When it comes to evaluating your pricing, most people like to believe they think entirely rationally about it.
But in reality, there are always 2 parts of your brain judging your pricing plan – your emotional brain and your rational brain.
And even then, your rational brain is surprisingly unsophisticated at evaluating pricing plans due to it have so many preconceived beliefs about pricing.
Understanding Your Two Brains
- Emotional Brain (Amygdala)
Your emotional brain reacts first, quickly assessing incoming information to determine your immediate response (fight, flight, or freeze). Typical emotional responses to pricing include:
- Fear: “What if we upset our existing customers?”
- Risk: “Will we lose future business?”
- Uncertainty: “How do we know it’ll work?”
- Reputation: “We can’t afford to get this wrong.”
These emotional hurdles can strongly resist change. Only once your emotional brain feels safe does your rational brain even get the chance to engage.
- Rational Brain (Neocortex)
The rational brain is comfortable with logic, data, and formulaic approaches. Yet even here, pre-conceived biases can affect how you respond to your pricing strategy, including:
- Top-Line Focus: Believing pricing only affects revenue without considering profitability.
- Supply & Demand Fallacy: Assuming price increases automatically reduce demand, without considering price elasticity or profit implications.
- Market Power Fallacy: Believing “the market sets the price”, without understanding your ability to influence customer perceptions of price.
- Ignorance: Being unaware of alternative pricing models that could significantly improve business outcomes.
- Complacency: Assuming your current growth means pricing is “fine”, without realising how much money you are leaving on the table.
- Difficulty: Feeling overwhelmed by the perceived complexity of pricing, leading to avoidance.
- Time Pressure: Thinking there’s never a right time to address pricing strategically.
Emotional vs. Rational: Overcoming Resistance
Steve Peters, author of The Chimp Paradox, notes that your emotional brain is five times more powerful than your rational brain.
This means significant effort is needed to reassure your emotional brain before you can rationally evaluate pricing changes.
Even then, ingrained biases might lead your rational brain to prematurely conclude that “any price change is risky.”
Yet it doesn’t have to be that way. The smartest companies on the planet know that having a clear pricing strategy is one of the strongest links to profitable growth and increasing enterprise value.
As Warren Buffett says, “pricing power” is the No.1 indicator of a company’s long-term value.
Practical Solutions
Step 1: Reassure Your Emotional Brain – Have a Plan
Most businesses don’t have any defined pricing strategy or plan for their pricing, so no wonder the chimp brain protests so loudly.
If you don’t have a plan, you won’t have any confidence in what you are doing.
And conversely, when you do have a clear plan, it’s amazing what a difference it makes to your inner confidence (for both you and your sales teams).
When you know that you have thought through all the factors and have all your ducks in a row, you can approach your market with much greater confidence in your pricing.
Step 2: Engage Your Rational Brain – Build a Pricing Model
Creating a straightforward model to simulate price and volume scenarios isn’t difficult and can clarify the impact on both revenue and profit.
Typically, a small price increase—even if accompanied by some customer churn—will result in greater overall profitability.
It is well recognised in SaaS, for example, that churn of 3% – 8% is a good thing especially if it is caused by an ongoing drive to improve prices. This is because the business is constantly testing the top end of the price acceptability range and finding out how far it can go.
Conclusion
Don’t let either of your two brains spoil the party and tell you that “it can’t be done”. Recognise the signs of how you are reacting and then work past them to build a pricing plan that’s going to make a huge difference to your business.
Do get in touch if you want any help dealing with the “pricing brains” in your business.