Pricing College Podcast

Joanna Wells and Aidan Campbell

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MARKETING

Get a free education when you attend Pricing College. Learn everything about pricing, value management, revenue management and how to build a pricing career. Join Joanna Wells and Aidan Campbell for entertaining and informative discussion every week.

MAR 11

Episode #0120 - Why Price Rises Are Much Harder Than CEOs Expect

TIME-STAMPED NOTES: [00:00] Introduction [01:12] The Challenge of Rising Costs [02:39] The Problem of Ownership [03:53] Case Study: Finance and Product Portfolios [05:47] Case Study: Sales and Customer Relationships [09:03] Case Study: Pricing Teams and Internal Views of Value [11:59] Operational Systems and Data Challenges [14:05] Conclusion: Improving Pricing Capability Most executives I speak to think that taking a price rise should be fairly straightforward. Costs go up, prices go up, simple, right?. But inside most organisations, things don't work as smoothly when it comes to price rises. So, here's a simple question: When your organisation takes a price rise, who actually manages it, and what's the process?. Is it Finance, Sales, Marketing, or does it depend on a particular person or a certain situation?. In many organisations, that question really doesn't have a clear answer. Hello, I'm Joanna Wells, I'm the founder of Taylor Wells Advisory, and we focus specifically on improving margins through pricing strategy. In this podcast, I'd like to share some of my experiences of working with companies on pricing strategy. What tends to work with a price rise, and what often makes them far more difficult than they need to be. The Challenge of Rising Costs Now, over the past few years, we've all seen a lot of cost pressure and disruption. There've been supply chain issues, commodity price increases, fluctuations, lots and lots of inflation, global instability, wars, and political tensions, you name it. For many companies, that's meant you've got to move quickly with costs to cover your margin. And that's usually when organisations realise how difficult pricing actually can be. From the outside looking in, pricing looks simple. I've actually had someone say to me, "How difficult can it be? You just add, you know, 5 to 10% on costs". Right, give that a go!. But inside the organisation, when you're actually doing it, and you want to do it well, you realise calculating prices, planning a price rise, changing prices in a system, it really does affect almost everything in an organisation and almost every team, from Finance, Sales, Marketing, Operations, and IT. And if these teams aren't aligned, things really start to become complicated. The Problem of Ownership And often, from my experience, the problem really starts with something quite simple, really basic, and it's about ownership. Inside most companies, no one really owns pricing. Yes, people might put their hand up and say, "I'll do a bit of pricing, I'll help you out, I'll change those prices in the system," but no one really is accountable for pricing. I've even seen pricing teams that say, "I'm not accountable for pricing". So, if you've got that dynamic happening and you've got a lot of opinions around pricing, that's for sure, but no one will actually go, "Yeah, hand up, I did that. This is my decision, I own that decision". So, when a price rise is necessary, when it's needed, when you've got your executives that said, "We really need to take a price rise, we need to cover our costs." People have to come together and coordinate and start making decisions quickly, and that requires ownership and accountability, and her, that's where the weakness in the process, even if there is a process, starts to show. Case Study: Finance and Product Portfolios Let me think of an example for you here. In Finance, the Finance manager might calculate the cost increase at price rise time. But allocating those costs and increases across a large portfolio, I'm thinking here of a large, complex B2B business from manufacturing and distribution right through to the end consumer and retail, often means dealing with a very large product portfolio. So, allocating those cost increases really isn't easy. I've worked with many of these types of businesses. I'm thinking of one in particular, a B2B complex manufacturing business where the Finance manager had to apply cost increases across a huge range, it was about 350,000 SKUs. But when we reviewed and looked at the data and the COGS (Cost of Goods Sold) movements, we saw that some products had increases three to four times the underlying COGS movement, while others had barely changed at all. Now, no one in particular, he wasn't wrong, he didn't do anything wrong when he did that, it was simply a very, very difficult task to allocate costs, even if you don't have that many SKUs. But if you could just imagine, correctly and accurately allocating costs across thousands, hundreds of thousands of products. It's almost impossible. And this is what we see time and time again, and a lot of Finance people are wasting a lot of time trying to do that. It's a great effort, but it's not getting the outcome that many businesses need when they're taking a price rise. Case Study: Sales and Customer Relationships Okay, so if it's not Finance, then who should it be?. Well, often when there are some issues in the price rise process, and people are not sure who does what and who's accountable, what we tend to see is Sales, the National Sales Manager or the Sales Director, bravely steps in. Of course, it makes complete sense in some ways because Sales are close to the customer, they know the market very well, they understand the relationships, and they often have a close relationship with key accounts. And someone needs to start having those difficult pricing discussions, so in one way, that profile looks good. The Salesperson should step in and do it. I actually remember one company I worked for, a B2B engineering parts business. They were taking a price rise, and leadership had approved the price percentage. Everything was going well, Finance had calculated the prices, Marketing had prepared some beautiful letters, and everything looked really good; everyone was like, "Yeah, we're ready to go". But once the increase went to market, what we found, actually, is that Sales teams had started adjusting the price increase from the original plan. And they'd done it customer by customer, and sometimes at the line-item SKU by SKU level. Some increases were reduced, some were delayed, and some conversations were completely avoided. Some Sales teams just dread having to discuss price with customers, especially an increase, oh no!. So, what we found, it wasn't that they were trying to resist; they were actually very compliant with the strategy, and they knew that it needed to happen. We needed to take a price rise, but they were simply, almost trying to protect themselves in some way and protect the relationship. It's so difficult, I realise, to keep those relationships and make new business; business growth is incredibly difficult, and then you've got to have that difficult conversation with a customer saying, "We're going to increase your prices". They sort of think, "Oh, I hope that's not going to jeopardise the relationship, please no, what are you going to say?" In this particular instance, within a few months, the increase that was discussed around the board table, with executives and senior managers, looked extremely different in the market than it did in the plan. And really, at the end of the day, it did not achieve the margin outcomes that the board and the executive team were expecting, and there was a lot of disappointment. And more than just disappointment, there was severe financial pressure on the business. Case Study: Pricing Teams and Internal Views of Value I've also seen pricing teams make personal adjustments or judgments on price increases. When the executives said, "This is what we'd like the price increase to be," I've seen the pricing team go in and question that and say, "We'll start, we agree on this portion of the portfolio, but not this portion," and they start spreading those adjustments across the portfolio based on what they believe the product should be positioned at. I'm thinking of a B2B industrial business pricing team that I've worked with, and they would say stuff like, "We think these products are premium, we think these products are highly competitive and should have a very large discount, we believe these are entry but not new, but entry in between evolved, so we're going to put this percentage on it". And it got quite complex. It was a criterion, for sure, it's better than nothing, but the increases would be redistributed across the range based on their internal view, and they'd all agree as a team that they were correct, and on paper, it really did make a lot of sense. But those decisions that were being made were not validated by the market response, the elasticities that we were getting. It was validated by their own internal views and emotions about value. And it actually, there was a big conflict, really, between the view of the pricing team and of the executive team, who did believe that the increases they wanted to occur in the market were being questioned. And look, there's nothing wrong with challenging opinions on value; it's actually a very healthy way to be, but it should always be backed with evidence. And in this case, in this instance, we saw that the viewpoints of the pricing team were not reflected in the market. Customers did see value in a different way. And sometimes, these two views are quite different, and I highly recommend that you get that cross-reference of different data sources just to cross-check your viewpoints. There are processes, customer value discovery processes, research that you can do just to cross-check your data, your opinions, your internal belief systems, because that's the best way to get the outcome that you need. Sometimes it's good to be challenged. Operational Systems and Data Challenges There's also more of an operational systems data side to increasing prices that I think we should consider as well. Updating price lists across systems within an ERP can be incredibly difficult. Often, when I'm looking at systems as part of the diagnostic,

16 min
02/03/2023

Episode #0119 - What is Value Culture?

Today's episode is a bit like Part B or a follow-up from our last episode a couple of weeks ago, where we introduced our new project, which we're calling Value Culture. TIME-STAMPED NOTES: [00:00] Introduction [03:05] Why do not all companies have specialised pricing experts or teams? [4:35] What can Value Culture do? [10:19] What can clients benefit from Value Culture? [11:17] The Ultimate Objective And The Essence Of Value Culture What is Value Culture? Aidan: Hello, and welcome to another edition of Pricing College with your hosts, Aidan Campbell. And Joanna: Joanna Wells. Aidan: Today's episode is a bit like Part B or a follow-up from our last episode a couple of weeks ago, where we introduced our new project, which we're calling Value Culture. But I suppose in this episode, I wanted to ask Joanna, really, why is this sort of project happening? What did we see? Why did we think companies needed this sort of product? Like, what is the need or what is the problem that a lot of businesses, smaller businesses and, you know, medium-sized businesses, are facing? Joanna: Yeah, that's right. I mean, primarily, what we are doing is creating and implementing an essentially commercial platform called Value Culture, which is really aimed, as you said, at small and medium-sized businesses and enterprise businesses too. And the reason that we have done this, and we're calling it a platform; it is a tech platform and not traditional consulting, is because we saw the mass need, the scale of the need of smaller, medium-sized businesses. Considering that about 98% of all businesses in Australia are small to medium-sized businesses. In terms of the problem, we've seen consistently when we're speaking to startups, SMEs, medium-sized businesses, privately owned businesses, and then your ASX listed and Fortune 500s' very common problems with pricing that we want to solve. And ultimately, as you know, the problem was quite simple. People feel that price can be something that is added at the end of a list of commercial tasks. For instance, when you're launching a new product, often the assumption is that it's okay. We can just set any price and then adjust that price later without really understanding the data inputs required to set pricing, the different pricing methodologies out there, and the metrics that they need to prepare and track along the way. And as you know, customer price response has a significant impact on your ability to change prices. Essentially, once you have your prices out there in the market, it's very difficult to change prices. And often when people do that, companies small to large, when they just do that guesswork pricing or cost plus, they regret it because they end up essentially either overcharging their customers or losing revenue and volume. You know, even selling below cost when they've got such great businesses essentially means they're undervaluing their proposition. Aidan: I suppose, you know, here at Taylor Wells, one of the things I'd be very aware of, you know, on this podcast we've spoken many times about how getting a pricing person in really will give benefits to a company. But I think, you know, we're realists as well, and we're completely aware that if your business is doing a million Australian dollars in revenue, you know, you probably cannot afford, like, let's be honest, to go out and pay someone a hundred grand who's a high performer in pricing. So I think, you know, there's a real gap in the market there. The vast majority of companies are small. As you said, Joanna, and I agree with that, there's a real gap whereby, in smaller companies, people tend to be doing multiple tasks. People tend to not be specialists, and the people often put their hand up and suffer the most stress and go, "Oh, I need some guidance on pricing. Can somebody help me today?" They fall into a trap, a gap, I guess, whereby they're not big enough revenue-wise to finance. A specialist, and to be honest, they're also, you know, there's not much point in getting consultancy for them either because there's nobody internally who could be dedicated. Joanna: Oh yeah. Look, that's a great point, and that's a big part of the problem too. Pricing then just becomes this quite onerous task that puts real pressure on people who are really out of their depth and don't know where to start, what to do, or how to move forwards with pricing. And really, what Value Culture does is give them that start, that ability to forge ahead when things are very unclear, the starting point, and then moving forwards, learning things step by step, getting the simple things mastered first before tackling the bigger, bigger things. And then, step by step, feeding the right information in the right direction, whether that's in terms of getting the right inputs, data inputs, and information inputs together for price analysis and cost analysis or what, or whether it's more, okay, we need to learn different types of pricing methodology to set pricing, whatever the key area of the problem is. Value Culture can give that first start and then move people along their journey. So all of the pricing plans are customised to a roadmap that makes sense for that business. Those roadmaps are very closely aligned with business strategy. And then, if there are requirements to pressure test business strategy, Value Culture can go back to basics with strategic plans too, just to make sure that they're actually resonating in terms of the market and are indeed right for the business. And then again, once that's solid and done correctly, we can start the process with pricing, get the roadmaps in order, get the individual team plans, get the individual plans, and then before you know it, it's different people in the business, say if it's a medium-sized business, or knowing how they're feeding into pricing, whether that's a price rise implementation or a new price for a product or even a tenderer, or even if it's thinking about how to simplify a very complex legacy system to make more revenue and to ensure pricing above costs. Aidan: Just listening to you there, Joanna, it sort of reminds me of the Pareto principle, which I think I'd heard of once, and don't quote me on what that actually means, but I believe it's like the 80/20 rule or the 90/10 rule. You know what I really do think? There's a real gap in the market whereby people will get a huge amount of benefit; they'll get 80% of the benefit, by doing the simple things first. Like there's a whole echelon of companies out there who are doing no pricing, right? like zero. And I don't think we're proposing that these companies will be jumping on day one to perfect pricing and apple style, you know, maximising profitability. But I think you will get 80% of the benefits with small amounts of work, but where I really see the value, you know, in the way you're describing it, there is, it's just a format, it's a structure. It's like when people go to the gym and have no idea what they're doing. Oftentimes, they can just waste their time, for years. If somebody sensible gives you a very simple programme, it's better to take simple steps that are concrete and get you in the right direction, and you're making real progress. And I think, you know, if this project can do that, I think there's a real, you know, benefit. Joanna: Yeah, I think you're right. I mean, when you were speaking there, it just reminded me of numerous case studies where people go, and what we need, is to fix pricing. Get me that right price. And they just focus on that because they actually don't want to get into the bigger problem, which could be not enough volume, not enough leads coming through the website, which could be a mess. There aren't the right online quote tools to really inform and educate customers on the pricing. There's no value proposition. It's an ill-conceived value proposition. So rather than think about that, there's no understanding of pricing and its impact on the P&L. Costs could be everywhere. There's no sort of understanding of different cost centres. So often they go, "Okay, but that's too much of a difficult problem to solve." What we need is just the right price. Because if you increase pricing, we'll make a significant profit improvement. And that would be enough to save this quarter and keep the business afloat. But not necessarily, because you've got to think of the pricing and its impact on the customers. You can't just overcharge customers because you haven't got enough of them to lose the very customers that you've already got. Does your offer really warrant that price increase? Or are you underpricing? So Aidan, when you say that, yes, you've really got, when you start with pricing, what we find is the big epiphany, um, with both small and medium and large businesses, is that pricing is bigger than the price point that you set, right? You can't just make it up. You've really got to think about your whole business. From costs to marketing online. You've got to think about your positioning and approach. You've got to think about your business strategy. And you've got to get all your ducks in order. You've got to know how many leads you're getting. You've got to know your quote-to-book ratios and things like that. And these are highly valuable inputs to a price model, so it's not wasting time going through each of those things in detail or as much as you can as you get that information through. Because remember, you can't do it all at once. It is a journey, but each of those steps is valuable, and in the end, you will get a price model that is absolutely customised for your business. And you probably think, wow, at the beginning of this journey, I've had so many people say that at the beginning of this journey, I never thought I'd be covering so

14 min
12/02/2022

Episode #0118 - Why Pricing Requires CEO And CSuite Backing

Why Pricing Requires CEO and Csuite Backing Aidan: In today's episode, we want to dig a bit deeper into a topic we've covered a couple of times in previous episodes. And that it's vital, it's so important that a pricing transformation or a major pricing project has CEO, C-suite backing. And I suppose today we're going to dig into that. We're gonna do a bit of a question-and-answer format. Cause it works quite well. So we'll be asking our resident pricing expert, Joanna, these questions. I suppose then she's smiling at that suggestion. So the first one is, I suppose an open-ended question. Why is it important to have CEO and Csuite backing? Joanna: Well, let's start with the simple truths and facts about pricing. The importance of CEO and C-Suite backing comes down to the returns that you can get from pricing. They're more than substantial and very impressive when you compare a change in price to changes in cost volume, a mix for instance. So you can say if you were going for a 2% increase in prices, versus not increasing prices, can lead to an impressive and direct flow to the bottom line of 20 to 30%. Obviously, here I'm thinking, volume is the same and constant and we've got our supply chain and costs in control. But I think you can hear the message here if you just make very small improvements and changes to pricing. You can get a lot of money for it. So that's why number one, it's very important that the the C-suite understand how much monetary leverage they have with pricing. And equally, if they do pricing incorrectly, how much margin they could potentially lose? Aidan: Okay, so I think we understand, that's clear that it's important for the business, but does the CEO have to be involved in this project? Does the Csuite have to be involved? Can they not just delegate it down to a finance manager or someone like that? Joanna: I like how you mentioned delegating down. It's always about, I hear this a lot and look, I agree with delegating to the right people, but if that in itself can be a problem. I think initially it's very important for the executive team. A) to understand the importance of it as I've already stressed, and B) to get behind it and to be shown as a consistent voice on the topic of pricing. Even if their areas of expertise are in supply chain sales, and product pricing. They still need to get behind the pricing project because pricing often touches all of those areas inadvertently. And what we also find, if the executive team, you know, they're role models for change. What we commonly see within our clients, if they're not really behind it, they don't understand it, they're not committed, and they're just more focused on their area, almost this siloed culture. And they're sort of paying lip service to the role of pricing. Yes, it's important we get that. But that really isn't what I call sponsorship, that's just lip service to sponsorship. You've really gotta take an active role because if the executives don't do that, then it sends a clear message to anyone, that they're gonna delegate the responsibility of pricing to that. It's really not that serious, and they can just tack it on at the end of the normal day job and nothing really gets done. Or if it gets done, it gets done poorly. Aidan: You know, that makes sense to me. I think we've covered also some other podcasts, and how pricing often slips between the gaps. Which function does it fit into? Is it finance? Is it marketing? Or is it sales? Or is it the commercial function, which some companies, let's be honest, don't really have? So, I completely understand that it needs to be for a real pricing project to really work, it needs to work across multiple functions. So I completely understand that. The other thing I think is if, just on this point, if people do what they're incentivised to do, and I think that concept you mentioned of leadership, role modelling. People know what if the higher-ups care about something. I think there's an old anecdote about it. Some executive, what do you care about today? I care about what my boss cares about, and that's how you get promoted. So I think it is really important that it makes a lot of sense to me. Joanna: I think, when you mentioned, Where it should be delegated to, should it be the finance manager? And often if there isn't an established pricing team, it does go to some kind of finance manager often, or a commercial manager. And I think, when it gets down to it, the real reason why you need executive sponsorship, especially if you're gonna move to strategic pricing or a value-based pricing system, you really do need sponsorship there because what you're actually saying is, I'm going to change how we think about our customer. How we think about how we do business, how we think about making money. We're no longer going to anchor ourselves to our costs. We are no longer just going to look at maximising margin by putting pressure on our suppliers and thinking smart about procurement. We're actually gonna believe in ourselves and the value of our products, and we are going to articulate that to the market and we are gonna invest in our sales team's capability. We are going to install a new pricing manager, and we are no longer just going to delegate pricing, a tactical pricing based on cost plus methodology and tools to a finance manager who just rolls out that same, tried and tested legacy pricing method based on cost plus. Now, that is the crux of why you need sponsorship. It's a mindset change, it's a complete culture shift. And you know what, Aidan, sometimes the CEO needs to be reminded of that because often obviously they're not, they're not a value-based pricing expert. They've been grounded in that cost-plus modelling and viewpoint of doing business. Like 99% of businesses have been for the last hundreds of years, but it doesn't work anymore. So sometimes a good CEO will ask for that additional support and education on why they must go to a new system. Often, they know deep down it's right, but just like they need to be reminded, their teams need to be reminded because it's a new habit, it's a new way of thinking. And once you've got that mindset change in place. You can then build capability and then you can keep reminding of the importance of pricing by getting your executive teams there, sponsoring, educating, nudging the teams, encouraging them, and recognising all the good work they're doing in new areas rather than reacting and going back to cost plus when things get a bit hairy. Aidan: I think that makes a lot of sense. Look, I'm assuming we're not proposing that CEOs go to every meeting and sit in on pricing projects. But, at the same time, clearly, if pricing is successful or if this project, even if it's a fiasco, the C-suite has to be aware that what's happening in the business. They have to be aware of the drivers. What are driving volume change, profitability change, and all that sort of stuff? So, I think the question I'll ask is, what would you propose would be a sensible level of CEO or C-suite engagement? Would it be a weekly meeting? Is there reporting style that they need to be looking at? Are they in kickoff meetings? Are they just championing stuff? Where would they be? Joanna: These are good questions. And actually, I have met a number of CEOs that inadvertently have been the pricing manager for their businesses pretty much because they didn't have the governance, the setup in the business, the right structures, the right approvals process in the business and everything, therefore was escalated to them by the sales manager or the finance manager. So inadvertently they had to do all the pricing, like all the tender pricing, the negotiations with customers, and they were the most knowledgeable. However, that's unsustainable. That's not the role of the CEO. And a CEO would know that. So, what I would suggest. This is a balance between knowing the principles of pricing. So everybody needs to have an understanding of the basic principles of value-based pricing (for CEO and Csuite backing). And you also need to have your organisation set up appropriately and have the right approvals processes in place. So then, where there are serious matters like market changing matters or serious money at risk from a large customer who is threatening to switch and it's going to impact the P&L. Those sorts of things would and should be escalated. But with a rationale and evidence for supporting the "Why" behind it. So a CEO could comprehensively read through the detail without having to get right into it. And then in my view here, and what I've seen work well is that the CEO is almost like a chairman of a meeting. It's not the ultimate decision-maker. It's the people around him or her that need to make that decision. And that overall with the evidence provided that they together make the right call. Does that sort of answer your question? But you see, before I even get there, we've got a road of what level of education does a CEO need to know? I think the basic principles, the fundamentals of economics 101 and the reason for the change. Good case studies, understanding the business model changes and trying to align their pricing according to that. Now, here I'm hearing as well, we also need to get everybody else on board so they trust their go-to people, their sales executive, their commercial executive. So when they feed the information to them, they go, "Okay, that makes sense. Okay. I think we've actually got more of a decision here than we actually thought." And then together they can make a call. But that does require capability build. And often I think sometimes executive teams shy away from pricing cause they don't want to invest in themselves and build that capability even in the executive team. Aidan: Y

21 min
11/25/2022

Episode #0117 - What is different in B2B pricing?

Pricing College Podcast

18 min
11/18/2022

Episode #0116 - Q&A On What Optimising The Tail Means

Pricing College Podcast

18 min
10/28/2022

Episode #0115 - Discounting And Price Promotions In Retail Or B2C

Pricing College Podcast

20 min
10/21/2022

Episode #0114 - Who do we think listens to our podcast

Pricing College Podcast

12 min
10/14/2022

Episode #0113 - Pricing advice for start-ups

In today's episode, we want to explore the world of startups and I supposed at Taylor Wells we got asked or approach by quite a few startup businesses and the early stages of development with questions about pricing advice and pricing strategy and how start-ups should price. And I suppose we just really want to explore some of those ideas today and maybe just discuss some ideas. TIME-STAMPED NOTES: [00:00] Introduction [03:00] What's our advice on issues regarding pricing for start-ups? [12:19] How can we advice start-ups in discovering value in pricing? [16:57] Would you advice implementing various pricing strategies for start-ups? [22:01] Pricing Advice For Start-ups: Don't lose data. Keep learning, testing, and trialling. Pricing Advice for Start-ups to Kick-start Their Growth Especially quite recently. We've had a number of questions and inquiries from startups. And we're talking about startups, people that are literally coming up with new business ideas. And often, it's the first time that they've done that and they're trying to launch either a new product. Now, this could be ranging from, you know, an FMCG good product or you know even a Saas type product and you know, they come with legitimate concerns often they've heard the podcast and there's thought, you know what, I never really considered any other approach to pricing, other than thinking about costs and putting a markup on the cost to give me that margin that I need to cover my costs and get revenue in through the door. And I never really thought about value-based pricing but it really did change my viewpoint, not just on the price point, but also it gave me a new perspective on what I'm trying to do in the market, my business model, how I'm going to generate revenue, what the sources of value are that are going to help me do that and cover my cost, how I'm going to work with suppliers who my target customers are. All these new and very important ideas came almost flooding in people's heads after thinking about value-based pricing and, you know, we just going to explore today, you know, a little bit more about pricing for startups and a few techniques just to help people make those first few steps because it doesn't have to be a difficult journey or long drawn-out journey, you can start pricing immediately, even though sometimes you think "God I've got so much else to do. I'm just going to get money through the door", type of approach. It's clearly, you know, we're not gonna go into cost-plus pricing on this podcast, but clearly for a start-up, it's even more exacerbated. You know, if you make one item, you know they're your cost base is going to be higher than if you make a thousand. So, you know, as you grow in scale, do you intend to reduce prices? So, that makes no sense. But clearly a start-up even number of issues that will make pricing more difficult: A) there is no right price for your product. At the beginning, you don't know what a value provides to your customers you might have an idea, you might have you know obviously you've got your pitch deck and you've got your ballpark figure and your idea, your elevator pitch let's say, you know and you thought about why you're getting into the business and where you fit in the niche. But realistically what's that old saying? Everyone's got a plan until they're partially on the nose. I think Mike Tyson said and you know until you go out there and made customers and really get into the market you don't really know, you look at statistics, how many companies, how many start-ups pivot? How many really hit a niche and really make money it's limited obviously we don't want to put people off from starting up but you know those things have to be borne in mind and when you're looking at pricing, that is the issue. They are, you don't have enough information at the beginning, there's no saying that trying to get some customers, trying to get out there with some customers. Realistically, I don't think the price of the beginning, we'll get into this a bit later, but just winning customers is very important. Because then, you can explore value, it's a value discovery process. Almost look at it as a subsidized value discovery process where a customer is almost paying you, it may be too much, or it maybe too little, but hopefully they're paying you and then you can explore and learn about your own business. So that's the first thing I'd say, clearly, It's very important to get customers on board. The second thing I say, unless you have funding and we'll talk about, you know, series A or a large amount of funding, it is highly unlikely to have a pricing manager. Let's be honest. Most startups at the beginning have very limited revenue, and a good pricing manager's salary probably will be quite expensive. So, you're going to be doing an ad hoc, you'll be doing it in-house. Probably the startup. The founder would be doing the pricing and so, you know how much attention you can really give the pricing at the beginning is limited. I totally disagree with the point that, you know, people often come into the business with a really good plan. In my experience even consulting with major corporates, medium-sized businesses, even you know, blue chip companies, often the surprising point is they don't even have a plan when it comes to pricing or even their business strategy. What they've actually got is a very flimsy outline of what they kind of want to do. Often the key question of, Why are we selling this product? How do our customers value this product? How do they perceive and value us? What are important in the eyes of our customers? How good are we at delivering what customers value? Are things that are hot, not addressed in, I would say, 98% of business strategies, even though that's the most important questions you should be asking. So, I would say, most startups don't have a plan either to be fair. And really, there's a little bit of hope and a prayer that this product, this new business is going to solve a gap in the market without actually, as Aidan said, approaching customers and seeing, you know, giving it that, you know, testing our assumptions. Pricing Advice For Start-ups: Testing out, let's call it a hypothesis about what we think we've got and how valuable that is, in the eyes of our customers. Because essentially, if you're going to get investment from private equity, seed investors, they'll be asking that. I mean, because it's the central aspect of a business, a new business model and operation system or it should be. And if you haven't got clear answers on that, you're not going to get the funding and that brings me back to what I was saying before. You know, a lot of startups have come to us and even with you talking about value-based pricing, it made us think about value. And it made us think that there was that major Gap in our business thinking, and our strategy, which has, in turn, delayed other things, not just pricing, but even you know, how we go and approach, our customers, our pitch, what do we say to them? You know, what is that compelling message? All of these things, you know, were sort of underbaked and then have been preventing people from launching. So like Aidan was saying, let's go back to basics. Let's ask and turn these questions into hypotheses and start going back and thinking about who our target market is. Can we think about the personas of these customers, that would want to buy the products we're trying to sell? How are we going to communicate that offer to them? How are we going to make it easy for them to buy from us? Now, these are the questions, like you're not going to have the answers and don't fear not having all of the answers. When you approach your customers, the key here is to have some hypotheses in mind about what you're doing, and what the value of the offer is, right? When you go in to speak with a customer. But then ask the questions and then listen. Listen, very very carefully to what they're saying to you. What you will find, is that some customers that you're talking to are really not your target market. Even though you thought they were whereas other people really are potentially changing your viewpoint on your initial business model and plan and then iterating from there. This is the fundamental aspect of value-based pricing and as Aidan mentioned we call it a value discovery process, but really it's essential. It's an activity that leads to profitable revenue growth and it's one that's often ignored and skipped but it's the central aspect of any pricing model and of any business strategy. Pricing Advice For Start-ups: Let's be honest at the beginning. For anyone who's ever started a business, every single interaction with a customer, feels like life and death. You know, you stressed about them. You dig into too much, you know, all those are those interactions statistically valid, you know, is it over time when you scale up your business, you know, will that apply across a larger number of customers? Those questions have to be decided. I suppose at the beginning you have to have a ballpark figure. As to what value you're providing, you know, are you aiming to be the cheapest in the market and undercut traditional operators because of your cost of operation, you know, is that your model? If that is the case, likely, then you probably will be cheaper if you're cutting costs; if you're value-added or you're cutting costs? If you're value-added that you're offering, we're more features and benefits, you know, then you probably can be charged more than other people. Big questions. Should you be going into the SAAS situation? So many startups, Online businesses try to get onto a subscription. There's a huge movement towards recurring revenue, showing recurring revenue. You have to really think. Does

23 min

Get a free education when you attend Pricing College. Learn everything about pricing, value management, revenue management and how to build a pricing career. Join Joanna Wells and Aidan Campbell for entertaining and informative discussion every week.

Creator

Joanna Wells and Aidan Campbell
Years Active

2020 - 2026
Episodes

100
Rating

Clean
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Copyright © 2020. All rights reserved.
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Pricing College Podcast