Impact Pricing

Gerald Smith is a Professor of Marketing at Boston College. He's been a Pricing Consultant with Strategic Pricing Group and Monitor Group since 1987. Gerald is the author of a relatively new book, "Getting Price Right: The Behavioral Economics of Profitable Pricing".

In this episode, Gerald discusses the power psychology holds in pricing in relation to behavioral economics as he talks about the soft side of pricing alongside the importance of framing.

Why you have to check out today's podcast:

• Find out what the hard side and soft side of pricing are all about, and why the behavioral side of pricing is more powerful than the logical side
• Understand why companies do framing, as well as why a frame of reference is important in pricing
• Discover why there's power in psychology when talking about behavioral economics

"Ask yourself and ask your pricing team, what do customers get and what do they pay for what they get? And say, is everybody in the industry doing it the same way?"

– Gerald Smith

Topics Covered:

01:39 – The start of Gerald's pricing journey with Thomas Nagle and Reed Holden

03:08 – Gerald talks about his dissertation in relation to his new book, Getting Price Right

04:33 – The behavioral/soft side as potentially more powerful than the logical side

06:39 – The main point of Getting Price Right – the psychology of the sellers, the people that really set price

09:11 – Talking about the dominant pricing bias of salespeople giving discounts all the time

13:07 – Pricing strategy vs. pricing orientation

15:15 – Framing as one of the foundational theories of economics

18:09 – Discussion about Apple's pricing slogan and the company having huge margins

22:45 – The power of behavioral economics – psychology; analysis vs. gut

24:12 – Talking about frame of references and setting price metrics

27:45 – Gerald's piece of pricing advice for today's listeners

Key Takeaways:

"We always think of pricing as a hard skill, as a quantitative skill. My students say to me, 'Professor, tell me the formula for setting price.' And I say, 'No, no, no, folks.' I mean, pricing is a soft skill that also brings in hard skills, for sure, so there are both skill sets." – Gerald Smith

"Sellers are also psychological and absolutely driven by psychology." – Gerald Smith

"One of the very dominant biases in pricing is that people have a tendency to discount price all the time. It's very irrational, and it, in fact, violates the principles of both psychology but especially economics, because economics says that people should rationally maximize the profits of the outcomes that are before them. And in the case of many people that apply this kind of discounting bias, they don't focus on the profits; they focus on the sales, and sales are not profits." – Gerald Smith

"Salespeople that work for somebody else are more likely to discount, but salespeople that do their own thing are less likely to discount. When they're selling their own place, they want to make sure that they maximize their profits if they can, but if they're selling for somebody else, they're happy to take that deal. That's because they get paid a commission on the deal. It is endemic to the world of pricing that people do this." – Gerald Smith

"Psychology is powerful. Analysis is terrific, but psychology is absolutely vital." – Gerald Smith

"Consumers or buyers give, but they also get. And so, if I can change what they get and what they give, then that can be very powerful." – Gerald Smith

People / Resources Mentioned:

• Getting Price Right: The Behavioral Economics of Profitable Pricing: https://www.amazon.com/Getting-Price-Right-Behavioral-Profitable/dp/0231190700
• Freakonomics: A Rogue Economist Explores the Hidden Side of Everything: https://www.amazon.com/Freakonomics-Economist-Explores-Hidden-Everything/dp/0060731338

Connect with Gerald Smith:

• LinkedIn: https://www.linkedin.com/in/dr-gerald-smith-91b8383
• Email: [email protected]

Connect with Mark Stiving:

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: [email protected]

This is an Impact Pricing Blog published on March 2, 2022, turned into an audio podcast so you can listen on the go.

Read Full Article Here: https://impactpricing.com/blog/indirect-customer-impact/

If you have any feedback, definitely send it. You can reach us at [email protected].

Now, go make an impact.

Connect with Mark Stiving:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/stiving/

This one may be intuitive, may not be intuitive, but it turns out that if your fixed costs change, for whatever reason, if they go up, if they go down, it really should have no impact whatsoever on your pricing. For example, let's say you need to buy a new piece of factory equipment, and it's really expensive, and it makes your fixed cost go way up.

Did buying that new piece of factory equipment for you change your customer's willingness to pay?

No, it didn't. Customers are still willing to pay the same amount. They still can choose between you and a competitor.

Well, did you changing your fixed costs changed the way your competitor prices for whatever reason?

No, it doesn't.

The only thing that matters to us when we're doing pricing is thinking about how our customers are making decisions and how we can make optimal decisions based on that. And I can assure you that your fixed costs have absolutely nothing to do with how much your customers are willing to pay.

For that reason, your fixed costs never matter to pricing.

We hope you enjoyed this memecast. If you have any questions or feedback, please email me [email protected].

Now, go make an impact.

Connect with Mark Stiving:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/stiving/

Reginald Tomas Lee is a Professor of Business Analytics at Xavier University in Cincinnati, Ohio. He has a PhD in Mechanical Engineering, and he's been involved in supply chain since '96. Reginald's most recent book is called Project Profitability. And one fun thing, he can't go on vacation, because he has two killer dogs.

In this episode, Reginald shares wisdom with regards to the modeling he's been making as he talks about the power of helping people understand more clearly how what it is that they do impacts cash.

Why you have to check out today's podcast:

• Understand why you should start seeing things from a cash perspective in relation to knowing what it is that it enables you to save
• Learn about the difference of cash cost and non-cash cost through situational examples from real life experiences
• Find out how your actions and decisions impact how you generate cash in a business

"Don't focus on accounting margins."

– Reginald Tomas Lee

Topics Covered:

01:17 – How Reginald shifted from being a mechanical engineer to thinking about supply chains and costing

03:44 – What Reginald does: Helping people understand how their decisions impact cash

07:18 – Talking about contribution margins: Accounting for things from a cash perspective

11:09 – How to figure out the optimal price without using some measure of contribution margin

14:34 – Hope as a strategy: Mark's opportunity cost vs. Reginald's opportunity revenue

17:15 – Two types of costs: The cash cost and the non-cash cost

21:41 – Reginald's sales pitch: Very specifically identifying what the savings are

24:02 – Discussion about Mark's value table and Reginald's improvement projects

27:59 – Projecting revenue and the uncertainty that comes with it

30:24 – Reginald's piece of pricing advice for today's listeners

Key Takeaways:

"We should shift away from looking at accounting data and look specifically at operations and cash." – Reginald Tomas Lee

"From a cash perspective, materials and labor don't vary. When we look at contribution margins for products that we make, and we assume that those costs vary and they affect the contribution margin, my argument is they don't vary. And so therefore, it's not a reflection of cash." – Reginald Tomas Lee

"As we know, hope's not a strategy. We're hoping that the demand would be there, but I've seen situations, actually, where people have bought more just to get a lower price so that they can report a higher gross margin. It's not a good business decision at all. And that's why I shift over to cash, because cash will tell you don't do that, but accounting may, because I can put it in inventory." – Reginald Tomas Lee

"If you want to save money, what you have to do is basically buy fewer people. Buy four people instead of buying 10 people. Buy less capacity, then I'm spending less money." – Reginald Tomas Lee

"I focus specifically on what changes the software will enable, and then point out that if you want the cash savings, you need to make managerial decisions. You have to make a decision to get rid of the four people because the software is not going to fire them. That's what you have to do. The software is not making the cost savings happen. It's my management decision and action that was at that." – Reginald Tomas Lee

"I define efficiency as engineers do – output over input. So, if my input is my organization, what I'm spending on the organization, and the output is what it is that they can do, then what this will do is that we'll generally allow them to either create more output with the same group, or consume less of that group to create the existing amount of output. But the size of the organization itself doesn't change until I, as a manager, change it." – Reginald Tomas Lee

"Based on how we choose to calculate this cost, that may have an impact on whether we take the business or not. So instead of focusing on accounting margins, if you can take a look at the cash impact of the decision that you make, then I think you'll be in a much better position to be able to negotiate price and feel good about taking prices that in some cases you may not have taken just because someone calculated a number that happen to be lower than someone else's calculation." – Reginald Tomas Lee

People / Resources Mentioned:

• Project Profitability: https://www.amazon.com/Project-Profitability-Ensuring-Improvement-Projects/dp/1637421699
• The Goal: https://www.amazon.com/Goal-Process-Ongoing-Improvement/dp/0884271951

Connect with Reginald Tomas Lee:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/reginaldtomas/

Connect with Mark Stiving:

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: [email protected]

This is an Impact Pricing Blog published on February 23, 2022, turned into an audio podcast so you can listen on the go.

Read Full Article Here: https://impactpricing.com/blog/direct-customer-impact/

If you have any feedback, definitely send it. You can reach us at [email protected].

Now, go make an impact.

Connect with Mark Stiving:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/stiving/

It's true, pricing can have an instantaneous response. I often think of it as the nuclear bomb of marketing mix variables because you can change it today, impact the market immediately, and it's really hard to take it back.

Now, compare that to the other marketing mix variables. If you've taken a marketing class, you know the four P's. You know the other three besides price, or your product, your place, and your promotion.

Product is obviously, what are we building? The place is, what's the distribution channel look like? And then the promotion is, how are we marketing it? How are we talking about it in the marketplace?

We could change our marketing. We could change our product. We could change our distribution channel. And each one of those would have an impact on our revenue, on our sales. But it takes a long time for that impact to ripple through.

On the other hand, if I change price today, people will change their mind today. Some people will choose to buy, some people will choose not to buy, simply because of the price change. So price really does have the fastest impact, but it also is one of the most dangerous to use. If you're using price to gain share, you're probably just driving industry profits down.

So, although it's fast, be very careful how you use it.

We hope you enjoyed this memecast. If you have any questions or feedback, please email me [email protected].

Now, go make an impact.

Connect with Mark Stiving:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/stiving/

Pedro Piccoli Soares is currently Senior Executive Manager of AI Pricing at SIXT, a travel arrangement / car rental company that's known to be a provider of high-quality mobility services. He mentors startups, and has an Engineering degree. He also has a purple belt in Brazilian jiu-jitsu.

In this episode, Pedro shares his knowledge when it comes to behavioral economics as he and Mark talk about how it works in relation to mental accounting and pricing.

Why you have to check out today's podcast:

• Discover why it's important for companies to understand why they're doing pricing and why they're having a price change
• Understand why you should still be relative to your competitors' price change even when they've already made the mistake of decreasing their prices
• Learn more about behavioral economics, its tactics, and its relationship with mental accounting and pricing

"So, we've mentioned several different effects of behavioral economics and several different examples of how they can be applied on real business. If you think about it, they were quite simple, right? It's really easy to test these kinds of things, and they can generate some really nice benefits to your company, for sure."

– Pedro Piccoli Soares

Topics Covered:

01:40 – The internship that led to Pedro's shift from being an Engineer to doing pricing

03:09 – What Pedro loves about pricing that made him stay in it

05:34 – Why it's important for companies to understand why they're doing pricing and why they're having a price change

07:38 – Being relative to competitors' price change even when they made the wrong decision

10:20 – Talking about behavioral economics; what Mark doesn't like about it

12:33 – Behavioral economics' tricks: Pedro and Mark's perspectives in relation to price endings in relation to mental accounting

18:49 – Discussion about what loss aversion is

20:38 – The use and importance of loss aversion, especially in business

23:23 – Behavioral economics and people's buying decisions in relation to good, better, best

25:53 – Pedro's piece of pricing advice for today's listeners

Key Takeaways:

"This is when you kind of lose the sense of why you're doing the price change. If you just follow your competition, if you don't know the reason why you're changing the prices, you can initiate a fight that in the end has no background or no reason to be happening. You are assuming that everything that they are doing is right, and that they know why they are changing prices. It might be the case, but might be the case that they are also doing something wrong and you're just following them. You need to understand your customers and what price changes will affect them. You need to have a reasoning you apply when you're changing the price." – Pedro Piccoli Soares

"I totally agree that behavioral economics cannot generate as much value as pricing departments can generate. And it's, on the other hand, a much nicer topic to talk about to show results. You can definitely play around and create experiments, and you can very easily show the results of a try, and it's something that calls people attention because it's actually behavior, and that's something that they do as well, right? So, everybody wants to listen and to hear about heuristics, or the mistakes, the biases that they take when they're making decisions. And that's why I think it's a topic that costs more attention than pricing." – Pedro Piccoli Soares

"When you have two different people, we have so many different characteristics that it's harder to compare. And if you have just two similar options, one, which is clearly worse than the other, you make the choice easier." – Pedro Piccoli Soares

People / Resources Mentioned:

• SIXT: https://www.sixt.com/
• Dan Ariely: https://danariely.com/

Connect with Pedro Piccoli Soares:

• LinkedIn: https://www.linkedin.com/in/pedro-piccoli-soares/
• Email: [email protected]

Connect with Mark Stiving:

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: [email protected]

This is an Impact Pricing Blog published on February 16, 2022, turned into an audio podcast so you can listen on the go.

Read Full Article Here: https://impactpricing.com/blog/another-netflix-price-increase/

If you have any feedback, definitely send it. You can reach us at [email protected].

Now, go make an impact.

Connect with Mark Stiving:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/stiving/

The whole point of pricing, value-based pricing, is to charge what customers are willing to pay. And almost by definition, loyal customers like us more, they would be willing to pay us more.

This is the big exception to the rule of charge what a customer is willing to pay. My intent when I do price segmentation and charge different customers different prices is I also want to think about the lifetime value of a customer.

If you have a customer who loves you, they're very loyal to you, and yet they find out that you are charging them more than anybody else, it will upset them. You have a really high probability of losing them as a customer. And if you do, you lost the lifetime stream of value.

So, my advice, treat loyal customers really, really well, and don't charge them more than other people.

We hope you enjoyed this memecast. If you have any questions or feedback, please email me [email protected].

Now, go make an impact.

Connect with Mark Stiving:

• Email: [email protected]
• LinkedIn: https://www.linkedin.com/in/stiving/

Duane Dufault is currently a Fractional CRO at Forward and is a Strategic Advisor at Abaqus Inc. Before this, he was Fractional VP of Sales at The RockED Company Inc. Duane is a dad of four lovely daughters.

In this episode, Duane shares the power behind having all departments in a company understand value in order to help the customer see and understand value as well in accordance with their reasons for buying a product.

Why you have to check out today's podcast:

• Discover why it's important for you to teach your sales reps to unpack value and not create it
• Find out why it's a must for you to help people understand what it is that they're actually paying for upon purchasing your product
• Understand the reason behind having clients voice out their problem and a salesperson being able to connect the product as a solution to what a client needs to be solved

"Just make it easy, seriously. The easier you can make it for people to figure out the pricing on your product, the easier it is for them to buy. Simple."

– Duane Dufault

Topics Covered:

01:15 – The connection between Duane's role and pricing

02:14 – That time when Duane realized the immense need for product management to focus on pricing

05:26 – Talking about the similarities and differences of product marketing and sales roles

09:50 – Should salespeople have the authority when it comes to pricing?

14:36 – Why salespeople need to unpack value, not create it

17:12 – Reminiscing Mark's first few years as a salesperson

18:42 – Making a difference in the market in relation to value and what the customer's needs are

23:08 – The difference between a CRO and a VP of Sales in Duane's perspective

25:27 – Duane's piece of pricing advice for today's listeners

Key Takeaways:

"One of the growth levers that I was looking at is like how was pricing structured for whatever product it is because that's a really big indicator on how people are going to buy from your company. If you've got hard to understand pricing, that's a problem. And that's friction in the buying process that you need to remove." – Duane Dufault

"Product marketing and a good sales process are like two sides of the same point. It's like sales and marketing, but like, a good sales process and product marketing is so closely tied, because the questions that a good product marketer asks are a lot of the same ones you get from a sales conversation, a discovery process, and they take them down the same path.

"Product marketing is fascinating from my perspective because you need to have a certain perspective on customer engagement and usage to understand how to shape and evolve both the product, the customer journey, and what they pay for the product." – Duane Dufault

"If you've got a sales rep that's very, very focused and narrow-minded on one specific area, they can't pull from other experiences." – Duane Dufault

"Teach your reps how to unpack value, not add value." – Duane Dufault

"If you come into your discovery process with a deck that just has a whole bunch of bullets of stuff that came from the marketing page, that's not a value to them. They only find it valuable when they find it valuable, and it's only valuable when it solves a problem. And you can't solve a problem until you ask him what those problems are." – Duane Dufault

"If you have a good discovery process that's focused on the needs of the buyer, you're going to help them figure out what those differences are, because people buy on an emotional trigger, and then cancellation happens when they find those little things that don't meet up with what they really want to do. In the sales process and marketing, marketing is there to take feedback from products, to then communicate what everyone gets from it, so that way, when the prospect gets the salesperson, it's the salespersons job to unpack those little things, because those little things are going to be the reason why they don't cancel in a year." – Duane Dufault

People / Resources Mentioned:

• Metric Manager Playbook:https://themetricmanager.com

Connect with Duane Dufault:

• LinkedIn:https://www.linkedin.com/in/duanedufault/
• Email: [email protected]

Connect with Mark Stiving:

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: [email protected]
• Website:https://www.duanedufault.com/