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Case study pricing strategy: 430% ROI with behavioral pricing

A powerful pricing strategy can only be created if you understand the decision-making behavior of your customers and implement this knowledge across all 4 aspects of pricing. This is proven by a particularly successful project in the B2B event area from 2019, which recorded an ROI of 430%.
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In recent years, we have advised many trade fair, event, and congress providers and have found that, in most cases, there is a lot of room for optimizing the price and sales strategy. This is mainly because pricing in the event sector is usually based on individual experience rather than on focused analyses of booking behavior.

Historical rules, budget requirements, competitive orientation, and gut feeling destroy margin!

A pricing strategy that provides for an annual increase of x% or y€ or is based on the sales requirements according to budget planning certainly does not exhaust possible potentials. This also applies to a strategy that is based on the competition or even your own gut feeling.
None of these approaches meet the requirements of a sound pricing strategy. Instead, margins are wasted on a regular, long-term, and unnecessary basis. Ultimately, there is only one approach that guarantees an effective pricing strategy: the focus on your customers, their price acceptances, and their actual decision-making processes! Read more about price acceptance in our blog post „Price acceptance instead of willingness to pay – the metric for better pricing“.

The key to success lies in the price-psychological logic of your customers

What does that mean exactly? Let us outline this using a practical B2B case study. Here, the success levers for a significant increase in sales were the following insights into the decision-making behavior of the event organizer’s customers:
  • Macroeconomic situation: The current assessment and outlook regarding the economic situation of the industry are 8 index points above the Germany-wide ifo business climate index, that means that the industry is doing better than average.
  • Relevance of the event: 84% of the customers are firmly bound and evaluate the price-performance ratio of the event as “favorable” at the same time.
  • Price relevance: Only 14% of customers give price aspects the highest priority in their decision to participate.
  • Price knowledge: Only 21% can correctly remember the prices and conditions of their last purchase – only 12% know actual competition prices.
  • Reminder of price increases: : Only 7% of customers correctly recall past price increases – the majority clearly overestimate the amount (the increase was less than the customers “expected” afterwards)
  • Price sensitivity: The regular price increases implemented in the past are below the price acceptance level of 78% of customers.
  • Relevance of Early Bird discount: Although the early bird discount acts as a trigger for the booking decision, the amount of the discount is hardly ever remembered. The minimum expectation for the discount is half of the current discount.
These findings show very clearly that a) most customers do not make decisions like a rational “homo economicus” and b) there is considerable leeway for stronger price increases.

Findings of real decision behavior must be translated into the four aspects of pricing strategy

Of course, these results alone do not result in a margin change but are the raw material to develop a powerful pricing strategy. It is not enough to focus only on the price level as an optimization target. Instead, it is more important to focus on 4 equally important aspects of the pricing strategy:
#1 Price level
The ideal price level results from the combined analysis of price relevance, price knowledge, and price sensitivity. Just because a customer expresses maximum price acceptance, this does not mean that this statement is to be taken seriously—e.g., not if this statement is based on poor price knowledge or low-price interest. Generally, the following applies: Only maximum price levels train the price muscle of your customers and thus create room for future price increases.
#2 Price structure
The prices of different service packages must be in the right ratio to each other to a) make the decision easier for the customers and b) to make high-margin packages appear particularly attractive. Especially in times of hybrid events, the offers for physical or digital participation must be consistent from the customer’s point of view.
#3 Price communication
The way you present offers and prices (e.g., in the online registration process, on registration forms, etc.) has a significant influence on the customers’ decision. The effects of behavioral economics offer the appropriate nudges for this, e.g., through anchor effects, defaults, or framing. There is more control potential here than is currently being exploited.
#4 Price dynamics
Discounts go directly into your margin. This is why their necessity and amount must be questioned and corrected if necessary. If not, customers could buy without having an impact on their decision-making process. Poor discount management is the biggest threat to margins.

It is the fish who must like the bait, not the fisherman

So, the key to an optimized margin lies in analyzing the decision-making process of your customers. This is the basis for you to clear up internal assumptions and hypotheses, convince with objective facts, and optimize the 4 aspects of your pricing strategy.
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Vocatus AG Preisstrategie Behavioral Economics
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