Pricing College Podcast

Many CFOs love the numbers - and that often includes pricing. We have seen CFOs sign off on all pricing decisions in a business - but is that sustainable.

Would a smart CFO run sales or marketing - usually not!

We ask should a smart CFO run pricing?

In the previous episode, we have spoken about what a CEO should know about pricing. In this episode, we're going to discuss, what a CFO, the Chief Financial Officer in the business should know about pricing? And to some extent, what they should not do?

I think it's a difficult one when you go on what should a CFO know. Because sometimes the more they know about pricing, the less they are inclined to sort of, the less they understand it. Because it does take a different type. You've got very finance-driven pricing which I think most CFOs are very comfortable with. By that, I mean cost-based pricing. As multiple industries move towards more value-based dynamic pricing and explain that to CFOs that becomes an issue. Because it's out of the realms of knowledge. It's new. It takes a different kind of mindset. And it takes a huge amount of time and effort to learn expertise in the latest pricing strategy. Often, CFOs don't have the time to learn. They've got their own areas and functions to look after. So then when they've got this new pricing team in their function because it often is fit under finance. They're supposed to accept it. But often deep down they never quite can understand and further what they're doing. Often this leads, year on year to that sort of tension, not a good tension. It's a tension that sort of separates and splinters the pricing team away from the finance team. And also makes the CFO even more uncomfortable about what pricing is.

What I'll say is sometimes we think just because something is similar or it reminds us of our realm of expertise. We think we can do it. Pricing is one of those areas where everyone has an opinion everyone has a view. But, how often do you see your CFO having a very strong view and marketing or a very strong view of sales? To be honest, from my experience is not that frequent. But they often want to have a view and often sometimes are the person completely responsible for pricing. The reality is if you are pricing but you're not involved in sales and marketing at all that is a red flag for me. That is a warning signal. Those three departments have to be working together. If they're not, look clearly there's something going wrong and going to miss. A CFO has a very job grip responsibility. Very many things to be doing. And pricing, if it's not their expertise if it's not something they're focusing on they, should be aware of it certainly. And it's something we'll talk about in future episodes. Whereby senior leaders in the business should be having regular meetings with the pricing. Whoever the person charged pricing is. They should be having regular meetings. Be aware of stuff, be supporting, be championing in the business and support it. But we've seen many examples for every pricing decision has to be signed off. Every discount, every line has to be signed off by a CFO. But that CFO was not talking to the sales team. They're not really aware of the drivers, what the customer drivers are? What's really happening out there in the meetings and within negotiations on the websites etc. So they're really just looking at it from a cost-plus perspective. And they have this viewpoint that the last and again, this is a generalisation but bear with me. In many regards, they're looking at the margins they made last year that might have a strategic idea of boosting margins or maintaining margins. That often is what is driving them to the back of their mind. That's perfectly fine. But the reality of it is that has nothing to do with it. The old saying is that in war, your objectives and reality hit each other very quickly and you have to make plans on the foot. So the reality of it is when you're in a sales environment. Things can change very quickly. When you put together your budget last quarter or last year. Then you're in the market today is completely different. Let's be honest, this is 2020 and we're in the COVID scenario. Things have changed to such an extent that the budget that was put in place and the CFO probably is trying to still maintain it. Do they have any validity whatsoever?

No, probably not. This is why a lot of companies are coming to us. Because they know the markets have changed dramatically. They know that they have to reconnect with their customer. To start understanding consumption patterns. Understanding the causal drivers of purchasing decisions. Understanding what customers value and what different customer groups value. And therefore reset their price levels and refine optimise their price-setting process. Not simply think about price ladders in terms of the cost base and a bit of value-added top. But really think about, how customers are buying? What they're buying? Why they're buying? And to integrate value within that price setting. Now, as I talk there I'm thinking, how many different types of disciplines have I just touched upon when I'm describing customer-focused pricing? So yeah, we've got finance in there. We've got maths, science because we're doing this scientifically. We've got psychology, we've got marketing, huge value-based pricing ranges. When you start saying that, it becomes a daunting prospect. No wonder it takes a good 10 to 15 years to grasp that and also a mindset. This is why we trust that pricing executive in your business to give you those options. Because you know that they thought through it properly, that they've used data, science and rigour. Ultimately, as a CFO, if you start asking your pricing executive to explain, how they came up with it? You'll be bombarded with huge amounts of data and research and all this sort of stuff. What you really want to know is, Are they doing it correctly? Is it safe? Is it growing? Is it driving profitable and safe revenue growth? Are they achieving the outcomes that you want them to achieve? If the answer is yes to that, then that's pretty good enough. If you're interested as a CFO learn how they do it. Then you need to invest time in that area of expertise. But it takes time to understand. But this is also what a good pricing executive does. It builds organisational understanding of pricing. So as you work with your executive pricing team, you let them do what they're capable of. You'll start understanding the nuances of how they go about doing. Not in the same way as they do but you'll start getting it. That's the best way to CFO can work with and understand what real pricing is about.

I think I've got a couple of comments I'll make here. One of the things we see in many big companies is there's very limited delegation for decision making. In a lot of corporates, a lot of risk controls and at every turn were second-guessing. And of course, they seem to prevent fraud and prevent incorrect decisions. But often it means that this person has finally signed off on anything. Whether a purchase or sale or a discount can often be somebody so far removed from the decision-making process. That it's almost pointless. I've seen businesses where CFOs have to sign off on even smaller purchases for items such as calculators and these sorts of things. The reality of it is, I'll give two more points. If you thought about a company such as Apple, which we covered in the previous podcast. If the CFO of Apple was the person actually coming up with the price to sell a new product, a new electronic gadget. You'd question that. You'd be thinking you have the dominant market research. They have done the customer service analysis. They dug into drivers, spoke to the marketing and understand where stocks up. You'd ask those questions. Also, ask shouldn't the CFO of Apple be doing something else? Don't they have a very responsible job anyway? So that's the first thing I'd say. The second thing I would say is in a company, the CFO could be a very talented person. They could have the complete ability to be the best pricer in the world. But the reality of it is, take the American football example if you're the quarterback. You could also be such a great athlete that you could be the best wide receiver in the world. The reality of it is you have to make a choice and you cannot do both. You cannot throw the ball and catch it at the same time. So the reality of it is once a company gets above a certain size and in small companies in a startup. Yes, the CFO perfectly well can do this role. But once you get to a certain size we can't say this is a rule but there will be examples that will go against this rule. But I would say you almost certainly should have somebody in charge of pricing. Who's trusted pricing manager, pricing expert, pricing dedicated person. Once that business we're talking about a certain number of million dollars in revenue, it becomes perfectly sensible. Obviously, startups, new businesses, all that sort of thing, the CFO can have that role at the beginning. But over time you have to recognise that skill sets may align, but they don't always overlap perfectly.

That's right. I think after about 100 million revenue turnover that's when you need a dedicated pricing expert there managing things for you. I think we discussed the size of the pricing team and a previous podcast, so feel free to listen to that. But over 100 million you've got a lot of revenues to manage more risk exposure. As a CFO, you can't be managing that as well as doing your own job and managing your own teams as well. You need to trust that you've got an expert in the business doing it for you. Then there's no shame in that. The best leaders are out there ensuring that they've got a great team behind them. Everyone quotes Richard Branson, but he's the best example of that he always hires people smarter than him in different areas. People that have got strengths he doesn't ensure that his businesses empire are successful. Also that he can pivot when they're not successful. I think Aidan pointed out earlier, we've seen a lot of CEOs, not to mention CFOs that end up being the pricing manager. Whether they knew they were called the CFO, but they actually were doing pricing manager work. That's an enormous amount of work to be doing on top of actually running and managing your own business and getting the financial outcomes that you need. You need to start thinking about organisational structure. What do you need in your team to drive things forward from a pricing perspective? How much margin are you leaving on the table by doing things the same old way and by not putting the right amount of dedicated resources into pricing? What you could potentially be earning with the right pricing support under you? Often all of these sorts of changes come down to the point where you have to accept you're not the master at certain things. Or indeed you are but you need some help.

Since the old navy ship obviously the captain of the ship is responsible for everything that goes on the boat. But you have to trust navigators you have to trust other people, the mechanics, etc. and you have to use that expertise. So the reality, I suppose, the great leaders out there are people who recognise that they need other people. They can use other people's skills. There's that old saying that, great leaders surround themselves with people who are better at stuff than they are. That makes them look good in the long term. When you see a leader who is so what's the word I'm looking for but almost jealous of authority and keeping everything myself and secretive aspects. Often that sort of business, there are other problems. I suppose we'll leave in this it's almost like a series of red flags. If the CFO was signing off and every pricing move I think let's put a little red flag up there. Let's come back and examine. Yeah, that's it for me today.

Likewise, look, again, feel free this big topic that we're covering, not an easy place to start with some difficult questions you may have and you just need some extra information. We've got huge amounts of resources on our website, on various pages. But if you just want to go straight to it go to our resources page. Feel free to download guides on organisational design, managing change, understanding what pricing is? What is the latest pricing strategy? All of these questions will be answered on our website on that page, so feel free to download them.

We have seen it - and I am sure you have seen it. Businesses run on bizarre structures - based on States, regions or anything else.

What could possibly go wrong - well to be honest, lots!

When sales work regionally - and marketing and pricing work nationally - we predict lots of problems.

In today's episode, we want to dig a bit deeper into what we discussed in the last episode about companies driven by operations. I suppose one of the real signals we often see when we look at a company and look at a pricing optimisation or pricing strategy change. The first thing to look at is, how is the business structured? Is it structured by functional lines or operations delivery, sales marketing in that mechanism? Or is it done in a different way? Probably one of the most common mechanisms we see is by cost centres or revenue centres, by geography even by city. Divided up that way of where you might have and this is very common in Australia, certainly B2B. We'll have a state general manager or a city General Manager. That person will be in charge of seemingly everything in that area. So, say you're the State General Manager of South Australia. You run Adelaide your account to your head honcho wherever they're based. And in your monthly meetings and you take responsibility for your P&L. We've heard said very many times, "I own my P&L it's all my responsibility". But we want to point out when we see that it's a real warning signal.

Often people don't realise how much organisational design can interrupt derail pricing strategy or price improvement programs. They have a huge influence. And largely because they can speed up implementation and thinking and strategising if designed correctly. Or they can seriously slow it down. Slow it down and make it completely ineffective. Because you ended up sort of bottlenecking at certain points in the organisational structure. Simply because the strategy or the key players the senior players are distributed across different states. Because we've got a different type of structure. And what we found overall is when you have like a number of key decision-makers who really have pricing control. Some of whom may agree to change others who may just comply and don't agree to change. What can happen are things slow down tremendously. Things don't get done basically. When you find that strategy is almost distributed across a number of different leaders in a region. Things get very, very messy. Innovation and problem-solving slow down. Ultimately you do need to think about centralising the process. Centralising that strategising initially straightaway. Then maybe decentralising the execution. That's kind of the way more flexible organisational structures are being built to enable pricing projects to succeed.

We see it so often whereby you have a marketing department or sales department, or Sales Department Local and National. You'll have a marketing department generally said nationally focused and then there's a real disconnect. There's almost like a disconnect between the head office and the people in that area when there's a geographic distance. But also when people do what they're incentivised to do what they're paid to do. If your boss is the person in that in your city, you do what they tell you fundamentally. Because they determine your career and your prospects. So you're probably not really utilising the marketing that's happening. The marketing became probably or distance from you and there's not really any overlap. Probably the pricing I'd be honest, is probably done very much on your localised basis. So, what's happening in central head office probably doesn't make much sense to you. With that disconnect, there can be become internal politics. They've become one against the next. It leads to value destruction I would argue in many regards. Because all decisions have been taken at a local level. There's nothing joined up. There's often a lot of duplication happening. It's very much based on this year's operational aspect. Especially when CAPEX is a big indicator of that. It's very much this year's financial. Not the future of the business. Not the value creation. Not improving the value offered to customers. It's just one of those red herrings. I don't know if red herrings are the right word. But more alarm bells that we see and when you see it look a bit deeper. Because I'm sure there's going to be duplication. There's going to be a misalignment of objectives. And almost certainly there's got to be value destruction.

Because you got to think about if you do pricing well and to get the sort of EBIT gross that you're expecting. The 10% to 15% EBIT growth from a pricing project. What you need to do is work smart and work I suppose, be agile. A pricing team need needs to do their job properly to get the money that you want. They need to work across the business to get key sources of information and support. They also need to work up and down the business. By this I mean, they need to work with executives to get sponsorship. To push the business planning process forward. To inform segmentation. And to inform business strategy because that too may have to change. Also down they've got to work with customer services. The sales team find out key business intelligence sources and information about that price-setting process. And also then further out they've got to work with understand customers get involved with that. Because ultimately their pricing is disconnected from the customer base it's just not going to work. So what I'm trying to say is if you're working, you can't expect to get the outcomes from the pricing. If you don't appreciate the agility involved in doing so. And if you're in a very traditional business structure, you've got to think of other ways to mobilise your pricing project. Because working within a broken or very traditional structure does not yield the results. And the speed of results that you're expecting, things are going to be difficult. There are a lot of ways you can get around this sort of thing. And one more we've got a lot of resources on our page just to go through some of those ideas. So feel free to download those resources on our resources page at taylorwells.com.au or free to get in touch. I'm not saying that it's impossible to do a pricing project in a traditional but slow-moving organisation. It just becomes harder and you've got to be more creative about how you do it. Because pricing fundamentally does require that you work across the business. If you have silos in your business largely created by your reporting structure or organisational design, you can't ignore it. You can't just say oh, that's just a people issue we can work across that because we're optimising prices. It's a pure numbers game that will not work. It just won't, you'll only get so far with that sort of stuff and then it'll just be left.

The last point I like to make is when we say, we have to be all moving in alignment. This does not mean at all that everything is centralised. You told your people, wherever you're located, you follow the script. At the end of the day customer focus really is if you're a salesperson, it really is your market intelligence. Your knowledge of that local market. Because obviously value can be very local aspects. It can be proximity, local competitors, what's driving the market at that point in time. That aspect of stuff really has to be taken into account. I'm a big believer that this should be on a functional level. If it's a sales thing that should be flowing through to the sales department. That should be flowing through to people who really understand sales. Have the ability to lobby for sales and to help out in the business. Then obviously, that should be working with the marketing, getting you the marketing collateral you need. So that it's working correctly. If it's done on a more siloed P&L basis in geography. And there's no direct contact between salespeople out there meeting customers to sales directors and sales leadership. That's where it falls down. So we're not saying it's the Empire that dictates what people do. It has to make sense. Does it fundamentally make sense to you if you kick the tires does it make sense and doesn't help? So when you're working when you're entering stuff into systems. Does it come back with benefits to you? Or is it just purely almost more work on your back that you don't get any benefit from? Yeah, that's it for me.

Me too. And as I say, you know, feel free to jump on our website, download some resources and guides they'll really help you in this regard. And also, if you're thinking about pricing, transformation or price change improvement programs. Lots of good stuff is there just to guide you through it.

If you have ever seen Field Of Dreams with Kevin Costner - you will know the saying - build it and they will come.

This often seems to be the approach of many companies - where they build a product and then simply expect sales and marketing to sell it as is.

What could possibly go wrong?

Lots.

In today's episode, we want to discuss that very common type of business where how the businesses run is almost upside down or reverse. So rather than in the episode, we covered with Apple where it's all very customer-focused. And looking into the value that's provided to customers. It's done the complete opposite. Whereby it's almost like Kevin Costner in Field of dreams build it and they will come.

A lot of businesses have been obviously built in that way. We're gonna set up our business in this way and our operations are going to be like this. Then from here, we'll set our prices accordingly to cover our costs. I'm thinking in particular, examples like fuels, postal services. Those two in particular even energy were all set up thinking about their operational network, the CAPEX, machinery, etc. And then pricing is sort of like an afterthought. Yeah, literally to cover costs with a margin on the top, simple cost-based pricing. And now we're seeing these traditional businesses that are very operational. Internal focused are now transforming. And this is having a huge impact on how they're priced as well.

I think a lot of these issues stem from a cost-plus focus. The currency driven focus is in a business where people go and spend the CAPEX. That means I'm very important. That means I'm in charge of stuff, sort of heavy machinery aspect. Whether it's trucks, whether it's factories, whether it's docked. Whatever it could possibly be. But you're not really looking at, why does the company exist? The company does not exist to justify your position. It doesn't exist to justify CAPEX. CAPEX is only there to justify providing something that a customer is willing to pay for and once offer on an ongoing basis. So in reality, if you're saying build and they will come. Potentially that will happen you obviously have to build it. But there's no feedback mechanism. There's nothing the actual drivers that are leading to what's been built often they're quite opaque. If you're in charge of the CAPEX if you're deciding what to be built. How're sales, how's marketing, how's pricing feeding into that? Or is it just that pricing and sales get beaten up if they don't sell enough of the product that you want to sell? And it's always their fault for not doing the job well enough. I think every salesperson knows this whereby their product or service is inferior. But they feel they're always getting shouted out internally or on the back foot. So, I think it's almost a new setup in the reverse order. It's almost an inevitability that the sales team will be under pressure and will eventually get burned off.

I think that's true. When that starts to happen rather than sort of blaming your sales team for not winning the deal. I think sometimes it's probably an indication that you've got to look internally and think, is our business model correct for the market that we're in? Are our operations antiquated and from a yesteryear model? Do we need to optimise our operations now? Is that why we're not getting more margin from our product from our main source of value from this company? I'd say maybe 70% of the time if you asked yourself that question. You'd actually find that that is the question. That's the answer that you have a great business. But now the operations are outdated. You've got to start thinking differently about how you're going to deliver that value to your customers. Because potentially what you're doing is too costly. This is why I mentioned fuels as an example. I mean a number of fuels companies around the world now have optimised their operations. They've changed how they do business. They've gone from a refinery business to now a more customer-focused retailer, that's a huge change. The reason being, why did they do that? Well, if they continue to think of themselves as a refinery. Its huge costs of operational costs, production costs, drilling, refining that oil. It takes a huge amount of effort and it gravitates the whole business into thinking, how are we going to cover our cost? So now what they've done they've like optimise the procurement process and source refined oil from around the world. And distribute it by boats across to Australia and various countries around the world to cut costs. So that made them also think, well if we've cut our costs, how can we maintain our pricing? We've got to think about the value of that product in the market and you've got to think of yourself differently as a business. What are you actually selling now? And they realised we're selling fuel but we're also selling convenience from our stores. People want to come in when they buy their fuel and grab products from our store, milk, bread, nappies, whatever. We should be pricing that accordingly and getting a premium. So it completely transformed the business. So prior to that the sales team from the B2B side would have been blamed for not getting the deals across the line in the old model as a refinery business. But now it's a seamless model and the whole business is looking at how they can optimise revenues by looking and by rethinking their operations rejigging things around. Rather than thinking about pricing as an afterthought. Thinking about as an integrated within the whole transformation process.

I think two of my points I'll make you at the end. I suppose the first one is a lot of people go oh, but you need to be a visionary. You need to come up with something new that the market will want. And that's where operational excellence comes in. Maybe some of the more scientific people and the real product improvement people come in. The old famous saying is Henry Ford, "if I'd asked people what they wanted, they would have said a faster horse". And like of course, that is completely true and there are visionaries out there. What I will say is there aren't that many, there are very, very few. Those are the ones who built huge businesses that are incredibly successful with newfangled ideas. The reality of it is 99 point something per cent of companies aren't that business. And they are not the relevant topic obviously there has to be a feedback loop. The other thing I say is if it's purely run by operations and sales are not being listened to. How do you improve the process? How do you tinker with it and make it better? If there's no feedback into it, why would the operations improve it? Because obviously, you can from a CAPEX and accounting perspective it's cheaper just to turn out the same old thing. Rather than reinvesting reinventing putting money into R&D etc. Why would you do that if you don't have to? So, fundamentally, if you're not listening to customers. We always talk about customer-centricity, it's always a buzzword, it's almost a cliche. But yeah and fundamentally, you only exist, we're only doing things. Because somebody somewhere wants their product or service at the end of the line and everything else is just a delivery mechanism.

I think just because I say that you can have visionaries and operations that transform business models and price integrates pricing within. That doesn't mean that the visionary didn't think about the market the customer. Because thinking back about the example I gave with fuels. The question I had to ask is, do our customers really value great quality fuel as much as we assume they do? Because that's what our old operational refinery models built on. We want to get the best quality petrol and fuel out there. What they found was actually no. Customers wanted the fuel that was good quality, good enough. But what they actually wanted was a better experience at the pump, at the petrol station. They wanted a store that could go in. And guarantee would stop what they actually wanted to buy at that particular time, was convenience. They want convenience. They want the experience. A good experience not just a transactional experience and a dirty suburb petrol station and they want it all. So these questions drove operational changes. From there all these other innovations in operations occurred. Then you get that sort of epiphany moment where you go, "Aha!". This is where pricing actually drives and it's highly connected to the operational business model changes. It's not an add on thought where we just go over we've covered our costs and let's not just have markup to just reach our margins. No, it became a driving force, a factor, a driver that actually encouraged and influenced consumers to spend more. Or differently, consume more think differently about the product, think differently about the business. So that Yeah, I think it's a great question in terms of, how much do operations influence a business? They still do. I think the takeaway I would say is, don't let it overrule thoughts. Because, in a way, it makes you become more internal-focused. And all you think is I just have to do these operations well much better than anyone else to win the market. That's just not the case anymore. You've got to think about different industries, new innovations, what customers want. And then question how you function and work as a business and evolve.

Apple is one of the biggest companies in the world. In this episode of Pricing college - we discuss what we really like about their pricing model.

We cover value based pricing, the ecosystem and customer loyalty and also barriers to competition.

In today's episode, we want to talk about aspects of the pricing strategy utilised by Apple that we like or think are noteworthy.

Apple's a great case example for pricing and product innovation. Customers love it. It's very successful. But yes, it has had its fair share of challenges both in product lifecycle and even now in terms of business competition. But in terms of pricing, it was one of the first to do pricing really well. It was one of the first to think about pricing and connect pricing and value. To capture market share. To capture people's imaginations. And, to keep them coming back to and to drive profitability. So, I guess we're going to talk about, how they really do that? To start on that I think that's let's look at the product. They've really just honed in on a very small number of products. Very niche looked and making these products beautiful, shiny, user-friendly, different. But in terms of range, just narrow in on the range. So they can control the cost element of manufacturing. Also in terms of customer demand, control that and price accordingly.

The first thing I really like about Apple is that it's almost the epitome of a company that thinks about value and pricing in their entire offer. Everything is linked together. It's the customer experience. It's the offer. It's the value. It's how people view their product versus other products. Whether a Samsung leading other player or other clearly cheaper versions that can do very similar things. They know exactly what people like about the product through focus groups and different methods. They advertise aspects that lifestyle elements of the software or machines. Their telephone is catered to certain demographics and even like their computers. I don't know what the correct word is. I don't think they're called PC's because they're Apple Mac's I think. But those are aimed at the people who are whether in the RT community need certain software or just like that software. So they know they're demographic. They know their target audience. And they seem to know it better than I think any other company I know.

So relating to that, they know their audience. They've got a small product range. They know what people want. So what's their pricing strategy? Well, it's premium pricing. They pitch their pricing higher than everyone else. Because they know they've got a great thing that people want to buy. As I was saying before because they've got a smaller product range. They know that sort of the number of customers and their huge amount of spending. They're willing to pay for what they've got. They're able to control supply and demand for their products. So, just in terms of customer spending in that industry. I think last year it was something like half a trillion dollars spent. So it's huge, and they've captured a large share of that market. But in terms of their strategy, because they're going premium, they're getting value-based. What is their business strategy? Let's think about that. It's not necessarily market share they're really going for profit here. But in so doing, they're capturing more market share. Because they are honing in on what customers want to buy the perceived value. I suppose that has a knock-on effect on the share price. So yeah, customer value leads to shareholder value.

Another thing I like about them is they are an unashamedly value-based business. It's always in the papers everyone knows that their products are manufactured generally in China. I think they're still made by Foxconn or one of those companies. And they are manufactured and created at let's be honest a much cheaper cost than the cost of the phone and the device are sold at. But there's no pressure in the business to lower their costs. There's no pressure when they bring out a new model to bring it out at lower costs. And it's almost as if cost-plus pricing isn't even on their radar. They're so far removed from cost-plus pricing and what most companies do it's not even a discussion point.

I suppose on that because they know they've got control and visibility on supply and demand, costs and production. And they've made their process so efficient. They have been able to streamline costs. But just because they have that doesn't mean they've reduced prices. Because they've got that premium anchor strategy keeping prices up. So they can continue to drive profitability, sustainable profitable growth. I suppose other than that what I like about Apple is the signature of note Apple is their ability to create closed ecosystems. That sort of capture either IP in terms of their development IP software. And in terms of customers, they've got focus groups forums. Apple apps store to really capture the customers becomes a sticky model. So it's very hard to get out of it that's what that close sort of whether it's IP driven or customer driven. They do want to capture and keep everything they acquire and that's a sort of interesting model. I think a lot of Apple customers are very willing and they love that kind of model. Because they get so much value out of it. I think the debate recently has been especially for the Apple App Store has been, Do developers creating those apps get as much value out of Apple as the customers do? And that's a sort of debate that's ongoing at the moment. Because I think developers are currently being charged something like 30% for being a part of the Apple App Store system. And starting to think, Am I getting the value out of it? Am I getting ripped off by Apple?

I think the beauty of the App Store and the universe let's call it the uniform. The universe that they have once you're in it, once you invest in the product. You've made the choice that you're an apple buyer. You've bought the Apple Mac or your telephone. You really are locked into their system whether it's iTunes or whether it is AppStore for apps. We saw that even recently with an app or a game as popular globally as Fortnite. Whereby those legal issues etc over the split of revenues and monies from that sale. So, the beauty of the product is they have such a leading product. But also that anybody who invents a new product that wants to be sold through that target audience. Has to basically let Apple clip a ticket on it and make their money also. So it's just an incredible revenue maker. That also applies to iTunes whereby it will do that and also to the movies. Apple movies etc are through their services also. So it lets them latch on to so many other aspects that don't involve the creation of it. But they're the gatekeepers. They own the means of delivery. The mechanism of delivery because they are in theory own the software which is not using the usual system. So, yeah, it is a perfect model. You can see overlaps in methods such as the Nespresso pods. Whereby you're having certain pods to use that system. Even an older system, such as Xerox machines and printers where you have that upfront investment. Then basically you're tied in as long as the machine lasts. I suppose if you buy an Apple phone you'd expect it to last two years or whatever it is. But then there's also the other aspect whereby people's lives are on their phones now. Which admittedly is quite sad. But they're tied into the phone based on photographs, messaging to friends and family history. If you've got a new Apple phone, you can transfer it across to the new one. So you're sort of locked in even if you're had that phone for two years. You're sort of locked in for much longer than that.

I suppose now people are tied into other Apple platforms, such as the Apple Watch, TV, iOS, their iPad, lots of different things. They said they've got multiple platforms that are feeding through this one closed IT system, coding system. They're driving huge amounts of traffic to these sites based on both in terms of the developers that want to get onto that to sell their apps. And customers that want to be a part of it. Just have that huge range and access to their IP, the whole ecosystem. On that, they've got like payment processing they host. And they don't have any hosting fees for the developers. Just that the marketing spent to advertise apps for developers is huge. They just wouldn't get that visibility to their customer base without Apple Store. But saying that great idea, Is it going to be disrupted? Yes, it is. Developers aren't fully happy with it. I think Apple has said that if developers are doing good business through them and their customers stay for more than a year or so. Then they reduce the commission for developers to 15% as opposed to 30%. I suppose that's better than nothing. But it's still pretty high. I think there's going to be no competition in this market. Because people want the IP and I think it's a battle now. Even Netflix is suffering the same. It has everything going through that currently but now Disney is going to go direct. They're going to take all their IP with them. Equally, this could happen in the app space too, and it is already. So there are things for them that they've done really well. They've overcome many challenges in terms of competition with product development, Android phone, Samsung, etc. Now they're going through business model challenges. They obviously always have been quite agile in their business strategy and willing to adapt and pivot. That is really one of the greatest achievements and features of Apple. I'm just excited to see what happens next.

I think fundamentally we've all heard enough about Steve Jobs to last a lifetime and what a marketing and creative genius he was. Fair enough a lot of the products and services and the beginning building blocks of this ecosystem was always in place. Before he left the business and left this mortal coil as well. So those are in place I supposed the question is, as Joanna mentioned there with Disney and these sort of companies going more direct the actual. Because at the moment, I suppose you could argue it's like the old cinema chains. Whereby Hollywood, the movie producers made the movies. But it was the people owning cinemas and access presented to the people. I suppose with the eyeballs is the same method now. The content creation people, whoever they are. They will be under moving more people like Netflix also so that's changing. But the content creation and then the mechanism of getting in front of your eyeballs, and who owns those eyeballs? who controls it? The gatekeeper that is changing and when a change, will the apple model be the same in 10 years as it is today? I would have to say it's unlikely. But at the end of the day, Apple has at the moment. An absolute golden goose. It is given probably what's called supernormal profits that you hear about in economics. To be honest, unless you come up with something better to replace it. You've got to keep up with that golden goose lays the eggs. And don't kill the golden goose until you absolutely have to.

One thing for sure, I suppose is in that space IP online Internet things move very, very quickly. Now at the moment, they're giant platforms leading the way. Taking most of the traffic but they too disrupted the brick and mortar real world. I think pretty soon they're going to be disrupted by new competition, new ideas. And as I say, it's an exciting space. I think I'm prepared. I can't wait to see a different set of brands in front of me, not just the usual for always out there. Even in terms of the Amazons, Netflix, Apple they are the best they've done exciting work. But it's time for a change.

I'm gonna go around and shop this idea for lots of private equity and venture capital companies. I'm gonna come up with a new groundbreaking technology business to beat Apple and make Megamillions. Does anyone want to invest? Yeah, give me a call.

In this episode of Pricing College - we discuss whether there are any good courses at schools, college or universities that really cover pricing strategy in a useful way.

Many courses are as subsectors of marketing - but are there any courses we would recommend?

In today's episode, we want to discuss, Is there are Pricing courses at a university that we would recommend?

Okay, I suppose to make it simple I would say no not really. They are lacking when it comes to strategic pricing and revenue management in so many ways. And generally are taught in a very sort of generalist broadway under marketing, pricing as well as the four Ps etc. No detail is given to how to integrate a pricing strategy into a particular industry. Very limited case studies. Limited understanding of price setting, strategic price-setting. And even how to build an algorithm? how do algorithms work with different systems? The benefits of different IT systems. How to even build a business intelligence system. I'd say just generally everything that you kind of wants to know. All the questions that somebody is keen on making pricing their career. Or keen on driving a particular pricing project in the business. He just won't get those answers from a generic pricing university course.

I think the vast majority of them are as one of the four P's of marketing as a sub-sector. Yes, taught by a marketer or taught by a general academics or someone like that. So you'd have to question the validity of what you've been taught. I would say, obviously, we haven't checked the entire market. I'm sure there are some out there. If there is, reach out to us shoot us across. We'll certainly look at them and mentioned them on blogs etc if they're out there. I think what I'd say is, it's not surprising. It is not surprising that there aren't that many good courses would recommend. Pricing is like marketing in many ways where experience is very important. Experience and learning on the job. So in that context, you have to know what you're doing. You have to mature learn different facets of the business. Understand customers. Understand how Corporation works. And, understand how you work with different departments Marketing. So you have to know a little bit about everything. You have to know how to fit it all together. Are there great prices coming out 21, 22 years old? I'm sure there are. But there are a lot of skills that take time to learn. You have to learn, what can be done? what can't be done? Certain things have to be done first, many steps etc. And that takes learning time effort and it is like marketing. One thing I'll say about marketing, I listen to the Neil Patel show and they often say, would they employ a marketer straight off a college course? And they say well, not. They probably just asked someone for practical results. Practical evidence of what they have done not textbook learning but actual reality.

I suppose when we look at how forming teams for different businesses in different industries. We spend a lot of time on that evaluation side of things. Like individual evaluation. Assessing individual capability with what the organisation needs. And we find these huge gaps in the talent market for pricing even people with pricing experience. If dedicated pricing experience was even 20 years there are gaps there. And look, do we say is that because of the university course? Or is it because there's the individual has the gaps attitudinally? They don't want to learn. Maybe their ability levels just maybe possibly want to learn but can't. So we spend a lot of time looking through to sort of shrink those gaps in the talent market and also in the business world. To find the right team who can really drive strategy. And almost we do a lot of work. Because there just really isn't the courses out there. And even if they were, are the right people going on them? It's a difficult one to discuss. But we are finding there definitely are gaps in both areas. And what we're finding ourselves doing now is sifting through both. And aligning, matching the right people to the right organisation to accelerate the IRI from the pricing. Often as a result of gaps in the market lack of knowledge and expertise and skill both inside the business in the talent market for pricing.

I think in pricing there are good courses out there, there are courses in most countries that are beneficial. Another thing I suppose at Pricing College and Taylor Wells we are working towards obviously it's been a bit interrupted by the COVID situation. But masterminds and meetups and those sorts of things. Whereby pricing leaders people involved in the pricing community can meet with like-minded individuals. This sounds a bit strange but can meet with people and discuss that got discussed the topic of the day. Discuss approaches, topics, new ways of doing things methodology. What works? What doesn't work? Change in the market. All those sorts of things where there's a limited form for that at the moment. So watch the space on in that regard.

I mean it was hugely popular before. People have a thirst for knowledge when it comes to the latest pricing strategy based in the talent market as managers and analysts. Also for people, firms and businesses that have had their lightbulb moment on pricing. They really want to get their hands on the best people, the best teams best systems and strategies out there. Often because of the lack of structured and good educational programs from universities. A lot of companies have had to resort to consulting based training. To some degree, it's okay but it's very one-sided. It's all based on the consultants' view and what benefits them to get the next deal across the line. So, what we find consultants give you so much. But they don't give you the full suite. If they were to give you the full suite it's going to cost you the millions. We would say that's an inefficient way to get pricing knowledge across and to bridge those gaps that we discussed in the talent and business world. So for this very reason, we find ourselves becoming that connection point for businesses and pricing talent out there. So we can really bridge those gaps and help both individuals and businesses have to drive their capability and get the results they need.

In this episode of Pricing College - Aidan and Joanna discuss what a lightbulb or eureka moment is in pricing.

This is when you actually realise what pricing is and can be - and that it is so much more than cost plus in a spreadsheet.

In today's podcast, we want to talk about the lightbulb moment. The light bulb moment is the minute when people realise all of a sudden seemingly, what pricing is? I'll be honest there is a before and after when it comes to pricing. In the world of pricing if you're a pricing professional, sometimes you need to help other stakeholders in your business have that light bulb moment.

I suppose the light bulb moment does depend on the pricing maturity of the business. If there's sort of level one or two limited pricing maturity in the business. Or no established pricing team there. Then it may not be the pricing team that had already the lightbulb moment. And educating stakeholders on their lightbulb moment to understand pricing. What it could be in the business. So really the light bulb moment can occur in a business, which let's say is a sales organisation with no pricing team. It may be a sales manager, it may be a sales rep, it could be the CEO. In many respects, they're very learned in the business when they have this epiphany. This light bulb moment. Because they're the only ones that realise that pricing is the number one profit driver.

I can certainly look back before I knew anything about pricing. My background was working in a bank. I then work as an accountant in different financial roles in companies. I'll be honest, I have never heard of pricing at all. And even when I first heard about it I thought this was baloney. To be honest, I thought pricing is putting a number into a spreadsheet or an accountant system. The cost-plus or some sort of maintenance of pricing in a system. I think if you look at a company and you go in and you're asking yourself, has the CEO, the Marketing Director, these big senior executives have had that lightbulb moment? If they think accountants should be running pricing. Well, I put my money on the fact that they haven't had a light bulb moment.

I suppose in a way that CEOs have had that lightbulb moment or an executive that has had it. Maybe originally thought they had it. But actually thought that the pricing problem they've got could be easily fixed with that silver bullet pricing system. Or Quick Price optimisation to drive an immediate EBIT growth. That really isn't a price bold moment. That's just seeing pricing as a tactical almost a bandaid to fix something that solved a headache or a pain. We need something like more money, more cash flow, increasing profit, or reducing risk in some way. That's getting to the lightbulb moment but isn't really fully the light bulb moment. A light bulb moment is when you realise that pricing is a process. It's transformative. It requires skill, expertise. You need to pivot. You need to take a broader, agile approach to Pricing. Then it needs to include your customers too. Understanding how your business can connect with your customers and their P&L. Their deeds and all of that sort of stuff.

I look back to when I worked in corporations, B2B industries. And you're trying to get people to come aboard the project. You're trying to get them to understand stuff. I'll be honest, I noticed a number of major flaws. The first one is often senior executives just do not listen. Whether that's a hierarchical thing or an arrogant thing or whatever it is. Or they're too busy often they just will not listen. Secondly, not everyone has absolutely excellent explanation skills, discussion skills, promotion skills. People always talk about in the company you need to be political and this sort of stuff. I'll be honest, a lot of people just are not focused on politics. Even if they are good at it. I'd often say that a lot of people in pricing that's not what their focus is. A lot of their focus is on getting the job done. They're more practical and more results-oriented. Not so much in the top political stance and often in corporations. There's a gap there where you're not getting that message across. So like when I was there, I was trying to promote. I even give people books at one point in time. Introductory books on the topic, the William Poundstone big on pricing. Priceless I think was the name whether they read or not is a different question. But I suppose that's one of the reasons why we're doing this podcast to create easy listening, introductory stuff. We go into more depth on certain topics also. We cover the broader remit of this subject area. Hopefully, someone's listening to one or two episodes. It will spark interest it will help them move along the line to full understanding.

Many of the pricing and revenue management teams that we build. Our clients drive a particular strategy in a particular culture and industry. I often find myself saying doing the pricing modelling and analysis are almost like sort of 30% of the job. The rest is educating stakeholders, driving change, and trying to crystallise that vision for change in the business according to them. So they can really get it. And so they can drive that lightbulb moment forward to the next stakeholder. Because the pricing doesn't just stop with the pricing team. It really is an organisational capability.

I think we're recording this podcast on the day of the US election 2020. I'll mention a quote or I don't know if it's a quote of water days from a famous US politician Donald Rumsfeld. And his famous comment about known knowns known unknowns and unknown unknowns. I'll be honest, in a lot of corporations, pricing is an unknown unknown. They don't know it exists, let alone know how to do it. So when you're in that position, you have to somehow get people just having the awareness. The people don't have to know how to do pricing. They just have to know what it is and what it can do. Then leave it to someone else or work with somebody else or partner with somebody else to get it done. But if you're in a position where the quote Rumsfield is an unknown, unknown. There's a lot of work to do at that point in time.

So we've covered that lightbulb moment. Almost like the unspoken role of the pricing team to really drive that change crystallises the vision. But if you don't have a pricing team in place then really it's up to you to drive that vision for change. It is possible but again, it does require you to know, once you get past that vision for change. Then it gets to "okay, we need to do something about it". We need to actualise that change. How can we build a pricing capability from strategy, from models and systems and structures? How can we mobilise people together to really get the outcomes that we want from that vision? This is where you do need that expertise. Maybe systems along the way and the right strategy. They use to connect that lightbulb moment, that vision for pricing to your business strategy. Are they in sync? Do they work well? Are they going to generate the results you really are expecting from them? And if not, you have to take a good hard look at either [A] your strategy or [B] your vision or even see the mindset of the business. Are they ready? So these are all key questions and they're big questions to ask yourself and to answer. So feel free to get in touch with us. You can connect with us via our website, taylorwells.com.au and just book yourself a time and we'll have a talk.

In this episode Aidan and Joanna discuss why business intelligence and good data management systems are vital for pricing.

If you can not measure, analyse and slice and dice numbers - it will almost be impossible to perform worthwhile pricing work and optimisations.

In today's episode, we want to talk about something that is often, I supposed overlooked and certainly at the beginning of a pricing project. But it is one of probably the more laborious tasks that you need to build in a corporation. Before you can start putting in place improvements, optimisations and those sort of things. That is making sure that your data, the data in the company. Whether it's sales data from an ERP system, whatever it is. That is clean, it's usable, it's excellent. That the best intelligence has the tools or the data available for work to start.

A lot of you probably have heard of the term business intelligence. It's become quite widespread now and across a number of industries and firms. Executives and pricing teams are becoming very interested in business intelligence. But why? Because it informs pricing. It informs business strategy. It informs your response to competitor prices. If the competitor drops the price you want to know about it. I suppose that's the reason it's become quite important. It's also become important for improving price setting as well. So there are a number of benefits to understanding a bit more about business intelligence. And its impact on pricing and vice versa.

Nowadays, I think sometimes we feel like we're being overwhelmed by the amount of data that is available. It's been captured by so many devices. Especially now with more technology appearing trucks are recording stuff delivery times anything like this. But in many corporations, even very famous corporations they still utilise quite old fashioned and unwieldy data systems. Business systems that make it almost impossible to slice and dice the data, to download, to use to utilise, to manipulate, to get into that data and see what it means to analyse it. When you're thinking about something like dynamic pricing. Where prices change could be multiple times a day, could be even every second. I've seen companies for downloading data can take them a week. Just to get a spreadsheet of data into Excel. You're thinking that if that's the scenario we're starting from. Let's not even discuss dynamic pricing. We're kidding ourselves, you're going to go nowhere with this. It's the fundamental building blocks is like you got to get the data clean. The old saying and you hear it so many times, "junk in junk out". I'll be honest, sometimes we can't even get the junk in the systems let alone get it out. So you have to have a real cold hard look at where you're starting from. When you realise that you got to play the ball from where it lies. And that's where you start from.

I supposed there's that Internal Business focused view of business intelligence and what that is. And fundamentally a lot of business that's their own costs base. It's all focused on their profitability and things like that. It's not very customer focus, it's not market focus, it doesn't tell you much other than that. So it's just really providing if you can get good and clean data out of the system. It's just providing you with one cost base input into the pricing model. Which is still very important to have. Especially when calculating your price floors. But not necessarily the inputs that you need to generate greater price premiums from your products. You need to look more broadly in terms of the market. You need to look at and even what your competitors are doing. When I say that there are a lot of pricing teams out there who have built some really good competitive intelligence systems. Just to extend upon their knowledge of the business intelligence systems. A lot of these are, literally homemade. They've done it themselves just to get a clearer sense of the market. But still, a lot of them as just giving them data on the competitor price points web scraping, things like that. And from there, they've just gone "oh, you know, we're going to do competitive pricing". Where are we going to fit slightly above or below our competitors? Rather than looking at the value differential that they offer, us versus them? Why are our customers willing to spend more with our competitors versus us? Asking those sorts of questions that the competitor intelligence system doesn't address that. Looking we call that the value differential between you and your competitors. I suppose in all of this when you think about business intelligence. And this is what the new version of business intelligence is. It's looking at multiple inputs and then getting that together in a sort of data template. So then you can utilise those inputs. To understand what your customers are willing to pay within your price-setting process. And then tweak it or otherwise known as optimisation. Optimising prices correctly by different segments. So you know that the price that you're setting is reliable and you can be confident in them. It's not just simply cost-based pricing.

I think we covered some of these topics. We covered it in the previous episode about what a CEO should know about pricing. One of the things I'll say about data in the company is, Is your company a data-driven business? Is it run by hunches and just experience and gut feel? Is that how sales and marketing are working or is the data provided? Is it a value culture where senior executive meetings, business meetings, leadership meetings the numbers are being discussed as evidence? Or is it purely our sales went up because it rained more this month? These sort of things which to some extent, we see in every company. And of course, sometimes rain and weather can influence sales. Of course, it can. But it can't always be used every month. And it can't be used in that regard. So if the data is not there. One thing I'll say is it is often the CEO or the senior executives that they're so far removed from data manipulation. Digging through spreadsheets sitting there late at night trying to rectify numbers. Reconciling the numbers trying to make it all add up. They're so far removed from it. They don't even see the value in it to some extent. They don't see the value in investing in it and getting a new system. One other thing I'd say about this and I've seen this many times in corporations. Big IT departments have invested years and years over time in building in host systems, big proprietary systems. Systems that are supposed to be tailored to their business. In many instances, they're just completely useless, they're completely junk. But there's just a fixed cost fallacy whereby they spend so much money on them. And there could be SAAS service available straight out of the box. Developed by experts' listed on the NASDAQ all that sort of stuff. They can make one and you can rent it for whatever, 100 bucks a month. But there's often a great reluctance to move towards these things. The problem with the existing system, it keeps rolling on rolling on. And there's more money spent on it more patches. It never gets rectified never gets fixed. But it's sitting on the balance sheet and the corporation. It is sitting there is as a multi-million dollar asset in the business. But fundamentally if you want to get rid of that system. You've got to write it off as a loss because you recognise is not actually an asset anymore. It's worthless, in many instances is even a liability. So that's one of the reasons why I think these things happen. So you hear about first-mover advantage. I think in many instances in many companies nowadays their second-mover advantage. If you are the last of the blocks you could be ahead of the game.

I supposed if you want to get your pricing aligned to the market and you want to achieve business goals. And you've got metrics in place and you've got targets to hit, that will make sense. What you do need behind that is a business intelligence system that's aligned to your pricing. That aligned to marketing and sales efforts. Having old schools sort of metrics in place. Or inputs that are running into old archaic systems and flowing out is basically rubbish. Then rubbing your head thinking, how can I use this in terms of price analysis knowing full well that most of it is junk? That's not really going to serve you well. Or even giving you help when your executive or your boss or the CEO asks you. Is this price correct? Fundamentally, you'll know deep down it's not and so will they. So in the business case for great data, a great business intelligence system that's aligned to your market and industry and pricing is very strong. But it has to be done in terms of the so what for executives so they can really understand how it will drive the ROI on pricing and the whole IT capability discussion. Because a number of businesses at the moment are going through major IT transformation. Especially with digital becoming more popular. Both in terms of the channel to market. People prefer to buy online and prefer the pricing that's offered. So all of these teams are very critical to the back end of all of that. Which is, what inputs are you going to use to set your prices? This is the business intelligence discussion. So, if you want to know a little bit more about business intelligence if you've got it right? what's happening in other industries? Then feel free to download some free guides and reports from our website at Taylor Wells.com.au. We've also got some useful information on the homepage about pricing technology as well.

In this episode of Pricing College we ask why charging customers more or less based on their location - i.e. postcode or zip code may seem like a good idea - but may create many more issues than benefits.

In pricing - it is vital to not annoy or alienate customers or potential customers - and of course - no one wants to feel discriminated against.

In today's episode, we want to talk about a pricing approach or concept that on initial inspection can seem a really good idea. But sometimes there may be more negatives than outweighed the positives. That is zone pricing. If you type into two approaches it could be on a store by store basis if it's a large chain. Or could even be on the internet that when you type in your address the price changes. It sounds great. You could charge different areas, different prices. But, are there downsides?

If you think about it, even as a customer you probably will think there is a downside. Customers may not like being charged more just simply because of where they live their postcode. Because ultimately this is where the information and this it's investigating where you leave. The affluence of your suburb. And ultimately, How much you'll be able to spend? It's a great way to measure spending but, Is it fair?

Fundamentally, I think people have a real belief that they should be treated fairly. They should be treated equally to everyone else. Their dollars or pounds or euros going into the store should be equal to the next person's. Sometimes it could breed resentment that it's whether it's a postcode lottery. You might want to use that term. Or, it could be even like a tax or penalty on someone from a certain area. What would their reasoning for that be? Would it be a higher social socio-economic area with higher incomes? And their feeling could charge more, or whatever the reason? It could be in a cost-plus environment. There could be good reasons why a company may want to do this. If you've got regional, remote stores and shipping stuff to that location. That might make sense. But I think in many regards, people want dependency same price and believe that is their right.

If you think about it I suppose on the other side from a firm's perspective. They just really are keen to get the right metrics and measures in place. So they can understand the market. So to them logically speaking it makes complete sense to do so using postcodes data and all of that to understand spending. As Aidan was saying spending and willingness to pay seem to be well correlated. So, why don't we investigate one, if the other one willing to spend is too abstract and difficult to measure? We can use spending instead. But it just can be difficult when you start using that as a strict measure for everything else. Especially in terms of price setting.

I think postcode is a very blunt instrument. Depending on the country, or the city you're in. Postcodes can be small or massive. You could have huge numbers of varied suburban areas in those areas. A very diverse population. So there's got to be more drivers than just simply your location. We always say in this podcast it's probably hundreds of drivers driving something. If you're trying to sell any product, do you think the postcode location is the biggest, most logical way to segment your market? I would suggest no. If it's getting down to a cost-plus mechanism where it's posting stuff out to people. There's a very simple way to fix that is you charge them a separate postage price. And when you get to the cart and checkout. People accept that if you live on an Island remote off the coast. It's a bit different than being two miles from the depot. So I think people accept that if in those instances. But I think if you jump online and you type a different postcode and it gives you different pricing. Or of course, just read your IP etc as well and give you different pricing. I think that would start to annoy people. I also think you'd have a high chance of getting bad media coverage. If the newspapers got onto that. Because it's a very easy spinnable story. If you want to spend that story. And make it look like big corporates or taking advantage of people in certain areas. I think you're walking into a trap if you try that one.

Maybe as if you're trying to calculate the cost to serve a customer it might be a useful input. But I suppose this is why in terms of price setting, businesses are moving away from purely that cost focus to a more value-based focus. And thinking more broadly about drivers of purchase. Drivers of demand to calculate the price asking questions such as, How has this customer group come to us? What are they looking to buy from us? Why are they buying these particular products and services from us? How are they consuming our products? Now, these are the more important sort of drivers of demand that you should be using in a value-based price-setting process. It'll get you away from those difficult sorts of conversations and the issues with postcode and zone pricing that can get a bit messy. Also, it's quite limited. I suppose in terms of generating those additional price premiums that you are looking to find. But yet fairly and in line with what customers are willing to pay. So going down the value base route asking those questions about, why people are buying? It will help you generate more profit dollars for your services and products.

We all say common sense is required. I think common sense is not very common. But in this instance, it's a bit harder to explain. Obviously, in many businesses in smaller towns or certain areas, it's perfectly understandable that prices will be lower than the nation's capital or the richest parts of the country. This can go from restaurants to haircuts to anything like that. Whereby the price will be influenced by to large extent the labour and part of the people in the area. Then the employment process etc. So, of course, if you're in a smaller area or a more remote region you might be able to buy a drink in a bar for less than you would in a fancy bar in the city. It can also apply to haircuts. I think that's perfectly understandable. The difficulty gets into it when your segmentation or your matching local pricing or those aspects that are perfectly legitimate. You have to be just very careful that everything you're doing could not be perceived as in any way discrimination against people or exploitation of certain aspects. I think if you're trying to sell a consumer product that's the same item at a different price at different geographies. That you could get into some sort of marquee ground or could be perceived or spot different mechanisms. I think that's something that anybody sensibly would want to avoid and not get into. Just the potential benefit of a few extra dollars here just wouldn't be worthwhile. The potential downside in my belief. Of course, though, if you're trying to compete in a town your need to think about the value offer you provide. If the price level for takeaway sandwiches in this town is much lower than elsewhere. You probably have to match to market in that area. But again, that's a match to market it's not a postcode lottery. It's not discrimination against on a postcode basis.

I suppose this is what a good pricing team would do they would look at a particular price point in relation to where they sit in the price structure. That is in between your floor prices and also the price ceiling. The price parameters for everything that you sell, then they'll look at, what is the overall business strategy? Is our pricing aligned to that strategy? And where is our price? What's our price positioning in the market? Just because we can price higher in one zone, does that go against our price positioning? our business strategy? Are we within our price parameters? There'll be asking all those questions making sure they check the boxes for everything. Because if you don't you can find yourself dealing with some very difficult issues. Using this as one measure just using, what customers are willing to spend? what they can spend? Zone pricing isn't bad, but it has to be considered in relation to a lot of other inputs. A good pricing team will do that they won't just lead with that input. Because it can lead to very difficult discussions and legal issues further down the line. So just bear in mind when you're dealing with pricing, having that internal expertise can be important. It just gives you confidence that everything that you're pricing is in order and aligned to your business strategy and everything else in the business.

More and more services for business and consumers are delivered as SAAS - Software As A Service.

What common tricks and approaches in pricing can we see from these companies?

In today's episode, we want to cover one of the new more modern approaches to pricing that you'll see more and more. And that is the pricing approach used by SAAS companies or software as a service. You will commonly use their services in a B2B environment or many other scenarios. So in this episode, we wanted to cover five pricing techniques. Some of which we've covered in other episodes. That you will commonly see and experience if you deal with our SAAS company.

This is applicable for IT vendors who are used to dealing in terms of the old distribution method. Using tenders and fairly fixed prices to then. Those who are thinking a bit broadly now and thinking about new pricing and distribution methods models for their customers. Okay, so number one I suppose would be a subscription model is a fairly typical feature of SAAS. So this subscription model is a new type of pricing revenue model. Essentially, it gives customers a different option to buy from them. They could pay for the product service on a monthly basis. As opposed to, as I said, going through tender and doing a large deal at the enterprise level. They may do an enterprise-level deal. Or, they can choose to do, maybe as a team pay for it as a team deal or on a user basis. So it just gives the customer more flexibility with how they're going to pay for that particular SAAS offer.

The second one is very commonly you'll get a freemium offer. Just to whet the appetite and to give you the chance to experience the product or service. This is especially useful if it's a new style of product that you haven't used before. Or, that's quite innovative so that you haven't had the experience or know what to expect. One thing I'd say about the freemium offer is they nearly always give you the best version of the product. So you get used to the best option. They very rarely will give you a free experience at the lowest cost.

Okay, so the third feature of SAAS pricing would be tiered pricing, like a good, better, best approach. You might see that in terms of other names like price plans. And things that you commonly would see on mobile phone websites. Ultimately you'll see three different options. As I said good better best, there'll be all of them higher value offers. But there will be a distinct difference between the three options.

Okay, so the fourth option is, how are the offers differentiated? Nearly always because they're selling you Software as a Service and the differentiation is somewhere designed to segment the customer base. It is designed to charge larger companies or larger users higher sums. The tiering will be based on something along the lines of metrics specifically, the business. If it's a CRM system such as sales Salesforce or something like that it will nearly always be based on the number of customers you have in there. The number of leads, or it could be based on the number of users in your organisation. So you could have a small startup. You could have a business version or enterprise with the enterprise company 50 To 100 users.

The final feature for more sophisticated SAAS firms would be the use of price optimisation software and analytics. I suppose according to research companies and pricing consultancies in this space. Research has shown that make the majority of IT vendors and firms have been setting prices pretty much by guesswork. Or just using some inputs. Not fully confident whether the pricing is right. Possibly the best would be sort of a good competitive level pricing. I suppose now, real SAAS pricing for great IT vendors and firms is much more scientific, more analytical and they're thinking about optimisation. It could mean a lot of monitoring. Looking at different customer groups. Seeing what the price response rate is using price elasticity modelling. Calibrating that with market research. Then really determine price ceilings and determine the right price parameters for each of their offers. So we'll move away from fixed mainly cost-based pricing. Moving into understanding customer demand using real data analytics as well as multiple information sources.

That's it from me, that's the five and you'll see them more and more. Whether it's something like Spotify for home use. One big thing I'm a believer and I think traditional mainframe systems and large CAPEX will probably be a decreasing year on year in the business space. As we get more and more used to seeing this. The one thing I'm interested in always is, how do procurement deal with this sort of approach? Whereby it's very much a set rate card and they try to tailor to set systems. I wonder, will that undermine procurement strength and drive down costs. Well that's something for a future episode.

So if you want to find out a bit more about SAAS pricing, where it's going in the future? A bit more detail about the pricing mechanisms and the revenue model options. Then feel free to go to our webs website at Taylor Wells go to our resources pages. There you'll find documents reports and guides on SAAS pricing and pricing strategy.

As they say - a fish rots from the head down - and if a CEO is not on board with a pricing project it is doomed to failure.

What should a CEO know about pricing - and we do not suggest they should get into the detail with pricing sheets!

In today's episode we want to ask the question, What should a CEO know about pricing? I'll preface this by saying, obviously in a big company CEOs have one of the toughest jobs. One of the best-remunerated jobs but also one of the toughest. But the question is, what should they know about pricing? In an environment where they have to know a little bit about everything. What really should a market-leading profit-driving CEO know about right the sector?

I think the first thing they should know is that pricing isn't a tactical numbers game. I think the pricing is a great way for them to get closer to their customer base. To deal with very difficult market challenges, competitive tension, margin pressure price, pressure pressure. It's a great way to galvanise teams to work together to align initiatives from sales, marketing, supply and pricing. So that you get the most out of each price and capitalise on your business and pricing models. I also think it's a great way, and here's a classic a CEO should know that pricing is their number one profit lever if used correctly.

Yes, that's it. From my experience, a lot of CEOs are extremely good at talking. They're very good at talking. But in some context from my experience also they're not so great at listening. You can't be an expert in all areas. To build a value culture in a business, a great business culture where you understand, What the company's doing? What the company is trying to sell to which customer? What the value is? What is the charging model? Why do people choose you above a competitor? That fundamentally is pricing. No one expects the CEO to be able to drill through. Or have the time to drill through a pricing sheet or an optimisation sheet or those sorts of things. But you do want them to be considering, is it a rental model? is it a pay upfront and then you're locked into an ongoing business sort of model? what is the discounting mechanism? Are you up for tendering? Fundamental questions about the business strategy are, what they should know and what they should be interested in and engaged with?

From working with several CEOs and their teams now. I think an epiphany moment for many CEOs has been that pricing is not just an event. It's an ongoing transformative process. It's a process of continuous learning. There's a lot of trials, there's a lot of error, there's a lot of mistakes are made. But they're also managed. I think at the beginning of any pricing journey that's just sort of like rhetoric. It sounds deep. It sounds meaningful. But once they're going through the process. It becomes something that resonates. And it's like, "Oh yes, I get it". From there everything, we've just discussed is value and pricing being that connection point to supply-demand customers makes sense. Also, it raises other questions such as now I understand pricings or processes. Have I got the right strategy? what people do I need to drive this forward now I know it's a process rather than just a tactical excel spreadsheet game?

Whatever I've looked at a consulting project or any sort of project in pricing and you think, how successful is this project going to be? The biggest deciding factor for me is generally how engaged is the CEO. If a CEO is super-engaged in championing the project. Backing the project. Raising it every meeting. Pushing it forward it's a very high chance of being successful. If the CEO is not even involved, not in meetings. Delegated to somebody below him or her who may not even be a direct report to him or her. I'll be honest, the chance of success is low. The CEO needs to champion the culture they are the person most responsible for the culture in the business. The old saying is that a 'fish rots from the head down '. If the top people are not engaged pushing stuff, providing guidance, providing the culture, the objectives, etc. Things will not go in the way that you want them to go in. People at lower levels, they'll work through the politics. They'll work through how that works in any organisation. The bureaucracy people generally do what they're paid and incentivised to do. If they're not paid and incentivised to work as a team. To work towards business profitability to objectives of that nature. They won't do it. They will do what they are incentivised to do. And so, without the CEO backing, the CEO championing. A bit harder word to say than I thought it would be. Without those aspects, I think it will fail. So my big thing is, how engaged is the CEO? are they aware that they own the profitability of the business? It fundamentally is their responsibility.

I think that's a great point. From my experience consulting on pricing and pricing teams, what I've learned is that when there's a burning platform, CEOs become engaged. The burning platform tends to be either board pressure or a change or shift in the market, competitive pressure. Or their peers are doing something they're not doing, or they need to make money. So, money is a major driver. Pricing is the best way to get there. Internalising that expertise will deliver that full economic value from the pricing that you want. If you want to learn a little bit more about that. Just see where your businesses are in terms of being able to deliver the ROI from pricing that you want. Feel free to contact us, you can visit our website at Taylor wells.com.au. Click on download or your free pricing audit or contact us directly for our initial briefing session. We can just talk through some of your initiatives. See whether there are places that we can help or a roadmap in place that would benefit you and things like that.

I think just one final point I'll make and this is from some of my previous experience working in businesses. Pricing is a tough job, it's a tough gig. You're constantly getting a bit of pressure from your customers. You're getting pressure from internal operations. Sometimes you're seen as everyone's enemy. You're seen as trying to push up prices for the customer. And trying to sometimes decrease pricing or discuss that aspect with sales teams and marketing. That's a tough gig, and sometimes you can feel that you've got no friends in the business. If you're a B2B pricing person, you come back from a meeting and you might have got a deal in. But you may get smashed when you go back to the office. The other stakeholders in the company may not be very pleased. You need to have confidence that the CEO has your back. That the CEO has supported you and that you're aligned and you're on the same sheet. If that's not there I think pricing can be very unsatisfactory. Sometimes it's heading to nothing, one way of putting it. So yeah, I think we'd leave it there. Fundamentally, if you're doing a job you need to be aligned with the most powerful person in that organisation.

Yeah, pricing is not just a quick fix simple price optimisation process. Or as easy as getting some silver bullet pricing software solution. It's a process. It's based on a value culture. And, it's very heavily reliant on both people strategy and systems. Good CEOs that sponsor projects based on that premise do very well. They do it very well consistently and over time. CEO's don't consider it as a tactical move. Make some money over a short period of time and tend to lose it, very quickly too. So yeah, as I say, feel free to get in touch to get your free pricing audit, and we can help you.