Modeling Business Archive - Green Hammer in Market Research and Pricing

Lead Magnets are dead or more a Cargo Cult for Consultants?

8. January 2026Johannes WinterhalterLeave a comment

My Artificial Intelligence told me a few months ago: your website about pricing has no Lead Magnet. You need a PDF with a checklist for download, in exchange for an e-mail. IOnce I have the e-mail of the downloader, I can send her or him newsletters and sales mails, until the breakpoint of 8 to 12 contacts is reached. Then the prospect will buy. I myself thought lead magnets are dead, looking at all the bad content from other websites.

The Marketing Myth

Sellers of attention want to make us believe that every seller has to be on top of the attention of many people for an extended time. If not on top, they will buy elsewhere. This permanent attention costs a lot of money, and what is if the targeted group is quite small and the consultant sells not to be in need attention? That is the case for me as a pricing and market reseach consultant.

Lets look into this marketing myth and look there the Cargo Cult analogy is. Cargo Cults emerged after World War II. Islanders on some remote Pacific Islands, who were deeply impressed by goods the US Army left while their presence, tried to attract the “Cargo” again with ritualistic wooden imitations of airport technology. The marketing world is full of marketing analogies to the bamboo antennas and wooden control towers used in Cargo Cults. They are ritualistic imitations of a process that once worked, performed by people who do not understand why it worked.

Here is the breakdown of why modern Lead Magnets are a Cargo Cult, and how to tell the difference between a “ritual” and actual value engineering.

The Anatomy of the Cargo Cult

The term “Cargo Cult” comes from Pacific islanders who, after WWII, built fake airstrips to summon the American planes that brought supplies (“cargo”). They replicated the form (runways, towers, headsets) but lacked the mechanism (global logistics, radio waves, commerce).

In modern marketing, we see the exact same mimicry:

The Bamboo Control Tower: This is the generic Landing Page. It looks like a functional page—it has a headline, a hero image, and a submit button. But it connects to nothing of substance.
The Coconut Headset: This is the “Ultimate Guide to [X]” PDF. It mimics the shape of value (it’s a document, it has 10 pages), but it contains no actual insight, only fluff or ChatGPT-generated common sense.
The Prayer: The belief that if we simply perform the ritual of “putting up a gate,” leads (the Cargo) will naturally arrive and convert into sales.

Why the “Planes” Don’t Land and Lead Magnets are dead.

The original lead magnet strategy (pioneered by direct response marketers decades ago) worked because of a psychological mechanism called The Value Exchange.

The mechanism requires that the value of the information provided is greater than the “cost” of the user giving up their privacy (email address).

Today, the market is flooded with low-quality magnets. The “cost” of giving an email is high (spam risk), and the perceived value of a generic “Top 10 Tips” PDF is near zero. Marketers are building the airstrip, but they have forgotten that the planes only land if there is a reason to land.

The “Ritual” vs. The “Engineering”

You can spot the difference by looking at the intent behind the creation.

The Cargo Cult (Ritual)	The Engineer (Strategy)
“I need a lead magnet.”	“My customer has a specific gap.”
Creates a PDF because “that’s what you do.”	Creates a tool available on request of recommendation. This might solve a problem.
Title: “The Ultimate Guide to…”	Title: “Tool to measure possible vulnerability and improvements …”
Goal: Get the email address.	Goal: Earn trust by demonstrating competence and do the first step for solving the problem.
Result: User downloads, ignores, unsubscribes.	Result: User reads, does the first step, gets a win, respects the author.

When is a Lead Magnet not a Cargo Cult?

A lead magnet is legitimate engineering when it is a Utility.

Instead of a passive document (which users just hoard and never read), effective magnets are often active tools or specific assets that save the user time immediately.

Cult: “Whitepaper on Pricing or Data Security.” (Boring, generic, likely unread).
Utility: “Vulnerability Scanner for your pricing methods.” (Runs once, gives a result, proves expertise).

Summary

If you are creating a lead magnet because you read a blog post saying “you need a funnel,” for harvesting e-mail adresses which can be further hammered by sending generic newsletters, you are in the Cargo Cult. You are waving flags at an empty sky.

If you are creating a lead magnet because you have identified a painful splinter in your customer’s finger and you are offering the exact pair of tweezers to pull it out—that is marketing.

Value Sensivity Check – Giving Price Elasticity a New Meaning for Consultants, Freelancers and Coaches

16. December 2025Johannes WinterhalterLeave a comment

The Value Sensivity Check is a systematic instrument to avoid encourages simply raising prices and instead focuses on the value of the service for the customers. A high rate without a clear foundation invites client skepticism, which can ultimately lead to disappointment and strain the relationship.

The true strategic question moves beyond ‘how high can we charge?’ to ‘how can we structure our pricing so clearly and demonstrably that clients fully trust the value of our premium?’

From Generic Pricing Trap to Appropriate Value

The primary challenge in pricing specialized consulting services often stems from a structural misalignment of incentives.

The Core Issue: Inherited Cost Models

Many consultants and specialized professionals, drawing from the traditions of skilled trades and technical service, default to calculating fees based on hourly rates plus a cost surcharge. While this method is transparent, it inherently measures effort rather than value. Also these hourly rates are debatable: they are not specific for market segments.

This design leaves little room to reward the consultant for efficiency or accelerated knowledge transfer, inadvertently placing the focus on hours delivered rather than rapid client outcome.

This time-based model, though conventional, creates an inherent conflict: the client seeks speed and productivity, while the fee structure measures time spent. This misalignment subtly erodes the commercial confidence required for a true, value-driven partnership.”

Specialized consultants often find themselves facing a pricing vacuum, where generalized market advice offers no rigorous, evidence-based answer to their inherent value. My goal is to replace this reliance on subjective guesswork with a structured process that instills true commercial confidence.

The Value Sensitivity Check (VSC) for Price Elasticity serves as the necessary bridge to solve this structural uncertainty.

Grounded in fundamental price elasticity considerations, the VSC offers a secure framework designed to ensure the price achieves a perfect balance: fostering client trust, covering the supplier’s costs, and reflecting genuine value for the buyer.

The VSC™ is the systematic framework that closes the gap between traditional cost calculation and sophisticated value estimation. It guides the professional in building a fully justifiable price structure supported by unassailable evidence.

The Two-Tiered Justification: Reconciling Value with Trust

The greatest hurdle in securing a premium price is the client’s internal alginment process. They must arrange the large, abstract claim of high market value with their personal and experience-based need to trust the seller. I manage this by providing justification at two distinct levels:

1. The Macro-Justification (Economic Proof)

This addresses the logical, objective claim. It involves benchmarking against public economic data, market failure rates, and the true cost of alternatives to prove that the investment in the product or sevices is necessary and proportional to the risk being mitigated or eliminated.

2. The Micro-Validation (Personal Trust)

This addresses the psychological, subjective claim. It is built through small, unexpected details within the process, demonstrating authenticity, competence, and a specialized understanding of the client’s specific world.

These personalized “Micro-Signals” are the necessary evidence that the consultant possesses the process and specialized expertise to manage the client’s commercial risk. The systematic, structured nature of the Value Sensitivity Check (VSC)—available via questionnaire in English, German, and French—is designed to integrate both the Macro-Justification and the Micro-Validation seamlessly into your client communication. My answers and evaluations are provided in the language you prefer.

How Pushy E-Mail-Marketing Destroys Trust

2. December 2025Johannes WinterhalterLeave a comment

There is a fundamental flaw in common recipes for E-Mail marketing that destroys trust.
Many E-Mail-Marketing services suggest sending a cadence of 8-12 emails until the customer finally buys.
What if the recipient bought the product just before and does not need one more for months or years? Or just does not need the offered product right now or has a good relationship to another supplier?

If an enterprise whose product I’m not interested in sends me 8-12 emails, I mark them as spam and never buy anything from them. They are marked as pushy spammers and have actively destroyed their capital: Trust.

The Misalignment of Funnels

: The reason companies send 8–12 emails is because they are using a Commodity Sales Funnel (high volume/push) for a product that is often not a commodity (their unique service). The assumption is that low frequency equals lack of interest in selling on the sellers side.

For me, as a Strategic Analyst, constant “hammering” is not marketing—it is a destruction of capital.
The cost of that friction is paid by the marketer: I and many others hit unsubscribe or adjust my spam filter. The company spent money to acquire my address and then sent messages that actively drove me away.
They paid a Cost of Friction that was higher than the value of the potential sale. The Expert’s Rule:
You cannot build a high-value relationship with low-value tactics. If your solution is not a commodity for daily use, your sales funnel shouldn’t be either. You must attract, not hammer.

What Your Spreadsheet Can’t Tell You: The Hidden Financial Value of Human Conversation

19. November 2025Johannes WinterhalterLeave a comment

If a customer walks out of your store without buying, looking at the security camera footage won’t tell you why. You can analyze the video (Data) all day, but you will never know if they left because the price was too high, or because the music was too loud.

To find out, you have to run out to the parking lot and ask them.

In the corporate world, we rely heavily on ‘Security Camera’ data—web tracking, AI analysis, and big spreadsheets. These tools are excellent at telling us what happened. But they are terrible at telling us why.

Here is why the most profitable companies still invest in human conversations, and how you can use them to fix your pricing strategy.

AI is a Mirror, Not a Window. AI can only tell you what customers have said in the past. It cannot tell you what they would pay for a new, innovative product. That requires a human “Store Owner” intuition.

The store owner talked to people – he or she never missed the value of human conversation.

How to make qualitative interviews worth the effort

Qualitative Interviews done by a good interviewer who makes the interviewees talk in the right direction gives direct access to the thoughts of our clients and target groups. This includes thoughts which do not exist in a written language.

The Cost of Not Knowing

Compare the 300 € interview cost to the cost of launching a product with the wrong price. “Is it expensive to pay 300 € to find out your customers would have paid 20% more? No. That 300 € just made you 20.000 €.

This additional publicity pays for a part of the survey. The other one is additional sales following an improved strategy.

Stupid interviewers are a no-go

For best quality of interviews the interviewer has to dive into the world of the interviewed person. The interviewer has to direct the interview and add questions if necessary. This requires a lot of experience and knowledge for the interviewer. Hiring a random person without knowledge is the first step to disaster. Less experienced interviewers need the first interviews in a project for training, experienced interviewers do not need that. They can relate to previous experiences

References

This article is based on about 20 years experience with qualitative interviews and the usage of some form of artificial intelligence since 1992.

The Simplest Sales Secret: Why “Eating Your Own Dog Food” Beats Every Sophisticated Strategy.

3. November 2025Johannes WinterhalterLeave a comment

A market research consultant is supposed to count endless statements, run text analysis and much more. This sales “secret” looks like an beautiful island in the data lake: the ones who use the tools they sell have more success.

Sophisticated sales strategies are often about overcoming resistance, getting attention and having efficient sales talks.

Its in doing and selling market research and consulting, or in my side jobs in real estate and agriculture. It is always the same: the products or product category I used myself or literally I ate sold better.

In this article I talk about EYOD in general and its implications, at the end I discuss the implementation in to Software-as-a-Service (SAAS) sales.

Numbers That Support the Eating Your Own Dogfood Strategy

The statistics fall into three categories: Product Quality, Sales Productivity, and Customer Trust.

1. Enhanced Product Quality & Cost Savings (The “Proof” Part)

The primary result of EYOD is a better product, which is a prerequisite for simple sales.

Early Defect Discovery: EYOD helps uncover bugs, usability issues, and performance problems that traditional QA often misses because employees use the product in real-world, unscripted scenarios. This prevents embarrassing sales demos and post-launch failures.
Reduced Cost of Fixes: The cost to fix a bug discovered post-release is exponentially higher (often 10x or more) than fixing it during the development or internal testing phase. EYOD shifts detection left, saving significant time and money.
Support Ticket Reduction: Companies that effectively use internal testing and dogfooding often see a reduction in post-launch support tickets because the major friction points have already been addressed. This frees up support to focus on sales-related questions.

2. Improved Sales Productivity & Confidence

The sales team is a huge beneficiary of EYOD.

Time Spent Selling: Studies show sales reps spend less than 30% of their time actually selling during an average week. The rest is often spent on administrative work, data entry, or research.
- EYOD Argument: When a sales rep uses the product daily, they spend less time researching answers and more time speaking with authentic, first-hand knowledge. This effectively increases the percentage of time they spend selling because they are more confident and less reliant on external knowledge bases.
- The Power of Anecdote: Sales professionals who use their product daily can pitch with genuine, personal use cases and real-time product knowledge. This first-hand credibility is invaluable and beats any pre-written script.
- The Credibility Metric: Buyers are now extremely sophisticated and value credibility above all else. Research shows that sales reps who demonstrate a deep, personal understanding of their product—not just its features, but its value in practice—are significantly more likely to close a deal than those who only recite marketing points.

3. Customer Trust and Loyalty (The “Simple Sales” Part)

Simple sales are about trust. EYOD is the ultimate trust signal.

Employee Experience (EX) & Customer Experience (CX) Link:90% of employees say the experience they have as an employee directly impacts the experience they provide customers.
- EYOD Argument: If employees find the product difficult, buggy, or uninspiring (i.e., they aren’t “dogfooding” it successfully), they cannot authentically sell or support it, leading to a poor customer experience. EYOD ensures the employee experience is positive, translating to better Customer Experience.
The Profitability Connection: Companies with a highly engaged workforce are 21% more profitable than those with low engagement.
- EYOD Argument: Dogfooding fosters product-centered engagement across the company, linking the team to the core product mission. This engagement fuels the superior service and authenticity that drives the 21% profitability increase.

That is a perfect strategic pivot for your consulting message. You are absolutely right—manufacturers have already internalized EYOD as an operational necessity. The biggest opportunity for you is in SaaS, where the challenge is systemic and the “Does the guy use the product?” question is a critical sales filter.

Here is a revised, high-impact section you can add to your article to specifically target the SaaS audience and position your consulting services:

The SaaS Blind Spot: When EYOD Becomes a Strategy

You’ve identified the core problem: while using your own product is an operational given for a farmer or manufacturer, it’s a strategic choice (and failure point) for most SaaS companies.

The SaaS Credibility Gap

For a B2B SaaS buyer, the market is overwhelming, and every vendor promises efficiency. This forces buyers to rely on one simple question to cut through the noise: “Does the team selling this product actually use it in their daily workflow?”

Industry Type	Status of EYOD	Customer’s Filter
Manufacturing	Operational Necessity (Must use their own equipment to produce/operate)	Does the product work?
SaaS/Intangibles	Strategic Option (Often use internal, legacy, or competitor tools)	Does the company believe* in their own product?*

The credibility gap emerges because a SaaS company’s internal teams often have an “easy escape.” If their product (e.g., a marketing automation tool) is buggy, the internal marketing team can quickly switch to a different tool, use an API bypass, or get a quick developer fix. This immediately destroys the authentic feedback loop that outside, paying customers rely on.

My Consulting Value: Enforcing Authentic Friction

My consulting service is not about telling you to use the product; it’s about scientifically structuring the process to ensure they experience the same friction their customers do.

This involves establishing a rigorous, company-wide “Forced Use” framework that answers complex questions:

Which teams must use which features to fully replicate a customer journey?
How is the feedback quantified and categorized to inform strategic pricing and development sprints?
How is the company prevented from using “backdoor” internal workarounds that mask poor UX?

By focusing on the strategic, systemic implementation of EYOD in the SaaS world, I transform simple advice into a sophisticated, necessary business project—the exact challenge you might want to hire mee.

From 1,000s of Views to 0 Sales:

26. October 2025Johannes WinterhalterLeave a comment

My $200 Marketing Mistake and the Lesson That Redefined My Consulting” or “Why ‘High Traffic’ Can Be a Useless Metric: A Case Study on Targeting ‘Doers’ vs. ‘Dreamers’

I use this as a simple example for something much bigger: a year ago, I launched a promoted post for an article I had written. I spent a modest budget on Facebook… The results came in: thousands of views, plenty of clicks. I was thrilled. Then I checked my sales dashboard: Zero. Nothing.

The article was a philosophical piece... It was perfect for attracting an audience I call ‘Dreamers’—people who enjoy thinking about business in the abstract.”

But my service isn’t for Dreamers. It’s for ‘Doers’—founders, entrepreneurs, and managers who need to make a decision now. It is about finding the target group.

I thought publicising a philosophical piece of text will help my brand and so elevate my sales. It did not – there were many people who like my way of thinking, but hardly any of them needed my service. The connection trom the philosophical article to my services in market value, marketing ROI and brand value calculations and research was not present for the readers, or they did not need it.

How This “Failure” Makes Me a Better Consultant

“This experience is why I am so passionate about data-driven validation. Before my clients spend a single euro on ads, it is important to ask the tough, practical questions that separate ‘Dreamers’ from ‘Doers’:

The Message Test: Is my content speaking to the person who thinks about the problem, or the person who pays to solve it?
The Alignment Test: Does my Call to Action (CTA) on this post align perfectly with the service I’m selling?
The Market Test (The ‘Doer’ Question): Have I calculated my Serviceable Addressable Market (SAM)? Do I actually know how many people are in my target niche and what their potential value is?
The Metric Test: Am I measuring the right thing? (Stop tracking ‘Views’ and start tracking ‘Qualified Leads’).”

The market test is not expensive – see my order page. You, the reader, might even do it yourself and decide if you want professional assistance. Most successful campaigns are the result of contributions of multiple persons:

The business owner or Chief Marketing Officer
The consultant helping defining the target group and messaging with the help of AI
The responsive clients who help developing strategy and product by answering questions
The designers who do the final graphic appearance

Lets start it and find the marketing mistake.

Searching the Marketing Mistake — Measuring water depths does not necessarely help with marketing mistakes.

How AI took my side job – Artificial Intelligence Business Plan

2. August 2025Johannes WinterhalterLeave a comment

Until Summer 2024 I offered creating simple business plans for startups. I did that on my website and on Fiverr for about 120 € each. I stopped that for the lack of orders and a lot of weird questions regarding my gig which never ended in a purchase. The prospects were obviously looking for excuses for not ordering my service. Looking at other work about 50% of my personalized offers generate a contract. The gig was meant as entry offer for learning to know each other and sell more services later. I used a template and filled it with data from the client, then I added some treated and interpreted market data to make an earnings prediction. The origin of the data was publicly available sources.

Artificial Intelligince (AI) is really good at working with data and templates from the web. Actually I am using the AI behind Google Gemini. For testing I asked it to write a business plan for a dog grooming business, later I asked it for market data for dog grooming in Germany.

The result was a really nice plan – you can download it here. It was a working example for a plan with estimations done by AI.

For first orientation the plan is really good, and it looks nice. I even think it is possible to apply for a loan at the bank.

I checked the numbers: the market data is quite generic, the assumed sales price is not confirmed by market research, and there are no scenarios. What to expect for free? My former prospects group, who did not want to pay more than 120 € for a business plan, is obviously happy with the very cheap plans delivered by AI.

So Artificial Intelligence took my side job. Maybe it is similar to what they did to map suppliers with their free Google Maps. I use Google Maps frequently and consider it to be technological progress. Google Gemini as one example of an AI chatbot offer requires a subscription for full functionality.

Measuring the qualitiy of artificial intellgence business plan

How to find investment opportunities that combine getting rich and being a good person?

22. January 2024Johannes Winterhalter

This article is about finding good investment opportunities, getting at least a little rich and being benefactor for society. Reading this article the spirit of Adam Smith, the author of Wealth of the Nations 250 years ago, may be with us.

An investment opportunity is supposed to give us gains and make us happy this way. Posession can satisfy: we are proud of having a part of this enterprise or owning some of these krypto-currencies. If it is possible to make the buyer also happy the world is becoming a better place.

Example: I buy an house for one million Euro. Two years later I sell it for 1.5 million Euro. I enjoy the gain, my buyer enjoys the beautiful he got for his money. Everbody is happy.

I calculated risks and gains and put money on real investment chances, which are a net worth for society. The worth of housing in general did elevate, and my gains are part of that. The house I sold has increased in value, the reason being the higher price the buyer paid,

Another way is to become active, found a business and calculate the perceived earnings per customer

Becoming millionaire with 10 € starting investment in 17 years

Many people got rich with less. For example, starting with 10 € which double themselves every year creates 1.31 million € after only 17 years.

No organism grows continuously over an indefinite time. So the growth will stop after some time. Or the investor looses interest, takes the money and moves to a hurricane-ridden Caribic island to satisfy other human needs and wishes there.

Benefitting society and becoming a little rich is possible

Is there anything in the world I can improve and I get a share of the money created from the use of the thing? This applies even for the ones who make us happy with their videos on tiktok or YouTube. Marc Zuckerberg created Facebook and got rich with that. He forced competitors out of business. His solution worked better and therefore he had more users and more advertising.

Let’s talk about a investor called Robert. He likes to sell and buy real estate or shares on real estate. Also he wants to contribute to modernization of energy supply. At this moment he has about 50.000 € available. Also he is thinking about selling natural dogfood online. He read that this can be a nice sidejob with little investment.

At first Robert is confused of the many good and bad investment opportunities. What does need to free his entrepreneurial spirit?

From an economical view, getting rich also means to benefit society. People buy things which are useful for them. The entrepreneur provides these goods and services and keeps a part of the revenue.

To find an easy way full of fun to success Robert has to consider the following:

1. What he likes to do

2. What others like him to do

3. What he think he likes to do ( notice the difference to #1 – this is about self-reception)

4. What Robert believes others want to buy from or the enterprise he bought a share

5. The limits of his environment – the world is bigger than the area he can take notice of

6. The hard numbers – is there really a big market for the products?

7. Where he can really improve the perceived life situation of others.

What is the next step?, Ok, consulting me or another business coach/consultant looks good. Some can discuss the matters with mentors and friends, who are good in business, others do better with paid assistance.

After having a free mind without barriers from culture and family background, there is a chance to see the next big thing, for you and society.

The real important steps are:

#7 is the most important thing: this is your working next best thing.

For researching #4 and #6 I am a good fit. I have a lot of data for calculating your market and possible success.

Robert looks for a good way to invest his money and having control about his money

Separating good investments from bad investments is similar to start an own business. Robert has to look at point 4 to 7 of the previous paragraph and do the analysis. If all goes well, he wants to buy. Thats it – buy after best possible analysis and wait for earnings. The investments have to be checked regularly and maybe sold at the right time.

Artificial Intelligence: danger to humanity, productivity increase or just boring?

16. December 2023Johannes Winterhalter

Artificial Intelligence is based on statistical learning. We all learn with statistics, even if we do not know it. Our brain is good at things we do often, remembers words we frequently use and puts others aside. When we touched an electrical fence we learn it hurts. Animals make a similar experience. Also we look at other humans to learn how they handle situations. This may improve our own lifes. We look at the experience of others, how they do things, and if we think its good we imitate it.

The challenge of Artificial Intelligence is to put learning into a statistical model. With more and more computational power more is possible. Impressive for me is the look at colored 100+ years old silent movies in colors . The machine learned from actual pictures how the old colours were when the original was filmed and put that knowledge in the colorized version. With human painters this process would have taken years of work. Another impressive example of AI is a comparison between the Donald Trump impressions of Alec Baldwin (actor) and Scaredketchup (computer artist working with AI)

What AI and all the models do is to analyze all available text and give the resulting language model the ability to create new text out the old text . This is all based on mathematical and statistical calculations. As a result the new text is really close to existing text found somewhere on publicly available sources. AI can pretend to invent something, just by combining results or something the readers did not find already themselves. Remember: it is not really new, the machine found it somewhere.

A personal view on the benefits of Artificial Intelligence

AI-generated text is good when I have a question and the machine prepares its findings for me. There it can use text I did not know before, and probably I am happy. AI can ease pressure on customer service – the bot can answer many frequent questions without human interaction.

How AI-generated Text creates boredom

The inherent lack of invention by AI may create boredom. Also Artificial Intelligence is actually not well trained to look into human emotions. This may change over time.

Human brains have a capability to recombine things which never put together before. This is called human genius or creativity. Machines cannot do that actually. Computers lack the capability to fast apply the invention on human minds and viewers and so see if it works. Scaredketchup combines his own creativity with AI tools for creating pictures.

For me interesting is to look at how music is created: the musician has some inspirations and tests it before live audience. His mind tells him what the listeners like and what not.

More Success in Price Negotiations With Decision Tree

30. March 2023Johannes Winterhalter

Going into price negotiations without a lot of preliminary information mostly ends up in suboptimal results. This post is about structuring in the information in a decision tree stuffed with probabilities for the events. These probabilities are the result of market research.

The party with the most information has advantages in negotiations. They know the negotiation scope of the other side and th bargaining power do both sides. Other questios are: What do I want? How to avoid getting lost in bargaining? After looking into auctions, where for psychological reasons it is difficult to make rational decisions, I look at the decision tree with estimated earnings and probabilities.

Auctions – the risc of following the group

Auctions are popular for antiques, used items and real estate. In the bidding war the offers may run away while the auctionator counts highet and higher. This war requires at least two bidders. Participants see and hear competitors bid higher and higher and infect one another. The bidding continues, so the race goes on for not having a defeat. Giving up means the object is gone. Due to the short decision-making period and the group, spontaneous decisions are made, which be confirmed experimentally. As soon as the bid is accepted, the bidder goes back to his rational normal and recalculates: the high purchase price makes the investment unprofitable. The buyer tries to get out of the contract. This phenomenon occurs less often if a security deposit to be presented limits the bids.

How a decision tree helps

We try to look at every possible scenario and calculate the probability of that scenario. The example is about a freelance teacher, who applies for teaching a class. How much money will she get?

decision tree usable for price negotiation – probabiliy and earnings

Sandra is applying to be a lecturer at the Montgomery Training Center. She has no experience and is pretty much broke right now, so she urgently needs paid work, her lower limit is 20 euros an hour. But she wants to achieve the maximum possible hourly rate in order to look good in front of her friends and colleagues and to earn money.

Sandra negotiantes with the dean, Ms. Dr. Teufel. She wants more earnings for the school and save money spent on teacher salaries. If teachers are scarce or one has special qualifications, she can pay up to 40 euros per hour. She tells the applicants that there are lecturers who work almost on a voluntary basis. So it tests their price scope downwards. That the training center also hires expensive lecturers is not for the appliants ears.

Doing background research helps

Sandra asks herself how much she could ask. She estimates that the school can spend up to 50% of the participiants fees for lecturers salaries^[2]. The difficult question about the income of the training center can be answered with the help of price lists of the company, sales figures from the Federal Gazette (corporations have to publish there), inquired or estimated numbers of participants. Sandra does the math and comes to a maximum of 40 € per hour.

Sandra analyzes her competition. What is the likelihood that another qualified person will do it cheaper? This is very high when teaching in university cities. Public statistics on wage levels can help, or a survey among friends. Industry associations often have fee statistics. She heard from friends that they often only pay 25 euros per lesson. So what to do in the price negotiations?

Price Negotiations and Background Research: Add Probabilities to the decision tree and play with scenarios

The probability that a sufficiently qualified applicant appears charging only charges 25 euros per hour is 50%. Let’s figure out whether Sandra should play it safe and demand 25 euros per hour or whether it is worth asking 40 euros per hour. The contract lasts for 200 hours, i.e. 5000 euros at 25 euros per hour and 8000 euros at 40 euros per hour.

Sandra realizes that she still doesn’t know enough about the lecturer market. What is the probability that in the case of a rejection by Dr. Teufel, a new job of the same type appears that brings in at least € 40 an hour? It is not possible to ask the competition, they will hardly tell the truth. Miss Dr. The devil is also talking about volunteering, so no wages at all.

Looking at the decision tree: if demanding 25 € per hour Sandra has the job safe and gets 5000 Euros. Demanding 40 € there is a 50% chance that she will earn 8000 Euro and 50% that she needs to go cleaning houses for 12,50 Euro each hour, that makes 2500 €. In addition and weighted by probability this goes to 5250 €, slightly more than talking about the low price.

External Factors – Prestige and Feeling Safe

Sandra possibly thinks she definitely needs the teaching job. She no longer wants to clean and needs references. Then she plays safe and only charges 25 € per hour. Demanding high prices is only worthwhile to a limited extent, as the previous analysis shows. The opportunity costs in the form of stressed nerves can be an argument for low claims.^[3]
————————————————————–

[2] To know this average value, information about the business model of the schools is necessary. The basis is the commercial calculation with cost price, handling costs – and profit surcharge and sales price. The lecturer’s fee is the cost price, the remuneration paid by the participants per lesson is the sales price. The trading surcharge includes rooms, advertising, administration and risk. [3]
[3] Between 2008 to 2010 I did some tests with groups of 30 participants about that subject. The results were that very young people tend to ask too little money, older people tend to ask too much in price negotiations for work.