In her book, “Thinking in Bets: Making Smarter Decisions When You Don’t have All the Facts,” Annie Duke started off with “Life is Poker, Not Chess.” Wow.
Have you ever read a book that gave you a way of thinking that is just common sense, but you really needed someone to make it clear for you? Annie Duke’s book did exactly that for me. I couldn’t help but apply it to the world of pricing—over and over again.
Getting to the title of this blog, chess is certain. There is no hidden information. Poker and life and pricing all have hidden information. Accepting and internalizing this fact provides new clarity into our decisions.
Consider a scenario where a salesperson has a big opportunity with a buyer. He brings the opportunity into the executive team and together they all agree on a price. The salesperson delivers the price to the client. Looking back on that decision, if they won, it was a great decision. If they lost, it was a bad decision.
Not so fast. It’s easy to label that good or bad based on the outcome, but once you add uncertainty, it’s possible to make a good decision that turns out poorly or a bad decision that turns out well. Could we all agree that deciding to drive drunk is a bad decision? But what if the drunk driver made it home safely? The outcome was good, but the decision was bad. Similarly, you study consumer reports for the most reliable car. Find the absolute best and buy it. But your car was a lemon. You have lots of problems. The decision was probably good, but the outcome was bad.
Back to our scenario. The price they chose may win 8 out of 10 times. But this time it didn’t. Maybe the decision was good, but not the outcome. In the world of pricing, there are so many things we don’t know for almost every deal. I brainstormed a quick list:
- What don’t we know?
- Is procurement lying?
- Who is the competition? No competition?
- What is the competitor’s price?
- What does the buyer think of the competitor’s product? Our product?
- How much does the buyer value the differentiation?
- Who really makes the decision?
- How will the decision be made?
- What will our cost to deliver/implement be?
- What are the buyer’s expectations?
- Will the customer be satisfied?
- What is the buyer’s willingness to pay?
- What pricing model best fits this buyer?
Just because you win or lose a deal doesn’t mean you knew everything. If you didn’t know everything, at least part of the outcome was luck. The question becomes: How much is luck and how much is skill?
As a poker player, Annie studied this intensely. She had mentors to help her look at each hand and decide if she made good decisions, regardless of the outcome.
As business people, we need to learn to think like poker players. We won’t win them all, but we want our decision-making to get better and better.
This blog touched on only the first chapter of her book. It was impactful to me. The rest of the book described several ways we deceive ourselves and then she gives many ideas on how to learn to make better decisions in a world of uncertainty. I highly recommend it.