The Pricing Evolution
Pricing leaders across industries have helped their businesses survive turbulent times by ensuring their pricing strategy could quickly adapt to dynamic market conditions and fast-changing customer needs. In this video, pricing evangelists and practitioners walk us through how pricing concepts have changed over the decades and why their teams have been central to helping their businesses to continually adapt to their customers’ needs while sustaining and growing profitability for their organizations.
This video features (in order of appearance):
- Stacy Schofield, Director of Strategic Pricing, Mobile Mini Solutions
- Kevin Mitchell, President, Professional Pricing Society
- Craig Zawada, Chief Visionary Officer, PROS
- Murrae-Anne Carlson, Director of Pricing, Anixter
- Stephan Liozu, Chief Value Officer, Thales Group
- Ron Batey, Director, Refined Fuels Pricing & Economics, CHS
- Isaac Brady, Strategic Pricing Analyst, Digi-Key Electronics
- Amanda Kirchner, Manager, Business Solutions, Anixter
- Iris Van Goethem, VP Revenue Management, Cargolux Airlines
Highlights
[00:12]: Stacy Schofield, Kevin Mitchell, and Craig Zawada define pricing
[02:48]: Kevin Mitchell and Craig Zawada walk us through the “history of pricing”
[07:01]: Murrae-Anne Carlson reminds us that your pricing team provides so much more than just a price
[08:15]: Ron Batey shares how technology accelerated their strategic pricing capabilities
[09:50]: Isaac Brady describes how automation empowered his team to be more effective
[11:18]: Amanda Kirchner shares how pricing presents a never-ending series of challenges and opportunities
[12:21]: Iris Van Goethem shares why her role at Cargolux is so engaging and exciting.
[13:40]: Stephan Liozu shares his advice for Pricing leaders and practitioners
Full Transcript
Stacy Schofield: So when I think about what pricing is really and truly about, it's how we interact with customers....
Kevin Mitchell: At the very basic level, I mean, pricing is simply assigning a fee for goods and services that you or your company or your organization would offer to the marketplace. But of course it goes much deeper and there are several different layers of complexity that can get involved there and can make things a little bit more interesting for all of us.
Kevin Mitchell: I think one of the things that pricing is, and one of the definitions of pricing is that it is often the first attribute that a customer or a potential customer hears about or sees regarding your product or service. It's a great way to basically put a frame around your offering and to announce what you have out there for the marketplace in general.
Craig Zawada: Pricing is the moment of truth, is when you decide, what it that worth? What are customers willing to pay for that? And it's one of the most important aspects of business, because first of all, that decision has such a huge impact on your bottom line. And we've written a lot about how small improvements in price have a huge potential improvement in your operating profit. And on the flip side, if you don't make the right pricing decision, that will quickly reduce your profitability faster than anything else.
Craig Zawada: In terms of the power of pricing, we wrote a lot about this in The Price Advantage. And the idea is that small improvements in price have a huge impact on the bottom line. So a 1% increase in price can increase your operating profit by 11%, compared to other levers like reducing fixed costs or variable costs or even increasing volume. So it doesn't take five, 10 percentage points improvement in price, just small improvements have a huge impact on the bottom line.
Craig Zawada: And that's why it's so important to focus on this lever because you can gain profitability, but you can just as quickly lose profitability if you don't make those right decisions. And it's amazing, a lot of companies will spend hundreds of hours, lots of money in order to reduce costs in certain areas, and then make broad brush decisions with respect to pricing. And the idea of the power of the 1% is you can almost never be too good at pricing because just those nickels and dimes are out there that add up and have a huge impact on the bottom line.
Kevin Mitchell: Thousands upon thousands of years ago, we think that the first things written were actually transactions, such as you give me two bushels of grain, and I give you a chicken.
Craig Zawada: So the history of pricing, I see there being four seminal events in the history of pricing. The first was in 1992, the release of the HBR article called Managing Price and Gaining Profit by Mike Marn and Robert Rosiello. And this article woke up a lot of companies on the power of pricing and introduced some frameworks like the price waterfall and the pocket price bands, which gave the idea that there's lots of leakages which happen. And all of these leakages add up to, in many companies, huge reductions in profitability. And there was huge value in gaining that, in managing that. And that woke up a lot of companies.
Craig Zawada: The next era event, I would say the hyper-growth phase of the pricing profession, was around 2000 to 2010. And this is where a lot of companies said, boy, we have to manage pricing better. So they introduced a lot of pricing organizations. Many pricing professionals were emerging in the industry. And this led to the era of managing price. So this is a management problem, and I need to manage it better.
Kevin Mitchell: So Eric Mitchell was a pricing practitioner decades before pricing was cool. You know, he didn't really like the travel. And he said, "I'm going to work on building a community. I'm going to start with a newsletter." Here in the PPS office, the next time you visit with us, I'll show you an old canary yellow Kinko's newsletter from the early 1980s. And he would say, "Okay, Valerie Howard, you write me an article about elasticity. Madhavan Ramanujam, you write me an article about new products. Jeremy Peiffer, you write me an article from a practitioner's perspective on your career growth."
Kevin Mitchell: And next thing you know, he would put all these together and he started Professional Pricing Society as a membership group that had a monthly newsletter that still exists.
Craig Zawada: The third seminal event, I would say, and it was really an evolution over time, was the advancement of technology. And it was really taking a lot of what was developed in the airline industry and applying that in a practical way, in a broad set of industries. And that was personally one of the reasons I joined PROS. PROS was an innovator in that area in applying pricing technology in a practical way to a broad span of industries.
Craig Zawada: And then the last event that I see as the seminal event in the history is really the rise of digital channels. And what that has done is it has taken pricing, which in 2000 to 2010, was really viewed as a management problem to now a customer problem, because all of the management things that you do around pricing of adding processes and running analytics really don't solve the customer issue of getting the right price at the right time, immediately, a very quick way.
Craig Zawada: And so now we're in this new era of digital channels, which really has led to a change in perspective of pricing of not this is a problem I need to manage, but more of how do I deliver price in an efficient way? How do I reach that right price using technology to win that business at the highest profit level that I can?
Stacy Schofield: It is so cross-functional. Pricing sits in the middle of everything. So we'll often think about it as a financial exercise and how do the numbers work and how do we try to carry that through to get to the "best answer". But there's a different viewpoint for every one of those bests. It's, here's what's going to work really, really great on the financial side of things. But now if we try to take that and put it into the hands of a sales person, can they articulate that same vision and be able to truly execute against it?
Stacy Schofield: So for me, pricing is about how you bring those different opinions and viewpoints together to arrive at something that can work harmoniously.
Murrae-Anne Carlson: What I see our pricing team as is providing pricing solutions. It's not just providing a price. And that pricing solutions team is there to support the company's initiatives and profitability objectives. The benefits that this team provides is that we have a team dedicated and focused in this area that can allow us to apply best practices that can be leveraged throughout the organization or within a pocket of the organization. Because we are touching so many aspects of the business, we have a broader viewpoint of what that landscape looks like and can advise and become that trusted advisor for a sales organization to say, we could do X or we could do Y, and here's where we've seen it effective or not.
Stacy Schofield: And what's really critical to know and understand is that pricing isn't just about the math. It's not just a financial exercise. It is the fact that we communicate and work with basically every functional part of the organization. And that gives us a very unique perspective.
Stephan Liozu: Technology is really the accelerator or the infrastructure that will get you there.
Ron Batey: We literally found the data limits to Excel. We ended up having to have multiple Excel sheets because it couldn't physically hold anymore rows and columns or whatnot, information. That process itself was taking about a third of each of my analyst's day. Now that we've shifted everything into the cloud, everything's updating itself, be it jobs in the morning before my analysts come in.
Ron Batey: The flow in the refined fuel space is very interesting. So our group, when we had scoped out a project with PROS right, we got a lot of dimensions we didn't know before. They just saved a third of their day of just moving bits of data around. And that's a big deal because now they can spend all their time doing the analytics. I mean, we only have several hours to make all these pricing choices and strategy choices. Now they're able to review more areas for problems and for corrections, and to get things done before the time windows close and they have to push the next price out. It's quite dramatic.
Isaac Brady: So technology has been huge. So initially when I started as a pricing analyst at DigiKey, there was a massive maintenance piece to the position. There wasn't a ton of analysis that went into it. I would say more than half my time was spent just maintaining the pricing on our website or in our internal ERP system. And that is really ineffective.
Isaac Brady: So we got better at that. And actually PROS was a huge tool in helping us automate our pricing onto our website. It was a big undertaking, but it worked out. And we took a huge chunk of maintenance out of our daily routines, so that we could actually focus on let's get strategic, let's do more analysis. And that's when we really started to kind of take off on trying different things, looking at different strategies and that type of thing.
Isaac Brady: So a big piece for us that we've been continually doing over the years is automating price, or automating functions, I guess I should say.
Ron Batey: We went live with the new technology in December. So we're probably what, seven months, eight months in, at this point. They are thriving under this. They are finding new opportunities. They're finding new ways of looking at things. I think that they'll be mining these new tools and capabilities for years. And I think they've demonstrated that they're thriving, that this is going to enrich their careers. I think it gives them more opportunity to lead within their current organization, really give them a chance to shine. So, yeah, I'm excited and it's fun to see what they're doing. It's really, really cool.
Stacy Schofield: You have to be agile and you have to be ready to move quickly and you have to be decisive in it and don't get stuck in that, oh, I did something wrong. How do I prevent that from happening again in the future? You need to know it, but don't let that bog you down the next time you go after something.
Amanda Kirchner: It's not just about fostering that relationship at your leadership level, but it's also getting into the business and getting down to the rep level to understand what impacts them and what drives them when they are quoting an item, because that helps to understand where you might have gaps in pricing or where there are discrepancies between what the rep understands pricing to be, to what it's actually delivering to them.
Amanda Kirchner: I think to have a pricing hat you have to like to get into the weeds and fix things, but also take a step back and recognize areas of opportunity, and how do you kind of accomplish those with the business, with the business leaders that support it.
Amanda Kirchner: So I think of the pricing function as an ongoing kind of series of actions, or areas of opportunity that you can always strive to improve. So once you kind of position one issue or opportunity and fix it, there's a whole line of the next ones that you want to go into to work with the business on.
Iris V.: What interested me about this role and career specifically is one, the diversity. No day is ever the same. No year is ever the same. No season is ever the same. No hour is ever the same. So it's a fast pace. The unpredictability about the business is really what attracted me because I do like a lot of change. So in my role also as change manager, that definitely helps. And I believe also that if it's done correctly and rightly, that pricing is really at the heart of the organization.
Kevin Mitchell: I think some of the unique things about pricing that make it a great option as a profession are that if you're doing pricing well, you should be connected to a lot of other departments since pricing touches basically everything on the margin side of the P&L statement. It really should be connected to all of those functions.
Kevin Mitchell: And so I think that as a pricing professional, you have a great opportunity to get a very, very broad business perspective from what's going on in your organization.
Stephan Liozu: It's a vast domain. So I would say keep learning. Embrace a balance of hard and soft skills. So if you already have a very, very good analytical background, I think you're going to learn very fast some of the ins and outs of pricing. Learning becomes a mindset.
Kevin Mitchell: I think it's a great time to be in the pricing discipline right now because of the challenges and the opportunities and the way that business is moving. The speed of interactions now make for a very exciting time and also give a lot of us a great opportunity to show our worth to our organizations, and to perform great and to generate great results, both for ourselves, from a career perspective, from a job satisfaction perspective, but also for our companies from a financial bottom line results perspective as well.
Craig Zawada: Where I see a unique opportunity now in pricing is really this movement to self-service. This is happening and it's happening fast. And it's a fundamental change that a lot of pricing organizations need to go through in order to be comfortable and have the pricing approach in a self-service world. So if you go back to the history of pricing, a lot of pricing organizations are built on viewing price from a management perspective. So I have time to manage pricing. I have time to analyze things, to help on individual pricing decisions that are made.
Craig Zawada: And now, given the change that's happening with the customers, all of that needs to be done beforehand. So you have to get comfortable with putting a price out there that is relevant in the market. So you have to do all your analysis beforehand. You may not have the opportunity to negotiate or review the profitability on the deal to make a decision. You have to make that decision beforehand and be comfortable with that.
Craig Zawada: And that's a huge opportunity because it really meets the customer need around immediate, relevant pricing without a person-to-person interaction. And it's quite a shift with which many companies have to make in order to really stand up and meet that new expectation that customers have.
Kevin Mitchell: Recognize that things are moving quickly. There are a lot of challenges, a lot of opportunities, but it is a great time to be in our discipline. And with these challenges and opportunities, make sure you take advantage of everything that's out there that's available to you.
Murrae-Anne Carlson: What we clearly see is pricing as an evolution and it needs constant care and feeding, constant. And so while we keep feeding the machine, what's also important is to realize we have to keep feeding the hand. I think we've come a long way in what we're trying to achieve, but certainly are not stopping here. And I'm definitely excited to see what comes out of this as we continue to invest and grow in this area.