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Etinosa Agbonlahor: Behavioral economist on why pricing belongs in the design process
00:48:26
Etinosa walks us through the cognitive shortcuts that shape how customers perceive value — from anchoring and the decoy effect to the surprising power of round numbers. She explains why pricing should be a conversation that starts early in product development, not an afterthought tacked on at launch. And she offers practical guidance for freelancers and studio owners who struggle with that uncomfortable moment of telling a client what they charge.
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- [00:00]
A
Sometimes people are nervous about making their change with existing customers. That's fine. You can leave your existing customers where they are. But for new customers, for prospects who are coming in the door, show them the new pricing. Start with them when you're comfortable, when they're saying yes. When you realize that nothing is going to fall apart because you've raised your prices, then maybe you feel more confident and more comfortable moving back to your original customers. So there's a bit of a hierarchy in how you change your prices as well.
- [00:29]
B
For product teams at startups and established tech giants alike, finding the right pricing and value prop often feels more like alchemy than science. It's a high stakes game of guesswork involving the complex psychology, shifting values and ingrained behaviors of your customers. While it can take years of trial and error to dial in, our guest today is here to help us decode the pricing formula and understand the behavioral drivers that make a product indispensable. Etiosa Abonlahor is a behavioral economist and founder of Design Alpha. It's a consultancy that helps businesses understand the psychology behind how people make financial decisions. She's worked with organizations like Fidelity and the Commonwealth bank of Australia studying how people save, spend and invest, and she's turned those insights towards one of the trickiest challenges any business faces pricing.
- [01:27]
C
In this episode, Etoyosa walks us through the cognitive shortcuts that shape how customers perceive value, from anchoring in the decoy effect to the surprising power of round numbers. She explains why pricing should be a conversation that starts early in product development, not an afterthought tacked on at launch. And she offers practical guidance for freelancers and studio owners who struggle with that uncomfortable moment of telling a client what they charge. We even put her to work live on the show, walking through the Design Better membership page to diagnose what's working and what we could improve. Her advice was immediate, specific, and a little bit humbling. Whether you're designing a SaaS pricing page or figuring out how to raise your freelance rates without apologizing, this one's packed with insights you can use right away. This is Design Better, where we explore creativity at the intersection of design and technology. I'm Eli Woolery.
- [02:19]
B
And I'm Aaron Walter. At DesignBetter, our primary mission is to produce work that helps people like you refine your craft, improve your collaboration skills, and get inspired by the creative process of others. If you enjoy what we do here, the best way to support us is to become a Premium Subscriber@designbetterpodcast.com Subscribe. We'll return to the conversation after this quick break.
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D
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- [03:28]
E
Winter is so last season and now spring's got you looking at pictures of tank tops with hungry eyes. Your algorithm is feeding you cutoffs. You're thirsty for the sun on your shoulders that perfect hang on the patio sundress. Those sandals you can wear all day and all night. And you've had enough of shopping from your couch.
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A
Done.
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And hoping it looks anything like the picture when you tear open that envelope. It's time for a little in person spring treat. It's time for a trip to Ross. Work your magic.
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B
And now back to the show. Etiosa Abon Lahore. Welcome to Design Better.
- [04:10]
A
Thank you for having me. Aaron and Elia, looking forward to the conversation.
- [04:14]
B
Your background is super interesting. You are a behavioral economist and you come from this background working with organizations like Fidelity, which most of our readers will be familiar with. Commonwealth bank of Australia as well. How did that path lead you to focusing specifically on pricing strategy for businesses?
- [04:35]
A
Yeah, so I'm a behavioral economist, which basically means I study the psychology behind how people make financial decisions. And so my work with the big banks has always been focused on how do we understand how people are making decisions around saving, spending, investing, how do we make decisions when it comes to our money. And so a lot of my work focused on how do we use that understanding to drive better financial well being, whether that's, you know, helping people save better, helping people invest more. And when I thought about building out a consultancy, what I realized is that for a lot of business owners, their financial wellbeing is tied directly to their pricing. And so if we're thinking, well, what's the psychology behind how people make financial decisions? It's really rooted to a business owner in, well, how do you price, how do you show your price, how do you get your customers to understand and resonate with that price? And so a lot of our work at Decision Alpha has been how do you help people understand, hey, people don't just see a price and accept it in the void. There's context there, the psychology there, and all of that is going to impact how your customer relates with you. And Understands how whether to work with you or not. So that roughly has been the journey to get into pricing from behavior of economics.
- [05:43]
C
While we were in our green room before we started recording, we talked a little bit about the two different sort of segments of our audience that we thought this conversation would be helpful to. So many of our audience are designers, although there's other creative types and there's a segment of the design population that's working on products. So they're on a maybe a product team, they thinking about how to design a pricing page or some interaction that's involved with like a checkout or a shopping cart, something like that. And there's another segment that's maybe running their own business as a freelancer or they have a studio. So they're thinking about pricing more with a business lens like how do I price my services, how do I build my pricing page? So maybe we start a little bit more from the product side of things and how they might present information is going to affect how it's perceive the layout, the typography, information hierarchy. Is there any overlap there with sort of the behavioral pricing, the way that you approach it, or is it kind of a separate beast?
- [06:39]
A
I think there's actually a lot of overlap because what we study is how do people perceive and understand price? And so there's research that shows, for example, if you display a price that ends in 99, it indicates that that's a discounted price. It feels more utilitarian, your customer is going to interact with that price in a specific way. There's research that shows if you want people to perceive a price or a product as more premium, if you want to signal trust with your clients and with your customers, you use round numbers. For some reason that's associated with better and stronger trust. So you see more premium brands tend to use flat numbers, round numbers. Brands like say TJ Maxx, that wants you to feel like, hey, you're going to get in a deal by working with us to use the 99, 97, that kind of pricing. So there's lots of interest in signaling how you'd actually design your price. Just the numbers to start with versus even the entire page that's going to signal different things to your customer. And that leaves almost very squarely in the design world. So there's a lot of overlap there.
- [07:39]
B
When should pricing be brought into a conversation? If you're working on, let's say it's a new feature or a new product. This is a digital product, so there's not like a physical good to it. Is that something that we design the price after we've already designed the product or the feature, or do we start that conversation earlier?
- [08:00]
A
It's better to start the conversation earlier because you want to understand how do customers perceive the value of what it is that I'm building? What are they willing to pay for? And then that's going to influence and inform what you build. I've worked with companies where they had this great idea. They talked to customers a lot about the idea itself. Hey, should we build it this way? They did a lot of user testing and usability testing on what they were building. And it wasn't until they actually tried to launch a market that they realized, oh, we had thought about this, this as a freemium model, meaning we're going to launch it out, make it free, get as many people in the door as possible, and then from there we're going to figure out how to monetize it. What they realized was they got a lot of people in the door, but a lot of those people weren't engaging with the product. Right. They didn't really value the product. Whereas if they had started off with, yes, we wanted to usability testing, yes, we want to test that this is something that's going to be valuable to our customers. But how valuable? What are you willing to pay for it? It would have helped them down the line understand, okay, let's invest here. Let's target this specific kind of user. Let's talk to them in this way, because we know that they're going to be willing to pay XYZ for it. So we say it's better to start this pricing conversations much earlier. As you're actually doing your user testing, you're talking to customers around the build of the product itself. It's very easy, and it's a very convenient time to also start to do some of that pricing research to understand, yes, you want to use our product. Yes, you love the idea. Yes, it serves a need for you, and also you're willing to pay XYZ for it.
- [09:25]
C
Tio, so you mentioned the round numbers as something that kind of builds trust with customers, which is really interesting insight. Are there any other tactical things like that or maybe even a broader strategy? If I'm a designer and I want to help build trust through the product that I'm designing, what are some of the things I need to think about?
- [09:43]
A
I want people to understand intuition behind it. Right. So right before we jump into tactics, I want you to understand a couple of fundamental things. The first one is that we make decisions relative to reference points, which means that, for example, if you get a $10,000 raise, you're very excited. It sounds like a good deal. If you find that everybody around you got $5,000 raises, you're like, whoa, I must be doing pretty well, right? If you get a $10,000 raise and you find out that everyone around you actually got 20,000, now, you're like, this is ridiculous. Why did I get such a little amount? Right? We measure things and we value things contextually. And so when you start to think about pricing and displaying pricing and that conversation around pricing, what you're thinking about is, what is the context in which I display this price that's going to sway my buyer one way or another? What is that context in which I put their pricing in that's going to help them think, okay, this is more premium. This is something I want to lean into. This is a deal. This is a steal. We worked with a company, EdTech Company. They were selling into schools, and they came to us because they wanted to start selling directly into parents, into students. They wanted to move from just doing B2B. They wanted to kind of open up that B2C angle. And they said, hey, we're thinking about doing this as, like, one price. We want to do it to subscription model very cheaply because we're thinking this is something for, like, students. We want it to be affordable to them. And we said, the problem with having one flat price is that when you ask somebody to decide, do I want to work with you? Yes or no, that flat price is basically a yes or no decision. It's pay up or leave. When you introduce tiers, when you introduce, hey, you can work with us in this way or this way or this third way, the decision is no longer yes or no, pay us or leave. It's which way do you want to work with us? So we started out by saying, just introduce tiers. It's going to give your audience more options and more ways to work with you. It's going to change the decision from a yes or no to which one. But then also, when you think about the tiers themselves, in behavioral economics, we have what we call a decoy effect. And the decoy effect is essentially when you introduce an option that you know most people aren't really going to go for, but it makes them take your other options more seriously. So, for example, you go to the movies, there's an option to buy, like a super extra large bowl of popcorn that's a little bit giant vat. Exactly.
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B
With free refills.
- [11:54]
A
Exactly. Nobody really wants that much popcorn for an hour and a half movie. Right? But now that you see that that option is like $35 for the popcorn, you're like, that sounds ridiculous. But now it makes the $27 option and the $16 option for the small seem a little bit more reasonable. So you can think about, how do I introduce options? Not everyone wants this giant bells and whistles popcorn option, but maybe it makes them think about, oh, this other option seems a little bit more reasonable compared to that. So that's one example of introducing tiers and then actually structuring the content within the tiers to sway your buyers one way or another, or to have them consider your offerings one way or the other.
- [12:33]
B
What you're describing, like the decoy effect, when I look at pricing pages, there's kind of like common elements that are there and tiers are one of them. And I love the example you gave. Oftentimes of the options there, it'll be like, most popular will be highlighted. So they kind of know, like, this is where everybody else is going. What's the psychology behind doing something like that?
- [12:58]
A
So that's called social proof. And that's actually. There's a really interesting experiment that was carried out by the British government many years ago around social proof. They wanted to get more people who were delinquent on their taxes to like, comply and pay their taxes up on time. And so they tested saying to them, hey, most people like you have paid their taxes on time, except they did it in different batches. So they said everything from, hey, most people in the same state have you have paid their taxes on time. Most people in the same county and the same borrower as you have paid their taxes on time in the same zip code. And in the uk, your zip code is basically, there's like five of you who share zip code. Most people in your zip code have paid their taxes on time. And what they found was the narrower they got, the more precise they got, the closer they got to who you were and the folks around you, the more likely you were to actually comply and pay up and get out of being delinquent on your taxes. And so the concept there is called social proof. And it's basically that we tend to be social animals. We don't want to spend all the time and effort to do all the research for ourselves when it comes to decisions. So sometimes we trust and we look to see what everyone else around us is doing as a signal for what we should also do. And so When a company says like, hey, the most popular option is the middle option, just so you know, what they're trying to do is say, is tap into that social proof and say, you may not know what the right option for you is. We just want you to know that everybody else choose this option. I want to caveat that that works really well for folks who genuinely don't know which option to choose. If your customer is a domain expert, meaning like they buy from you, they buy this kind of thing all the time, they're used to shopping around for services, it may actually backfire. So you have to be careful with what you introduce and how you introduce it. You want to test, you want to experiment, you want to make sure that it's going to resonate with your customer before you lean into using any of these techniques.
- [14:42]
B
So we see other social proof elements in a pricing page, like quotes from people who have used the product and they enjoy it, or people from these companies also bought this product. Are there things that you often see are missing from pricing pages that could have a big lift in conversion?
- [15:03]
A
I think there are a couple of things that I see just generally that could have a big lift in conversion. The first one is cognitive ease. A lot of pricing pages are very long and very convoluted. I think we somehow got into this notion of more is more. Sometimes I see pricing pages, especially for SaaS products, where folks have to scroll all the way down and you just listed every single feature available across a different. Nobody needs that. The human brain can only process between three to five things in working memory at any given time. And so that means that we're not going to sit down there and we're 13 items deep into your features list, it's too much. So cognitive ease. When I think about the fact that a lot of your customers are under time pressure, attention pressure. We're trying to do 10,000 things every single day. So how do you simplify the pricing page? To start with, think about differentiation. Think about, if I'm offering my customer the choice between three different tiers, I want to make sure that they are differentiated and easy to understand. Hey, this offers you this and this that offers you this other thing that offers you this thing. Think about differentiation. First one. The second one is what we call decision aids. Decision aids are basically things on a page that help your customers make a decision more effectively. So, for example, and I never see people do this, but if your product can be used by consumer and at the enterprise level and by, let's say, small business as well, don't just show everything on the same page. Think through decision aids such as if you are a small business, click on this and I'm going to show you the options for you. If you are an enterprise, hey, click on this and like, let me show you the different options. If you're an individual user, click on this and let me show you. So being able to help them understand what is the journey I need to go on, where do I click into to see what's relevant to me versus showing them everything for everybody and forcing them to make that choice themselves. So those two things right off the bat are ways that can deliver quick wins without having to go through a lot of stress, effort, redesigning.
- [17:00]
C
Talk to us a little bit about anchoring, and I think I may have been not thinking about it correctly, but I sort of thought about it. Sort of like the decoy product you mentioned, where, okay, I have a anchor price that's, let's say I've run a service that's $10,000. So I want people to understand that I have this premium service, but then I have this lighter weight engagement that's maybe $500, but maybe that's not exactly what anchoring is. And if I was misled or misunderstood, it maybe talk to us about what it actually is and how people might think about it.
- [17:29]
A
So an anchor is basically a random number in the environment that keep hold, and they use it as a base to then adjust away or towards. So, for example, you see it with charities where you can donate anything you want, right? If you're going to, let's say the Met, for example, in New York, you can donate anything you want to the museum to get in, but they will always have a recommended price, a suggested price. That initial price of $25, I'm making that up. I think it's a little bit lower is the anchor right? And it's that maybe I was going to the Met and my plan was to give them $5, the cheapest amount possible to get away with getting it at the museum. Now that I see that the anchor, the suggested amount is actually 25, I'm going to dig into my pockets and bring out a $20 bill or a $30 bill or whatever. The anchor, that 25 is now the reference point. Remember we talked about, with regards to reference points, that $25 is now your reference point, and it's going to sway how much comes out of my pocket. So when your designers think about, well, what is the anchor? And how do I introduce an anchor here, there's a lot of different ways to do it. I've seen stuff done a little bit crudely where a firm might go, this service is 25 value, a 2500 value, this is a 700 value, this is a 7000 of dollar value. In total, everything should come to $30,000. But for you today you can get it for the flat price of 19.99 right? Or something ridiculous like that. They're anchoring you to the real value of this is really high. But just because we love you and we think this is great for you, you can get this at this flat price. So that's one is kind of like a crude way to use it. But you can also see it in more elegant ways. People might say things like, hey, for this scope of work, firms are size charge anywhere from 10 to $12,000. For you, we are offering this to you at $9,000. You can also have the anchor just directly. I've seen other people use as a way to filter out who should be having conversations with them. You might have a page where people can come in to have conversations with you. Like it's your booking link and people in there will have what is your budget? And they give you options and that they have numbers starting from X all the way to like X +100. But that them providing that budget or providing that number basically serves as an anchor and as a signal for the person who wants their prospect to understand, okay, this is what it's going to look like to work with this person. Do I want to lean in? Yes or no? So there's a lot of different ways for you to use that anchor. It's just a way for you to set a baseline that your customer can then react to and adjust upwards or downwards from.
- [19:53]
B
What about pricing a product like it's a brand new product and we don't have much of a reference point. That feels like such a daunting thing, Almost like you're just guessing, like well, I don't know, what would people pay? What type of research do we need to do and how do we think about pricing products correctly?
- [20:11]
A
Acquisition alpha we have a four step framework for this, our pricing framework. The first most important thing of course we talk about its mapping out your monetization zones, it's talking to customers to understand what are the different elements of this that are useful to you. What problem does this solve for you and what would you be using if you weren't using this product? If you weren't using our design element, you weren't using our Tool that automates in parts of the design for you. What would you be using? Would you have to hire a full time designer? What does that cost? What does that look like? Just trying to understand your customers or your future customers current state and what is causing them to solve the problem that you want to solve for them. Then you move into the next step which is where you start to understand and actually do the pricing research around this is our product, this is our services. Are the different elements of value it brings to you. What would you be willing to pay for it? What is too low, what is too high? What's a price where if we charge you this, you think it was so high you'd walk away? What also is a price where if we charge you think it was too low and you'd wonder if there was something wrong with it? We're trying to find that in between number where you're like, it's getting high but I'm comfortable with it. Or this is a steal like this value and we want our price to live somewhere within that. So I started out by just asking questions and having conversations with customers to start to scope out and put numbers around the value we're going to be delivering to them. And then at that stage is where you're also starting to take a look around. Well, what else are people using? Who are my competitors? What would they be charging? What does that look like? You want to bring all of that into the conversation when you use it and setting up the price so you have almost like a 360 perspective. Then you move into the third step, which is kind of our favorite step, which is what we call the behavioral framing. And that's where you think about, okay, what tiers do I introduce? What is the anchor number? How are we going to show the price? Are we going to show a flat price? Should we end in 99? What are the different kind of behavioral science and behavior economics concepts that we bring into the pricing to make sure it's going to resonate with our customers? And how do we test that once you have your price, you set your price. You want to take it out into market, see who reacts to it, how quickly does it convert with people? And then we say pricing needs to be a feature, not a reaction. So in the same way you have a feature backlog that you're always kind of trimming, you're refining your prioritizing. Every so often you want to sit down with that pricing and go, have we delivered more features? Have we sent out more features? More products are we delivering more value to our customers now? Do we need to think about refining our price aligned with the new value that we're delivering? So end to end, that's kind of what the process looks like. But the most important thing is if you're starting out brand new, you don't know what to charge, you're not sure, go talk to customers or talk to prospects. It's going to start to give you a range of where you want to land.
- [22:59]
B
We'll return to the conversation after this quick break. Design Better is brought to you by our pals at wix Studio. If you want to grow your agency or your independent work that you're doing for clients, you need more than just a website builder. You need wix Studio. It's the all in one platform that's built to help you scale. You can design smarter and a hyper flexible responsive editor, cherry picking whatever your clients need from pre built UI elements and templates. You can deliver robust backends with built in e commerce solutions for every industry, letting self maintaining infrastructure just run itself and stop reinventing the wheel for every project. You can create shareable design systems with reusable assets, apps and components. And if your clients are growing really fast, no sweat. Wix Studio's AI powered CMS lets you turn a single layout into hundreds of dynamic pages. It's true more clients no longer has to mean more chaos. Wix Studio gives you one centralized view of every project and it makes real time collaboration just seamless. Do your agency's best work at scale. Build your next project on WIX Studio. It's an Incredible platform. That's Wix Studio.com learn more at wixstudio.com Wix Studio.com DesignBetter is supported by Upwork. One thing that we learned by running this show and honestly building anything creative is that the fastest way to level up isn't just working harder, it's finding the right person for the right tasks. We've used Upwork ourselves and what's impressed us about it is how much it's evolved beyond just posting a job and hoping for the best. Their Business plus tier actually uses AI powered shortlisting to match you with the top 1% of talent in under 6 hours. And for us that kind of speed really matters. When you're in the middle of a project and you hit a skills gap, you can't afford weeks of recruiting. Upwork covers more than 125 categories web and software development, data and analytics, marketing, business operations and the platform handles contracts and payments. All in one place. So you're spending time on the work, not on the administrative side of things. And if you're looking for some side work, upwork is genuinely one of the better ways to build a client pipeline. Real projects, fair pay, and working relationships that can actually stick around. It's free to sign up, and posting a job takes just minutes. Visit upwork.com right now and post your job for free. That's upwork.com upwork.com ready to soundtrack your
- [25:49]
D
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- [26:17]
B
And now back to the show.
- [26:24]
C
If we're talking about the segment of our audience that might be freelancers or have an agency, if you're doing creative work, you have to feel like I was in this boat, like you're giving part of yourself. You're creating something for somebody and it kind of ties to your self worth in a lot of ways. And I'm curious how you might advise somebody to sort of disentangle that and approach it from a bit more of an objective lens.
- [26:47]
A
First of all, spot on. I tell people that the level of confidence you have as a business owner ends up being reflected in your price in one way or another. It just does. That's the truth. Part of the issue with certain prices, especially when it's a new business or creative business, is it's very difficult to disentangle. This is the amount of effort I've put into this. This is how much work has taken me from and this is what people value it. And so a lot of times business owners risk actually underpricing, not even overpricing, underpricing. Because when you overprice, the market kind of nudges you a bit. People say, no, you're too expensive and it pushes you downwards. But when you underprice, that's when you really run the biggest risks. And so I talk to business owners around, hey, the best way for you to understand are you underpricing is when you send out days. Do nine times out of ten people say yes to your number. You might be at a place where you're ready to change and improve your pricing. Do you have more work that you can keep up with? Because people keep saying yes you're such a steal for the work you do. Maybe it's time for you to take a look at your pricing and start to refine that and pull it upwards. Are you struggling financially? Has your revenue remained at the same level for the last two or three years? We have people come to us all the time and say, I made the same amount of money for the last two, three years, even though I'm spending more on marketing, even though I'm doing more work. What is going on? That's a signal that there's something that's up with your pricing. And that's when we can sit down and have conversations and really dive deep into how do we rejig and restructure your pricing to get you to a place where you can run your business more sustainably, more holistically, more comfortably.
- [28:24]
B
Do you have guidance on how people should tell people what their price is? I have seen it go very poorly. There's a super talented person that I hired at one point, and when they disclosed what it would cost, you know, like, hey, you're going to do these things, what would that be? It was almost like this apology. Like, I'm sorry, I'm going to charge you this. I'm like, man, don't apologize. I am happy to pay that because what you're doing is valuable. Is there a script that people might be able to use to tell people, this is what I charge?
- [28:59]
A
Yes, absolutely. We actually have a script in our. We have a free playbook. And in there is a guide to how you can have conversations with your customers around prices. It's specific to if you're raising your prices. But the same principles apply. The first one is be clear about the value that you're going to be delivering to them. Like the person who is going to work with you, hey, I'm going to do this, this, this and the other thing. Once we're clear, like this is the value that we've delivered or that we will deliver, then you can move into, hey. And moving forward, this is what our relationship is going to look like. This is what you can expect from me. This is how we're going to work together. This is what it's going to cost. It can be. You can either choose this package or that package. In general, you want it to be very clear. You want to be clear, you want to be confident about it, you want to keep it very succinct. I find that when the owners I work with are nervous about their pricing or nervous about putting things in front of people, they Start to talk too much and over explain. You don't have to do that. People come to you because they're confident in your work. They know that you can help them cross the street very confidently, very alertly, they're coming to you for your expertise. It's okay for you to say, this is what to expect is how we're going to work. This is what it's going to cost. You don't have to say more than that. Keep it testing, keep it brief and state it confidently.
- [30:13]
C
Let's talk a little bit about hourly vs project based vs this more value based pricing. So towards the end of my freelance career, I was hearing a lot more about value based services. And I think a lot of my clients were still used to either like, okay, you have this hourly rate or maybe there's a project based rate. But they didn't really understand like how does this value based pricing work? Or what's a better way for me to pitch myself if I'm going that route and why should I bother essentially taking that approach?
- [30:40]
A
So the issue with hourly is that there's only so many hours in a day. There's just a cap. Naturally, it doesn't matter how much money you're billing, at some point you're going to run into that cap. And especially now that we have AI that's coming in and making some aspects of our work faster, easier, we're spending less time doing some elements of the work that you might otherwise have been doing by yourself. We're able to automate some of that. It means that we're spending less hours doing the work. And so if your pricing is tied to hours and you're necessarily spending less hours doing the work, then it leaves you stuck. You're very quickly going to run out of hours to charge. We're seeing this in a lot of industries right now. Value based pricing is a bit of a misnomer. It's kind of like a nice fuzzy idea that doesn't necessarily resonate with people. I tell people to be very clear around what actually is the value that you're delivering to people. Is it, hey, as a result of my design work, your logo gets seen more often, you've increased your visibility, there's more return on ad spend. What actually is the concrete value that you're delivering to people? And then you're doing the research to understand, well, what is number they put on that value and then that's when you can take it back, bring it all together and say, okay, this is the price, this is what it's going to cost for me to work on this project and I'm going to work on it for 20 hours. It's going to be this flat price and we're going to do these three things. It doesn't have to be a big lift to go from hourly to quote unquote, value based pricing or just pricing based up of outcomes and giving your customers a flat price. It doesn't have to be a big lift. It can be as simple as where you would usually say, hey, it's going to be 20 hours of work and I price at XYZ an hour. You're saying, I'm going to deliver these three things. The cost is going to be bad. You may have still have calculated it in the back end by tying it to your hours, but don't show that to customers yet. Just get into the habit of showing them. This is the outcome you're going to get, this is what it costs, see how they react to it, test that and then slowly you can start to feel more confident and more comfortable and gather the data that's going to allow you to actually just track directly to these are the outcomes. I'm going to give you this, how long it's going to take. Here you go.
- [32:42]
B
Yeah, that seems like that gives you a lot more flexibility with margins too. And when you run a business with very slim margins, you just run yourself into the ground.
- [32:51]
A
Yep. That doesn't allow you space to hire, it doesn't allow you space to grow the business. Talked to somebody who, as I mentioned earlier, was experiencing just stagnant revenue, even though she was pouring more into marketing and doing a lot more effort. And part of the issue was that not only was she pricing hourly, she was also paying her staff a portion, like a set percentage of the proceeds. And so it's like the way the math works is that there's just no way you're ever going to be able to grow this business based on this model you've set up. So let's sit down, let's step back and let's redesign this in a way that's going to give you the margins and the flexibility and the breathing room to build a business that you actually enjoy. Showing up to work to do this actually gives you the flexibility to build the life you want to build, which is why you set up this business in the first place.
- [33:37]
B
Well, that must have been a hard conversation to have because I presume once you've sort of set prices, it feels like, well, we're locked in. How do I untangle this web that I've woven here. So what guidance do you have for people when it is time to raise prices or adjust how they're pricing things?
- [33:57]
A
That framework that I gave you earlier also works with raising prices. Except this time you want to be clear about. This is value I've delivered to you up to date. We've worked together for three years and you've gotten this many designs from us. Whatever that looks like being very concrete about. This is the value I've delivered to date, both of us working together. This is what to expect moving forward. Hey, moving forward, we're investing in more tech to do xyz. Moving forward, we're bringing on a junior designer who can do blah, blah, blah, and this is going to be great for you. Because of these reasons, the way we charge is going to be changed. Expect that moving forward. Our cost for XYZ is going to look like this. So it's very straightforward. Tell them about you delivered, tell them what to expect moving forward, and then you tell them when that price is going to change, when it's going to be implemented. You want to give your customers a bit of breathing room. So don't say next week. Everything is changing. It might be next month, it might be next quarter. The new price for you is going to look like this. Sometimes people are nervous about making their change with existing customers. That's fine. You can leave your existing customers where they are. But for new customers, for prospects who are coming in the door, show them the new pricing. Start with them when you're comfortable, when they're saying yes. When you realize that nothing is going to fall apart because you've raised your prices, then maybe you feel more confident and more comfortable moving back to your original customers. Go to the folks who work with you a lot first. The people who like, they love you. They keep coming back to you, they keep working with you. They just love the work you do. Go to them first. Rate your prices on them first. Once you've done it for your prospects, go to the folks who work with you a lot first. See how they react, see how they interact with that. Do they like the person? They push back? What does that look like? Once you're comfortable with that, then you can go to people who are. Every so often they come in the door. It doesn't really matter if you change prices on them or not because they're not using your services as often as other people. So there's a bit of a hierarchy in how you change your prices as well.
- [35:44]
C
So if you have a customer relationship with somebody. Like it's a client services type thing. You can probably diagnose if something's too pricey because they're going to say, look, that's just too expensive. I can't make that happen. But if you're working on a product and it's just a pricing page, you might not get any real data on why the customer didn't buy. It might be because it was too expensive or maybe it was the wrong product for them. So what are some of the ways folks can kind of diagnose what's going on on the pricing page? What are the reasons people are not buying or leaving the page?
- [36:11]
A
When we work with folks around us, the first easiest thing we look at is drop offs. Where are people dropping off? If they're dropping off on the pricing page itself, or they're dropping off when they see the numbers itself, then that's a signal of something is off with the price. And that then gives you permission to go do some research with prospects, with customers, people who you may not have spoken to about pricing specifically before, and do a deep dive into understanding. Where does this work for you? Where does it not work for you? Is there something wrong with how we displayed this? Like, where's the value not resonating with you? So you want to start by just understanding is the drop off on the pricing page itself? Is it a checkout? Because sometimes it might just be. You've designed a great pricing grid, but there's a lot of friction between the page and actually being able to check out that might be part of the issue. And so going through your analytics is going to show you where those drop offs are and where you need to lean into the threads you need to unravel. And then all of those become hypotheses that you have on the board that you can take into your conversation with actual customers and prospects as you review the page together. Some other cool things you can do is heat mapping exercises. You have all of the trackers on the page and you can see where they lean into, where they kind of like lingering. Maybe there's some confusion or ambiguity around that specific section that copies and resonating with them. So you can use those heat maps as well as signals of where to lean into when you go back to talk to customers to understand what's actually going on.
- [37:39]
B
Pricing is often something that is coupled to brand perception. And there are some brands that are very value based, like a Walmart and that have this premium cachet, like Apple. Apple just recently released the MacBook Neo, which is a very value based product, product from a premium brand. So it's inexpensive, it's around 599, not $600. So it's interesting to see a premium brand take that approach. How should we think about setting a price and what it says about our brand?
- [38:17]
A
So Insead, which is a famous business school in France, they ran an experiment where they tested having participants hooked up to FMRI machines and they had them taste different bottles of wine. To imagine the wine doesn't have any label on it, you're just tasting the wine and they are measuring your brain activity through the fmri and what they found was that when folks were tasting wine that they thought was more expensive, so the wines all had like the price of the wine but nothing else on the label. The brains had way more activity compared to when do I taste in wines that they thought was cheaper. Now it's all the same wine that they were tasting. There was no difference in the actual wine, it was just the price that was setting different signals and actually literally changing how to interact them with the wine in their brains. And so what that tells us is that a lot of times we think that people kind of intuitively know what we should cost and people kind of intuitively have anchors in their minds around what our services or our goods our products should be priced at. It's the reverse. People will look at your price and use that as a signal for how to actually value you. And so it's why you might see a lot of brands who are more premium brands when they want to lean into the value based space, they might create a different brand, right? They might create an outlet brand. You've got Gap and Gap Factory. It's a way of them being able to lean into the value based space but still distance themselves from the actual premium brand. And so my prediction around a luxury brand like Apple, quote, unquote luxury, leaning into a cheaper tier, is that it could muddy the waters for their buyers. So I'd be very interested to see what happens around that. Because do people then perceive, well, I'll just wait for Apple new and then I'll wait until Apple has discounts. Maybe that's what's coming next. We can expect discounts from Apple. Do they inadvertently train us consumers to start to treat them as a value based brand and wait for discounts and almost force them towards lower and lower pricing? Or are they able to like keep that distinction between, hey, Apple in general is a value based brand. Every so often when there's terrible things happening in the economy and people are suffering. We want to create a product that's going to help people out and help them access us. You know, it's the narrative that comes with that as well. That's going to matter for the positioning. But for your listener, very important for them to understand. Your price will signal how your customers should value you. And so that doesn't mean you want to go higher all the time. It just means you want to be intentional about what is the price I'm setting and how does that help my customer understand how to relate to.
- [40:46]
B
How do you know if your prices are too low?
- [40:49]
A
There's two things around this, right? Everybody says, yes, you're super busy all the time. Nobody ever turns you down because you're the budget option. But also tied to you being a budget option, people want to negotiate. People want to say, okay, well, I know you can do it for $200 an hour, but, like, what can I get for 150? There's no respect around the services that you're offering. It feels like people look at you as cheap and therefore unworthy, and so they're willing to bully you, battle you on the prices, etc. So you want to look at it from a capacity perspective. It's yes all the time. Nobody ever says, you're too expensive. Your signal is, yes, yes, yes, it's all green. That's actually not a good thing. If you're a business, you want three out of 10, she say, okay, no, we're not going to be a good fit. That's okay. And then tied to that is also then the respect that comes with that. Are people trying to negotiate with you? Are they trying to struggle you to go lower on your price? That might be a signal that you've actually positioned yourself as somebody who is the bargain option and who is willing to be treated in such a manner.
- [41:45]
C
We actually have a membership on Design Better, and we have a membership page and a pricing page. So would you be willing to kind of live with us here on the show, walk through it and give us some advice on how we can make it better?
- [41:58]
A
Yeah, absolutely.
- [41:59]
C
If you go to the membership tab on Design Better talks a little bit about who we are, you know, what the show is all about and what you get. We've got more than 200 conversations with designers, researchers, design leaders. There's a little bit of social proof with these blurbs from Vanity Fair, Architectural Digest. Then it walks through the benefits about what you get as a paid subscriber. Get your four ad free episodes, a Month, you get the Roundup, which is a new thing every Friday. We're going to give you insights from our interviews monthly. You get the brief, you get a full ebook library. You get a toolkit, which is a curated collection of tools and discounts worth over $1,000. You get live AMAs every month. You get access to documentaries like Design Disruptors and early access to workshops and events. And there's a few little quotes from some of our listeners down here. And then again, on the social proof side, there's a bunch of logos from great companies all around that are listeners here. And so down the bottom here, you can go to the subscribe and there's also you can expense it tab. So maybe we'll start with this page and feel free to have me move around or go to any areas that stood out to you as being particularly bad or helpful.
- [43:10]
A
Okay, I like this. Subscribe now. $7 a month or $72 a year. You can get two months free. I like that. I almost want to see that be anchored around something. Right. What is $7 a month to your listener? Is it like less than a cup of coffee? You can have access to design better. So I would think about what is the anchor that we put around that price. But I like this and I also like how you are nudging your user towards their. If you do the annual auction, you get two months free. I'm curious with this. Do you see most people set it and forget it when they go for the monthly option, do people just go $7 and then a $7 forever? Do you have people, people who use it $7 and then drop off after a few months?
- [43:52]
C
I'd say it's a mix. And you know, one thing that we've been experimenting with thinking about, you know, for instance, the books. Understandably, some people want to come in, they want access to the books. They pay for a month and then they leave, which is, you know, that's a bummer for us. But it's cool that they get access to those and that's what they wanted. So on our end, we don't want people to pay for something that they're not getting value out of. Obviously, we want this to be valuable every month for people. So we're kind of constantly thinking about new ways to do that. Whether that's true, the thing we just mentioned, the Roundup, where we're kind of giving folks insights and teaching them through episodes every week or AMAs or other things like that.
- [44:28]
B
Yeah, I mean, generally speaking, if you just looked at the numbers, annual subscribers churn less than monthly subscribers.
- [44:35]
A
I would love for you both to think about what it looks like to offer this on an annual basis. And if you think most of the monthly subscribers are coming in just so they can access the books, what if there is access to whole library for this flat fee and that's separate to your annual subscription? Because I think the world has kind of defaulted us into monthly subscriptions. Everyone just thinks the only way you can have a subscription is monthly. You can have quarterly subscriptions, you can have annual subscriptions, you can have semiannual. So there's no reason you couldn't go, hey, it's going to be a flat $70 or flat $72 a year. And also if you want to have access to the library, it's this flat fee. Get access to the library for this flat fee. If you don't want a subscription, think about maybe you tease those two things apart and see what that looks like. The other thing you have buried the price beneath all the things.
- [45:29]
B
Yeah.
- [45:30]
A
You don't have to have that whole wall of social proof. Pick the biggest ones that resonate with your audience and then put that subscribe now in a couple of. At least in two places you might have subscribe now after this is everything that you get. Put the button down and all the way at the bottom again once you have that other wall of social proof.
- [45:47]
C
So I just wanted to also share the actual pricing page. Now we're a little constrained on this because it's essentially built on top of Substack's interface. And so there's definitely things that we would love to change here that we can't. But kind of given the constraints that we have, maybe you could talk us through, is there something we should change or something that stands out to you?
- [46:06]
A
Differentiation, biggest one here. So it looks like the first three things are stuff. They get across each tier. Correct. Differentiate. Right. So annual is everything in monthly and then you get these two new things. I can expense it everything in annual and then these two differentiations so I don't have to read. You know, it's the same thing. And I'm trying to find where the differentiator is. So that's the first one and that's just a copy change. I like how you have, you know, individual group gift. I like how those are separate tabs. I think that's really clever. So I'm not having to figure out for myself really like with fully book library plus the toolkit, it's a thousand dollar value that's the only place where you have this is the number. This is what it's actually worth. I don't think you have to do that everywhere, but maybe play with introducing what is the numerical value of something else. Maybe the newsletter, like something else there. Or maybe there's a number around the AMA. Like usually if I was coming to an AMA, it'd be $35 because it's digital. We have it 12 times a month, 35 times swap. It's. This is the value of the AMA's. You get it free under the, you know. So just play with one other place where you can pop in the quantitative value that will help people also then have an anchor to compare the overall price to.
- [47:17]
C
That's great Ripple.
- [47:19]
B
It's fascinating. It's like alchemy to me. There's a lot of stuff once you figure it out, but there's so many things to understand around the psychology and the scent of information that people want to follow to make a purchasing decision.
- [47:34]
A
Absolutely. And a lot of what we've been doing now has been a lot of training. So coming into companies and just training the product managers, the pricing group as well through the sales team around. This is a psychology of pricing. This is what you need to understand when you sit down to talk to your customers and you're building these pages, these are things to keep in mind. So we started doing a lot more upskilling than actual, even pricing research. Because it's just a fundamental knowledge that everyone needs to have that can only help you when you start to do this work.
- [48:03]
B
If you wanted listeners to walk away with one thing that would dramatically help them think about pricing products, pricing services, and how to present the value propositions to customers differently. What might that be?
- [48:20]
A
Just talk to customers. It's really important to understand how do your customers perceive and quantify your value. We have conversations around, do you like the yellow button or the red button? Talk to them about the value to them and what they'd be doing if they weren't using your product. It's an easy way for you to start to understand, okay, this is the quantitative value of whatever I'm building to my customer, Ethiosa.
- [48:41]
C
If we can jump away from pricing for the last bit here, is there anything that you're currently reading or watching or listening to that you're finding inspiring?
- [48:50]
A
Yes, I am reading Wally Showing because it's called Memoirs of the Happiest People on Earth and it's a great read. Just got stuck into that. Really enjoy it. I'm also rereading the Go Giver. It's just a great book about having a given mindset as a foundation for just a good life and a good business as well.
- [49:09]
B
Where can people learn more about you and your business? Decision Alpha?
- [49:14]
A
They can go to our website decisionalpha co. They can also find us on LinkedIn under decision alpha and they're also welcome to find me on LinkedIn.
- [49:23]
B
Great. And we'll have the link to your playbook, the pricing playbook in the show notes too. So anyone who's interested about that, thanks so much for being on the show.
- [49:31]
A
Thank you for having me. This is an excellent conversation. I thought.
- [49:39]
B
This episode was produced by Eli Woolery and me, Aaron Walter, with engineering and production support from Brian Paik of Pacific Audio. If you found this episode useful, we hope that you'll leave us a review on Apple Podcasts, Spotify, or wherever you listen to finer shows. Or simply drop a link to the show in your team's Slack channel designbetterpodcast.com It'll really help others discover the show. Until next time.