
So I checked, I went through and I traced it line by line. There was no bug in the software. So then I thought, well, so what was different about the strategies that beat mine? and I looked at the top performing strategies, and I had one of those, it took about two seconds to figure it out. And it was a slap on your forehead kind of moment when I realized that the people who were doing the best in the tournament, were in effect playing a different game from the game that I was playing. I was playing a game in which I was playing not to lose. They were playing to win.
Mark Stiving
Hmm. And how did that look in their strategies? What would they do that says, hey, I want to win?
Mark Chussil
I would love to tell that story, but I’m sorry for the sake of my research. That’s one of the things that I do not reveal at this point. For people who actually enter the tournament and anybody listening to this podcast, you are welcome to enter the top riser tournament. But after people enter the tournament, then I would reveal a lot more to them because they’re not biased.
Mark Stiving
So you don’t want to give them the answers. Got it. Exactly. Now to be fair, Axelrod told us all who won the first round.
Mark Chussil
He’s a nicer guy than I am.
Mark Stiving
That’s actually pretty interesting though. And in a lot of ways, you could tie that to a life lesson just like we tied tit for tat to life lesson, right? There are people who play in fear. They play not to lose. And it’s hard to be successful if you play not to lose.
Mark Chussil
That’s right. And it depends also on how you define success. When you mentioned at the beginning of our conversation here that it’s the idea that what we want is to maximize our individual performance or success, but as human beings, we can think more broadly than that. We can think in terms of, yeah, I would like to have a nice life for myself, but I don’t want to take away from other people. And there are other people that I care about at least as much as I care about myself. And so I want them to benefit. So it gets complicated. And we think differently when we start to get into this idea of prisoners’ dilemmas and game theory and stuff like that. It’s so huge.
Mark Stiving
Yeah. I’m going to geek out from my economics friends for a second. What I just heard Mark say was the question is, does my utility equation have other people’s utility as part of my utility? And so I would call that the difference between self-interest and selfish. So self-interest is that I want to help other people succeed because that makes me feel good and selfish says, I don’t care about other people, I just want it from me.
Mark Chussil
That’s a perfect way to put it. And I like your way of putting it better than mine.
Mark Stiving
I just thought about this a lot. Yeah. In my life. Which is why I’m loving this conversation. So any other insights or ahas you can give us that are going to tease us into wanting to do your competition?
Mark Chussil
Well, one teaser that I can give is that if you do choose to enter the top pricer tournamentI will run your strategies in these generic industries. So nobody has an advantage or a disadvantage. I will run many, many simulations for your strategies. Like I think it’s up to about two and a half million simulations per person, per industry, in this thing. And what you will receive is a report that shows in detail and with analyses you probably have not thought of before. How did your strategy perform? What other strategies that people have come up with, what other strategies have people adopted that would’ve made you happier than the strategies that you chose? So you get to think about what did those other people do that I didn’t, or that you didn’t? So you get that kind of information.
Mark Stiving
Yeah. So as I think about it, do I want to enter the top pricer tournament? I’m talking about myself personally for a second, right? By the way, the answer is yes, I’m probably going to go do this. But, as I think about how I would create a strategy or how I think about this, it’s like, I need to know what the payoff table looks like. So that I can think forward to say how much of each person’s share do I get? Or how much of my share do I lose? And, how long does the game go for? Because I can imagine that in the ideal world, you would create a separate simulation for every industry that simulates these are the important parts of this industry. So let me help you figure out what’s going to happen in your industry.
Mark Chussil
Yes. And there’s a different version of this tournament one, which took another year and a half to produce. And that is one that does exactly what you just said. It is customizable for specific businesses in specific industries. So instead of it being generic businesses, starting from identical positions, it is where is your business right now? Where are your two key competitors right now? And there’s about 50 variables that we can use to calibrate the simulation so that it fits for real business cases.
Mark Stiving
Nice.
Mark Chussil
Yeah. And that stuff is mind blowing to me also.
Mark Stiving
I’ll bet. I mean, you almost make me want to go learn how to code again, and just so I can go do something like this almost. I’m not going to go do it. I could assure you. So, hey, Mark, this is just fascinating. I love this conversation, but we’re going to have to wrap it up. We’re running out of time. Can I ask, I’m going to ask you the same final question I always ask everybody. And so it may or may not fit your thinking, but what is one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Mark Chussil
Great question. The thing that I’ve noticed about pricing strategy and strategy in general is that we know a lot less than we think we do. And I don’t mean that to be offensive to anybody at all, including me for that matter. But strategy stuff is a lot harder than it appears. So just think about it like this. We talk to somebody who wants to produce, who wants to select a strategy, and nobody says something like, I’ve got a good strategy and I’ve got a bad strategy. I think I’ll take the bad strategy. No one does that. But we know that people do end up choosing bad strategies. And we know that that happens because companies go bankrupt because companies lose market share. They become unprofitable. People get fired. There’s consequences for the communities in which those businesses are working. So nobody thinks that they’re choosing a bad strategy. We only choose strategies that we think are good. So if we choose a good strategy that turns out to be bad, what we have actually encountered, what we’ve discovered is a false positive. And what we need to do a whole lot better in business is to be able to distinguish the false positives from the true positives. And that’s what these simulations are about, helping us to make much better strategy decisions so that we can do it where the costs to us are free. Because hey, if we end up with a simulation and things didn’t work, press a button. It’s gone. We want to be able to test those simulations in advance before we adopt them.
Mark Stiving
So Annie Duke wrote a book called Thinking in Bets, and I just loved this book. And what she said was that there’s a difference between outcomes and good decisions.
Mark Chussil
Absolutely. Yes.
Mark Stiving
And, the example she used, which was really an amazing example, is, if you get totally drunk and you drive home and you get home safely, that was a good outcome. But was it a good decision?
Mark Chussil
Perfect way to express it. Strategy is a bet.
Mark Stiving
Yeah. So, the strategy is the decisions, and when we make good decisions, we’re more likely to have good outcomes.
Mark Chussil
Yeah. And the other part of that, probably should have mentioned before is that because in the top pricer tournaments in these more advanced tournaments, and in life in general, we have situation where we can make great decisions, but somebody else has made a better decision or somebody else has come up with something that we didn’t think about. So it’s all the moving pieces, not just us that we have to think about. And that’s where this stuff becomes so difficult and also so fascinating. And I have seen people come up with strategies that I know I never would have thought of. And there’s also a few that are in the top pricer tournament that no human has selected yet, and that would outperform any of the ones that humans have selected so far. This stuff is big. It’s there. It’s just big and it’s fun.
Mark Stiving
Yeah. I can imagine that. Mark, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Mark Chussil
They can do that. You can contact me on LinkedIn, or you can contact me by email at [email protected]. You probably want me to spell that.
Mark Stiving
It’ll be in the show notes, but sure, go ahead and spell it.
Mark Chussil
Oh, okay. [email protected].
Mark Stiving
Perfect. To our listeners, thank you so much for your time today. If you enjoyed this, would you please leave us a rating and a review? That’s the currency of podcasts. And finally, if you have any questions or comments about this podcast or pricing in general, feel free to email me, [email protected]. Now, go make an impact!
Mark Stiving
Thanks again to Jennings Executive Search for sponsoring our podcast. If you’re looking to hire someone in pricing, I suggest you contact someone who knows pricing people contact Jennings Executive Search.
