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Ways to protect your price when negotiating a sale

Whenever we have to negotiate a sale, we confront the fact that sellers and buyers naturally disagree about price, based on the endowment effect. Science has demonstrated a bias among owners to over-estimate the value of any item they possess. This bias does not make the potential buyer correct, but it ought to give the seller pause. Your buyer is very unlikely to accept your initial offer, all other issues being equal. Fortunately, science is also showing us some ways to better protect the seller's price. 

Harvard Business Review: Why Buyers and Sellers Inherently Disagree on What Things Are Worth, 2016-May-13 by  Carey K. Morewedge

One effective tactic is to direct the attention of buyers and sellers to the information that they ignore. Asking buyers to first think about the valuable attributes of the good they might acquire leads them to value the good more. Asking sellers to first think about what else they might do with the money they would receive—the opportunity cost of owning the good—seems to also reduce the price they demand to give up what they own.

Another effective tactic is to change the reference price that people use to evaluate the good. When buying or acquiring a good, one might remind sellers of cheaper alternatives, like used versions of the same good or similar more economical goods. When selling or trading a good, one might remind buyers of more expensive alternatives to what one is offering.

A third tactic is to get buyers to touch, hold, or imagine owning the good. Experiences like interacting with a product through a touchscreen, receiving a coupon for it, or temporarily being the highest bidder for it in an auction all have the potential to induce the endowment effect for the product if they make us feel like we own it.

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Why we can't think our way through a pricing challenge--we have to experiment

While I find it easy to remember that pricing is part of the product, I forget that you probably can't reach the correct price without some experimentation. So the best way is to produce various configurations of the product and see which one appeals to your target audience. 

It is impossible to demonstrate the value of your product without a clear communication of its price. 

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Fluxx Studio Notes: The first rule of pricing is: you do not talk about pricing, 2016-Apr-18 by Tom Whitwell 

[Whitwell's excerpts have been slightly edited and emphasized to make them easier to read. The full article is highly recommended.]

  1. It's tempting to talk to customers about price. Your customers—real or potential—will certainly have views about prices that they are keen to share. Ignore them. 

  2. As human beings find it almost impossible to think rationally around pricing. Because of this, as human beings, our own thoughts about pricing are likely to be almost useless.

  3. Experiments are the only way to make sense of it all.

Price is the crudest, and most subtle, message you can send about your product, so it’s worth getting it right.

Whitwell also points to this excellent blog post about pricing:

LeanBlogs: Why You Should Never Ask Customers What They'll Pay, 2013-Sep-10 by Ash Maurya

Principle 1: Pricing is Part of the Product
Suppose I place two bottles of water in front of you and tell you that one is $0.50 and the other $2.00. Despite the fact, that you wouldn’t be able to tell them apart in a blind taste test (same enough product), you might be inclined to believe (or at least wonder) whether the more expensive water is of higher quality.

Here, the price can change your perception of the product.

Principle 2: Pricing Determines Your Customers
Pricing doesn’t just define the product but also your customers. Building on the bottled water example, we know there are viable markets at both price points. The bottle you end up picking defines the customer segment you fall in.

Principle 3: Pricing is Relative
In their seminal book on Positioning – The Battle for the Mind, Al Ries and Jack Trout describe the concept of a product ladder which is how customers organize products into a mental hierarchy. Your job is understanding what alternative products occupy the top 3 spots in their mind. These alternatives provide reference price anchors against which your offering will be measured.

Alternatives can be real or extrapolated. In both cases, they help when applying the relativity principle.


How to be entrepreneurial in writing for customers, even if you're not in a startup

First, just start answering your customers, sharing things with them. Then worry about how to organize and edit what needs to be said and how to style it. Stephanie Hay, a 'content strategist' with Capital One was recently interviewed about why so many companies have so much trouble generating 'engaging content.' See her excellent remarks quoted below. 

Her recommendations reminded me... 

  1. Content is a made-up word to describe what goes into all the holes in our web sites and newsletters. 'Generating content' is a made-up occupation by managers who don't know how to share information with customers. Informing and answering our customers is the priority, not 'generating content.'

  2. Once we know what are customers care to know and enjoy talking about, then we can easily decide if we need a Facebook post or a blog or a brochure. Web sites are a wonderful place to store our customer conversations. Future customers get the benefit of our being well organized. 

  3. 'Engaging content' is a buzzword for answers and information of high quality. When we speak clearly and with appropriate emotion about the things that interest our customers, they become engaged. Being consistent with our brand and making the information easy to find are good business, but if you put that cart before the horse--worry about branding and SEO before you consider your customer's needs--you will interfere with your own success, as Stephanie points out. 

Aquent: What's so hard about writing meaningful content, 2016-Apr-18, Interview of Stephanie Hay by Jeremy Osborn

The biggest challenge is convincing people they can start creating lean, engaging content today. They think they have to sell the idea first. Or that people in their company won't let them. I always recommend people start redesigning the content in places teams typically overlook--like terms and conditions language, error messages, or FAQ pages--and interject more human, personal, and natural language there. Just dig in and do the work, then show the work to people. You'll be amazed how little time and energy it takes to start the ball rolling by redesigning those micro-moments to be truly delightful; people will want that everywhere.... 

What hasn't changed (and won't!) is human nature to want to structure and categorize content immediately, or have an entire architecture designed before ever looking at what the content actually is, or figuring out what language the customer is using. Letting go of that structure-first mentality to fully immerse yourself in the story you're trying to tell (and that customers want to read), and then identifying the patterns and structures that naturally emerge ... well that takes patience and a real commitment to iteration. Not everyone feels comfortable with that level of entrepreneurial design.

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Why marketers tell poor stories

Not all marketers tell poor stories, but most of the "storified" content I see is really lame. Martin Weigel hits the nail on the head: until we confront conflict, our stories will lie flat. 

Canalside View: The world beyond 'storytelling', 2016-Apr-24 by Marin Weigel 

Murder, oppression, sexism, vanity, alienation, jealousy, rape, abandonment, war, betrayal, envy, loneliness, megalomania, corruption, exploitation, avarice, addiction, revenge, depression, bereavement, seduction, racism, loss of innocence, lust, heartbreak, madness, incest, imprisonment, loss, greed, death, hunger, rivalry, injustice, isolation, desire… this and more is the stuff of great, enduring, insightful stories. Stories that succeed in shining a light into the crevices of the human soul. Stories that illuminate our place in the state things.

Yet anyone who has had to endure the seemingly endless workshop/meeting/brainstorm in which we seek to “align” on a brand’s ‘personality’ attributes and heard descriptors such as ‘opinionated’ or ‘daring” rejected for being “too negative” knows – or has got to face up to the truth – that no marketing department on the planet has any appetite for any of this stuff. The really interesting stuff. The truly human stuff. The stuff of stories.

Conflict? Pfft. Mild inconvenience at best is the stuff of most of adland’s so-called storytelling.... 

The lack of true conflict reveals advertising’s true intentions. It has little interest in truly exploring the human condition. And here perhaps, is advertising’s greatest departure from the agenda of the storyteller.

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With creating new things, beware the How overwhelming the What

Dave Owens at the Vanderbilt University business school agrees that everyone is creative, and he also notes that in many business, people who don't see themselves as creative professionals have major influence over how things are created. And that changes the what. So if we're planning a new product or process, we have to be self-conscious of what values and power structures we are serving. 

Ozy: A Design Expert on Maximizing Creativity in the Workplace, 2016-Mar-16 by Eugene S. Robinson

“My biggest insight was that you could look at a product as being the manifestation or outcome of a set of interpersonal and organizational ‘negotiations,’ or battles, over subjective decisions,” Owens says, looking much younger than his nearly 50 years. At Dell, “the operations people won most of the battles,” he says, leading to machines that were cheap, modular, efficiently produced and not much to look at. Contrast with Apple’s machines, “you could see that design and marketing had won quite a few more battles — their machines were expensive, hard to produce and beautiful.”

That realization led to certain recondite truths that stretched well beyond all of the laptop and tech making its way past him. Mostly, the ideas that how we build the building blocks affects what we build, and that we actually need the stuff we build to live. “Yeah, take away all the designed stuff and most of us wouldn’t last more than a month,” Owens says with a laugh.

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