Pricing College Podcast

When it comes to pricing - we know that people want great results from day 1. However - what do you need to do first before trying to optimise prices.

Should you optimise - before you fix issues and build a strategy?

Often in life, people want to jump right into the deep end we cover this in a few previous episodes. But often people want to know, sometimes you can talk to a business. And they want you to start optimising prices immediately. And you say well, what sort of processes do you have in place at the beginning? They go, well nothing we don't have any pricing in place. So the question is, can you just start optimising prices on day one?

I think executives want to optimise prices. Because it does in theory, sound like a great way to drive profitability quickly. Especially maybe if you're in a tricky situation. You need to cash flow or markets have changed and you want to get ahead of competitors. Now, optimisation, if you look at vendors of optimisation software, will tick the box and all of that. Or, even consultants that say they can do that. Yes, they can. But I think it's really important for executives and pricing teams to just be aware of a few things before they do dive into price optimisation projects.

I think it's common sense if you've invested no time, no effort in your pricing department. If you don't even know who it's run by. It could be the sales, it could be the marketing, it could be just discounting ad hoc of a list price. If you have no processes control systems in place, which let's be honest is a huge number of companies. You can start optimising but let's be honest what you're going to be doing is not going to be that useful. It may not fit into your overall strategy or your overarching aim for the business. It may not align with what your marketing departments doing. I'll be honest, it's probably not that beneficial to you. You may end up optimising changing prices communicating them to your customers. Then, when you start digging into your pricing has to undo it or do something completely different.

I think it's important to understand the pricing maturity of your company before you consider optimising. Good consultants will start any project with very thorough pricing diagnostic. Just to know if price optimisation is the right thing for you. Or, even to customise the right program roadmap for the business to ensure success. And to limit any risk exposure, especially profit downgrades, volume loss, things like that. But if you are going to look at this with this question very theoretically. And you say that the businesses are in medium maturity. There could be a possibility of optimising prices with some risk. But if they're managed correctly, Could you do it? Yes, if you've got say a list price. And you want that to be optimised in some way. Put some sense to the price category hierarchy, this year and last year sales. You're going to compare and do some price elasticity based on those very few metrics. Yes, you can do it. There will be some gains from it I would say maybe a 1 or 2% margin increase from doing that within the first six months. When you look at it there are only a few factors and variables to consider there. I think if you just do the bare basics, good sales directors and their teams can do it. I've seen see them do it. But I've also seen this optimisation being applied more as a blanket price increase. Or done very crudely because their segmentation strategy is also very crude. It's just a quadrant segmentation that lump customers into four groups. Then applies a very basic price algorithm on top. This often leads to a lot of customers complaining about the price. Because it doesn't apply to them they feel like they're being overcharged. While others feel like they're being under charge and they're going yeah this is great. But what happens to you? You lose money. So I think you've got to be careful how you go about this. I think having a crude optimisations strategy will get you so far but also lead you to risk. Equally having a crude segmentation strategy will limit your optimisation.

I think, in that context what we're talking about is you put make a call to someone. You say we want to improve our pricing. It's the consultancy model. Where some external expert will come in and do it for you or help you do it. Or, handhold you through that optimisation process. But then they'll leave after the checks have been paid. They'll leave and the skills won't be there so it's a short term thing. Or, do you build the internal process in your company that then will over time be able to continually optimise? Because let's be honest, optimisation is not a one-day thing set and forget. Business changes you've got to keep doing it over and over and over again as you hold in your strategy and improve the business and the pricing approach of that company. It's the old cliche, do you want to fish today or do you want to learn to fish then eat forever. I suppose it's not a philosophical difference but it's a business difference. My personal view is sometimes if you want everything immediately and all this great benefit today and free money. A price optimisation will help you but if it sounds too good to be true. The reality is it probably is. You have to put in the hard work. You have to dig through it. Have a plausible business plan business model which aligned with pricing. Then you implement. One of the big buzzwords nowadays in business and entrepreneurial stuff is execution. You have to execute you have to have the plan and the strategy and then executed. The pricing optimisation should be something that once your strategies are in place. You can do it down the line. If your business is in massive trouble and you need extra cash in the next three months. which nearly all companies do, it will help you. But bear in mind that it's probably you want both things happening.

I think that's a really good point. I think that speaks to the point I was making earlier. There's only so far lay people can go in pricing when they're doing optimisation. Because they just don't know they've got this playing with very basic variables. They're not doing full optimisation. They're just doing some analytics. It's just a basic formula. This is why a lot of companies now are building pricing teams to internalise and drive optimisation and analytics programs. Both in terms of developing the price algorithm. So it's not necessarily just the consultants who can do that high-performance pricing teams can as well. But also drive that program, tweak it. Optimise even the process. Learn from mistakes and mitigate risks. And capitalise on the value of the product portfolio or the services that the business is selling. As we've spoken a lot in other podcasts, a good pricing team is the glue in an organisation. It brings teams together to make pricing sort of more of an organisation or discipline. It's not just owned by the pricing team, or whoever does the optimisation. It's owned by everybody who gets involved. That's the beauty of internalising that optimisation and pricing capability.

I think in your business if you want to discuss this with us, reach out. Contact us all our contact info is on the website Taylorwells.com.au. We look forward to chatting with you through options, suggestions, all those sorts of things. So yeah, that's it for me today.

The best way is to go to Taylor wells.com.au, our homepage and click on Free pricing audit. We can help you with all these different optimisation and pricing, people and strategy issues and problems.

In this episode of Pricing College - we discuss what a marketer should know about pricing.

Fundamentally, we believe they should be willing and able to work effectively with pricing.

To be honest - this happens too infrequently.

In many of our previous episodes, we have spoken about why pricing or good pricer need to work with other functions, whether finance, sales and very commonly marketing. So in today's episode, we want to discuss, what does a good marketer be? what do they need to know about pricing?

As you probably know pricing is one of the four Ps of marketing. Obviously, over years it's been part of the marketing department and still is, in some companies. But especially in the past two years, pricing has moved away from the conventional sort of marketing function. Which would be more involved in branding and content marketing, to some degree, and internal communications and marketing. Now pricing in the last two years, latest pricing is becoming very much in its own right. A domain, a discipline of its own. It's got specialist skills, specialist mindsets, different technology. A lot of marketers are becoming the sort of disconnected to, what that is? what does it mean? And if indeed they can learn those skills and whether they should? So, I suppose today we're going to discuss some of the techniques, mindsets and approaches. That is occurring or evolving in the discipline just to see what you can take out from that. And if you can apply that as a marketer in your business.

I think in some companies especially B2B and probably some more traditional or less advanced companies. You will sometimes see the negativity about marketing whereby it's seen as dollars wasted. I've even heard it described as the colouring-in department on occasions. Which is quite a disparaging way to look at it. I look at marketing and I suppose you can either be brand building. Or, I much prefer the direct response methodology where marketers go out there. Put out an offer and expect to get a response from customers or potential customers. I think a lot of that stemmed from people like Joe Polish. And some of the better copywriters back over the years. Probably from the 40s onwards that put out an offer. Expect to get a response. Get people to put their hand up and get something to happen. In that direct response environment, I always think there's a much higher chance that the marketers will be working with pricing. Because there's a real dollar delivery from that marketing. When it's more of a branding thing, sometimes I think you can be two steps away. But if you're building a value-based business that branding has to be very much interlinked with what you're doing. What I'm saying is you need to be willing to work with pricing. They have to work hand in glove.

Many years ago the marketer would do that. And in some companies, they do all the pricing. But I think tips that they can learn from pricers that are in a specialised. And dedicated pricing function, as opposed to a mix of marketing and pricing function, is the approach of value-based pricing. And how to translate value in economic terms in the price algorithm. A lot of marketers may not have that technical analytical skill set to turn what is fundamentally quite an abstract concept of value into numbers. Especially in terms of optimisation and dynamic pricing, where prices are going? And, why it's becoming a little bit more removed from conventional marketing? I suppose another area I think that needs to be developed is the understanding of branding. A lot of marketers are very caught up in brand power. And almost forget that underlying that brand power is customer value. They're very connected. When you disconnect customer value from brand power, you can't explain brand power very well. It becomes too abstract. So I think finally what marketers could learn would be more technology. Better analytics, and using data to justify the market research on customers. A lot of market research is very useful. It's very interesting. It's thought-provoking. But in terms of pricing, it's very difficult to use and translate that into an algorithm, a price-setting process. A lot of pricing teams have to scratch their heads thinking, what use can we make of this data, this research. Because there's not much I can do here. It's still too high level. So they have to go off and sort of do a lot of tests and learn themselves to make sense of it.

One thing I'll say is a lot of marketers like I say a lot, quite a percentage. Do not focus on the numbers. They do not focus on profitability, P&L, those sort of aspects. In an ideal world, yes we wish they would. But obviously, sometimes that's not the exact skill set. And of course, there's a lot of demand also for people in branding, visuals, campaigns that sort of stuff. What I look for somebody is the mirror image of what we say about prices. We always say that a good price needs to be able to work with different functions. The shoe is on the other foot also we need marketers who are willing to work with pricing. It's not a one-way street. You have to have that willingness to work. Willingness is not just to run off with a campaign and not think about how it integrates with the pricing department. It has to work together. I'll be honest, from my experience, a lot of marketers just don't do that. You can argue a lot of pricing teams don't do that. But I think a lot of marketers are also guilty of that weakness. And again if two horses are running off in a different direction it will turn the business apart. You need people to be running pulling in the same direction. Working as a team, without the one-upmanship. Sometimes when I hear the pricing works in the marketing department. I hear an alarm bell go off. Because it says to me, marketing holds the upper hand. Then the pricing aspect of it might not get the equal saying or equal listening that it deserves.

I suppose to sum it up there needs to be good working relationships between the pricing departments and the marketing department. But for that to happen I think the marketing department needs to learn, what real pricing and the latest pricing is. Then they'd be in a better position to utilise that information. To hone in and get an evidence-based understanding of different categories, different brands. Because as I Aidan says pricing is one aspect of the pie. You need promotions and marketing campaigns to be aligned with pricing and vice versa. To capitalise on the value you're trying to deliver. And the targets that you have to achieve. That's only done through education. Understanding skill sets. Understanding the changes in the market and working well together. Together in terms of teamwork and strategy, and finding the right people. If any of this resonates with you. Feel free to go on our website at Taylor wells.com.au. And fill in our complimentary pricing audit. We can cover all those things and get back to you.

We look forward to speaking to you. As we always say, you keep your eye on the focus. Keep your eye on the prize. The reality is for a marketer, the real long term price is not a nice logo or branding or imagery. The real long term goal they should be working towards is company profitability and success. Pricing has to be part of that. So yeah we look forward to speaking to you. Hopefully, you reach out and we will have a chat.

Many companies in 2020 say they practise revenue management but do they really?

We ask are many of them really doing traditional pricing management and strategy?

In today's episode, we want to ask, do companies sometimes believe they're doing revenue management? When in actual fact, they're not really. They're just pursuing pricing or contracting or tendering.

There seems to be a movement occurring in the pricing community. Whereby if you say you're in revenue management as opposed to pricing. This is somehow a more glamorous more scientific approach to optimising revenue to get more margins. When potentially you're still doing basic sort of cost-plus pricing under that sort of veneer of revenue management.

I think we've seen this in many sectors. I've seen it in the garbage collection. I've seen it in FMCG, foodstuffs and these sort of things. And we've even seen it in tendering for government contracts. To be honest, the revenue management I always think of it as through pricing your optimising capacity-constrained stuff. In reality, many companies if you're selling food, if you're picking up bins you're not capacity constrained. It's very rare for you to be at full capacity or to almost be a full capacity. If you want to produce more of something you can do more of it. And if you're tendering, you're not optimising. You're not using price into segmentation to optimise revenue. What you're doing is tendering to say yes we will do all this work if we win. If we don't and we'll do it at the price that through tender you ask. We've covered tendering quite negatively to some extent in some previous episodes. But I personally don't think that you can be doing revenue management in a classical sense with a lot of data analytics and big data if you're doing tendering or if you're selling to supermarkets all that sort of thing.

If you're looking at or if your perception of revenue management is one that moves beyond capacity utilisation. And now you're thinking about optimising revenues based on customer demand. Equally, I would argue a lot of teams are nowhere near that level of sophistication when they are optimising prices or even setting prices. Customer value drivers, forecasting and understanding of demand either past or in real-time is very immature. In both aspects of customer demand and supply, both areas are underdone. I would suspect that is because of the pricing model. As Aidan was saying is largely locked in by that sort of tender based approach.

Especially if you're doing tenders government contracting or even dealing with big supermarket chains. Where you're dealing with almost duopoly in your customer base. To some extent, you don't have the pricing power to differentiate and optimise revenue without in that instance. To a large extent, you're being dictated by the purchaser in some way. It's almost like the reverse of revenue management. It's almost you've been kept to a minimum level. We've gone through tenders and contracting this sort of work where procurement will try to push you as low as possible. You can look at an airline, where there is commercial travel. Let's say a big bank or a big major corporation might get special rates on flights, etc. But that will be one segment of the market. If your main customers are say the big supermarket chain or something like that. They account for a very large percentage of your revenue clearly your be your ability to differentiated is diminished. I always think that you have to have that confidence to increase prices. To change prices, to move prices etc., to optimise and practice good revenue management. Most companies don't have that ability with their customers. Most companies are locked into longer-term prices whether it's over a month or a year or even longer. When you're in that scenario your ability really to optimise is minimal.

And as a result, because the whole relationship with a customer and that sort of price relationship are sort of limited by tendering. And that old fashioned approach what happens, as a result, is that you can't do revenue management as well as you would like. Then you end up sort of doing that more of tactical pricing and revenue management to optimise revenues. By that I mean, often you're given very limited options to play with the pricing playbook as it were. Especially in FMCG and go to everyday low pricing. Then try different discounts levels to push volume at different price points. To drive revenue and to get those margin targets. Then it just becomes a sort of pretty much the same in bouncing from different promotional prices and discounts to drive revenue to reach your targets. Unfortunately, that isn't good revenue management practice it becomes very reactive. It's stressful because you've only got a certain bandwidth price window to play. It does frustrate good pricing professionals quite a lot. Because they know the full extent of revenue management strategic pricing could yield much better results. Not just for the business they're working in but for their customers as well. But because of this old fashioned sort of ecosystem value chain. Which is a very limited value between the customer and the company. Everyone sort of misses out, unfortunately.

To be honest, I don't think I have much more to add on this one. I think we are going to end with an offer we have.

I supposed these sorts of problems are things that you're facing as a pricing manager or commercial executive. Feel free to reach out, go to our website and Taylor wells.com.au. On our homepage, you'll find the opportunity to start our pricing audit. It's a free pricing audit just fill in your details. And we'll get back to you and we can go through all of those things in more detail.

In this episode of Pricing College - we continue to look at revenue management.

You may have heard that airlines can sometimes sell tickets at very low prices - and that it makes sense.

We look into this practise here.

In today's episode, we want to dig into a very common question about revenue management is the classic idea is, can you really sell the last seat on an aeroplane for $1 and be profitable? This is the concept where you come running up to the flights about to leave the gear. You come running up to the desk and say, Can I buy a ticket? The question is, what price could it sell a ticket out and be justified and be profitable?

It's a good scenario to think about. Actually, we've asked a lot of pricing analysts and revenue analysts this very same question. A lot of them have said, No, it wouldn't be profitable. But, is that the case?

I think fundamentally the question we're asking here is, how much money can you make? What's the most profitable price you can sell that ticket for? If somebody comes running up and they're willing to pay $1,000 for it. Yeah, sell for $1,000. But if they're not, there is a price that you could charge them that would be much lower than the standard price. Potentially, if you would just sell it or just make a few extra dollars. You know the other thing to bear in mind here is that you would probably bother with additional costs. I suppose the two things I look at are the additional costs in selling that ticket to that person. Are they bringing a lot of luggage with them? Is it gonna be extra heavy? Or, are they're gonna consume food and drinks that would have a real cost that wouldn't have been consumed on the plane otherwise? Would it take extra fuel to fly this person? All these things, let's assume a few dollars here and there. But broadly speaking, not a huge amount. So you'd want the amount of the dollar price to cover that amount. The other thing I'd think about it in any way shape or form is if people know that they can buy tickets at rock bottom prices at the last minute, would it cannibalise your actual normal sales? would people not book tickets and just chance and run around buying a $1,000 ticket? Would they chance run and turn up gate 10 minutes before take-off and go I've got 10 bucks in my pocket?

I suppose those are all the key risks you'd have to factor in especially if you're offering last-minute flights for $1 that does kind of high risk for future sales. But thinking about that actual scenario in terms of, what it is? The plane is about to leave, it's already scheduled to go. The companies made a commitment to fly their plane. People are on the plane and you just happen to turn up last minute. Yeah, for sure if there's no one else ready to book, and you're selling it to $1. It's still at a profit. Because they wouldn't have got that $1 if you not have gone to the airline at that point in time. It's all about timing, it's about customer segmentation and it's about, Where you are at that point in time? What the strategy is of the airline? the price parameters of their strategy? What are their price bands? Are they willing to go over or under those price bands to get that sale? And this is all involved in strategic price-setting and what a pricing manager should contemplate. As Aidan identified those key risks, you've got to cover your costs, you've got to ensure that any price point isn't going to cannibalise future sales. But are you thinking now, in terms of making immediate revenue? Or, are you thinking sustainably about safely making profitable revenue growth in a safe way over a 3-6-9 month period, and further.

I think there are two other things I probably add about it. If you think about it, it's almost like a time expiring product. So it's almost like once the door on that plane is closed and it pulled away from the gate it's expired. You cannot sell that product or that seat, you can't sell it again. In theory, it's a bit like food that's expiring, or any item. Once you go into a supermarket in the evening, often you may get a great discount on some of the food. But you have to consume it that day for its passing it's the expiry date. In reality, that's the way to think about the seat. The other thing I say that might make it more clear to people that it would be profitable to discount. Think about a business class seat. Let's say a business class seat generally sold for $5,000. And somebody turns up with a minute to go when they're willing to pay $3,000. It is a huge discount. But it's still obviously very profitable for the company and to the airline. Clearly, it's just money that they wouldn't have had. And it would easily cover the costs, the additional weight etc of that person. It makes a lot of sense that the big thing to watch out for, would it lower the quality if people knew in business class that other people were coming in and getting a much-reduced price than there were? would it annoy them? would it stop them or would it almost think oh they're being penalised for booking early? They're being penalised for being loyal customers versus this last-minute person who just turns up? Those aspects you have to consider but ignore all those can make perfect sense.

I suppose that's what you've got to think of your brand. Your brand equity when you're setting prices and changing prices as part of a dynamic pricing strategy. Obviously, on top of that, there are going to be regulations and certain things that you can and cannot do. Maybe that isn't impossible to do that low in the airline's industry. But it's a scenario to think about. And I think there's a lot of businesses like last minute.com that have taken that idea of selling perishable goods. Sort of a later date last minute to make the most of inventory at a profitable price point. So obviously it's a concept that has done extremely well for businesses.

It is the bread and butter of revenue management. They're trying to maximise revenue for capacity-constrained services, this is a classic example. The other thing you'd be saying, a business or an airline should hopefully be selling all their seats. Otherwise, maybe their prices are too high or because of some other problems. In reality, they should not be every day. There should be, you know you're hoping to aim for 100% capacity on that flight. And if people knew that there was a very high chance they would get that ticket. Then it would start causing problems. The person is willing to turn up and pay $3,000. They've got that cash in their pocket. But at the same time, they also have to be willing to accept a lot of volatility. There's a high chance they could be stuck at the airport that night. In some way would you rather spend $5,000, you're a business person and know you'd make a meeting on a Monday morning? or spend $3,000 and be stuck in an airport over the weekend? There's a certain type of person that would in theory buy that ticket. It probably isn't as common as you might imagine.

So I suppose to know if a dynamic pricing strategy is correct for your business. Because a lot of other businesses outside the Airline industry are thinking about dynamic pricing revenue management. I think a key recommendation would be to diagnose your business, your commercial situation right now. Think about your customer segments, think about your brand and price positioning in the market. Then really test the pricing parameters of your current pricing model. Are they updated? Can you move the price ceiling or the price floors correct? Then start to test different price points, just to see what levels, you're getting more volume at more profitable price points and vice versa. All of this requires a good firm understanding of your pricing system and that requires some diagnostics.

I think that's it for me I think we're going to leave it with a call out. Whereby we're asking people if they would like to get analytics on their business or career. Reach out to us at taylorwells.com.au and sign up and you take advantage of that offer.

It's quite easy to do so you just go to our home page taylorwells.com.au. And click to get your free pricing audit today and everything else will and just book in. Easy as that.

In this episode of pricing college - we take a look at revenue management and ask if your business really requires a complex IT system to implement revenue management.

Many companies are not at the pricing maturity to fully take advantage of a system of this nature.

In today's episode we want to ask, do you need to use complex computer programs and systems in a revenue management department? The question here arises because more and more we're seeing programs. A multimillion-dollar system used to just be used in airlines, hotels, etc, being suggested to many more different types of companies. And we ask, is that really required?

Well, I think people are investing. Companies are investing more in revenue management software to optimise their processes based on a lot of different types of criteria. In the past, 10 or 20 years ago and thinking about airlines now. Because they were the first to adopt more software for pricing and revenue management. But they started pretty basically. They would have certain price points. Three or four different price points per seat or flight. Then once the seats run out at a certain price. They go to the next bucket of the price which tended to be higher. In a way, it sort of gave that sense of dynamic pricing revenue management. But it was just a way of getting more yield in a very basic way at different price points. But I think now as the pricing management team expands the discipline evolves. We're finding now optimised prices for airlines or in industries with very slim margins. You may have to invest more in software to safely optimise prices and revenues. Otherwise, you could be at risk of falling loss.

One thing I'll say here is often people think they're gonna go 100% from day one. In many aspects of business and certainly in pricing revenue management, it's taken many steps. It's getting early wins. It's getting scores on the board or getting buy-in from stakeholders and moving forward. Going from a position where you've got no pricing department, no revenue management. Then jumping into a multimillion-dollar system. To be honest probably isn't the right way to do it. It's much better to get a lot of the benefits by spending very small amounts of money. People often think that you have to go 100% into something to get the results and there's no graded or step basis. But I'm a big believer in step by step. It always reminds me of people who say they're going to start the gym. That they don't want to get too big. They always say not having the awareness as to how difficult it is to build muscle, etc. And they're almost like thinking they'll become Arnold Schwarzenegger overnight. In some way, I don't think many people have linked pricing to Arnold Schwarzenegger before. But in this context, take little steps you will get a lot of the benefits. A lot of companies with very immature pricing revenue management systems. I don't think it's ready to jump in at the beginning. When you don't know what you're doing when you don't fully understand your pricing approach, let alone your optimisations approaches. I think don't buy the big-ticket things immediately. Because you could be left with a white elephant sitting there not being used.

I think that's a good point, a lot of companies do invest in software as a knee-jerk reaction to a changing market or some form of price pressure from the competition. What they end up doing is going, oh, you know, I'll get that silver bullet solution. I'll get some revenue management software to optimise my prices. I won't invest in a pricing team. I don't even know, what a pricing framework is? But there's an assumption that that software has it all. It doesn't and if it does it's bare-bones. It needs to be implemented and integrated into the business. There has to be a pricing framework and algorithm to run it. That again needs to be adjusted according to the business various dynamics and factors. When I mentioned the airline's industry before that was quite a slow process to where it's where it is now. Initially, it started very rudimentary revenue management. Not dynamic pricing but given the illusion of dynamic pricing by moving to different buckets. That's not a sophisticated form of capacity utilisation or even optimising based on customer or consumer demand. Now, however, over the last 20 or 30 years, the airline's industry has learned a lot. They've cultivated their own business rules, factors and variables. That they'd like to study from a pricing perspective to optimise their revenues safely. That could be flights forecasting, network effect, the whole lot. So they're looking at multiple dynamics to optimise prices. Seat pricing, flight connections, the availability within the network and how popular a given type of flight, or system is? Also looking at ancillary optimisations of products as well as as a whole, of their food, the trolley cart and all of that perfumes. And all that sort of stuff that's all integrated within the system. So there are multiple variables to consider. In that regard, sometimes it could be data overload, just thinking through all of that. So a good pricing software system will be very useful.

I think we just go through there, a lot of the complex things that airlines and companies like really look at. In the airline industry, it's accepted revenue management and an accepted function. There are experts in that business and they're using tools of the trade. I'll be honest, a lot of the companies we look at don't have that level of maturity. So even going through those factors that we could be looking at. Such as competition on the lines, special events, connections, whatever else. A lot of companies in the pricing functions or well some of them don't even have a pricing function. Let alone have that level of detail as to what driving demand and pricing. In that context, to be honest, I think an expensive revenue management system won't be useful to them until they're much further along than the maturity cycle. I think this back of the envelope stuff. You got to spend your money at the beginning to build your expertise. You probably get someone in there to run pricing for you, maybe a pricing manager, a pricing analyst. Get a good Excel system in place, a good ERP system maybe, or use a system that you do have. Why throw a lot of money into something, if you don't have the capability to use it? I think there's something we'll touch on in future episodes. But one of the big problems with revenue management systems is they don't just come straight out of the box. Especially if you're not in the airline industry. There needs to be tailoring, tinkering and making it applicable to your business. When someone goes for a job interview, you're often asked, do you understand this industry? The same thing applies to computers and systems. Not to be negative about it, they're very useful tools. But I would say a start easy start in a way you can understand. Don't jump into the deep end.

Work out what your strategic price-setting process is, does it optimise revenues? Then think about your approach, is dynamic pricing essential for your business? or perhaps it's not? So it's thinking about your business, what works for your business now? Then have that five-year plan in mind. And being able to iterate as you go along. Because things do change, markets change, a customer base changes. We all know that going through COVID at the moment how quickly things change. How that impacts pricing and business models. Having that in mind, even though you've got that five-year plan but understanding your business. Your approach to pricing then building that pricing team who can figure that out for you. Then from there, making small steps to getting the system. Building on the framework as suggested. And working across the business to make that happen because pricing doesn't happen just within the pricing team. It's a real organisational level commitment.

We know that our listeners are interested in pricing, revenue management and boosting profits - but how many people really work as dedicated pricing professionals in Australia.

The answer is not very many at all.

Aidan and Joanna try to estimate the actual number.

In the last few months, we've all been experiencing quite a lot of change with COVID, the whole crisis and the government's response to it. One of those has been the serious economic challenges that we're all dealing with many people now have lost their jobs. A lot of people now are thinking about re-skilling. Some people are thinking don't know what to do and going for advice. We get a lot of people calling us asking us, "what to do next in terms of career planning?". And it's brought on the question of, how many real pricing jobs and even executives are there in Australia? Are there as many as we think? A lot of people say pricing is very niche. How niches have that become now? Or is it a growing market that people should come to?

The other thing I'd say is we often see people saying, or they're moving to Australia. They're moving territory country. Are there any pricing roles available? I have to be completely honest, there are not very many pricing jobs available. It is a small profession. It applies not only in Australia but also in many other countries, it is a small profession. We'll come up with a number later in this podcast to what we asked to be. That's the first thing I say. The second thing I'll say is a lot of roles are seen as pricing or advertised if you went to jobs board and jobs websites. They're not pricing roles in the context of which we discussed pricing. You'll often get the classic transfer pricing and currency taxation thing which is completely different. You get pricing through commodities but more monopoly businesses, such as electricity, gas, water those sorts of things. Which again is different, it's more about government regulation. When we're talking about the stuff we talked about day in day out on our podcast that category of jobs is small.

Yes and even within that small category of jobs. You might see a few pricing analysts in B2B and B2C retail advertise say on LinkedIn or wherever. But when you look closely at the job description you'll find they are not strategic pricing roles. Those are considering data or customer value and trying to unpack that to drive profitability. They're still very much on the admin side. When I say price admin sort of level very operational maybe a touch of stakeholder engagement. But very much like just maintaining the price records. Extracting data out of the system. And doing a sort of very basic margin price cost analysis. Even going down the route accountancy doing cost accounting to then allocate cost to derive a cost-plus price. You'll see that a lot but it's still more on the maintenance of an old cost-plus system. Not what we discuss on the podcast and more advanced the latest pricing strategy revolving around value-based pricing and dynamic pricing.

In another aspect, pricing the closest thing to it is probably revenue management. Through the whole COVID the crisis and the government shutdown. Just almost as if the government believes that closing down revenue management jobs will stop the spread of the illness. When you look at how revenue management was most advanced in companies such as airlines, hotel chains, cruise ships and car rental businesses. Pretty much the people who've been ground zero for this shutdown in Australia and internationally. So, that is a sector that's very much under pressure. We have to be honest about this. The skills that they have and working at value for customers optimising revenue. Those skills are used less frequently in other sectors. They probably have been growing in the supermarket's potentially some of the major supermarket chains. We have to be honest pricing is still in its infancy. One of the reasons we do this podcast every week is to spread the word. Spread news about it. Hopefully triggered some people's minds to get that moment where they realise, what pricing is? What it can do? what it can do for their career or their business?

It has been unfortunate we've seen a lot of people, especially in the cruise line business been made redundant. As a result, this is what Aiden was saying there's only so long you can keep a large bank of staff. Even if they do have highly specialised skills after a time. The company just can't afford them. So, there's some great talent out there looking to apply. Some really good skills. We do see these skills could be applied in a lot of different industries not just people's go, "oh you know that's the cruise industry that's it, we can't use those skills". I disagree with that. I think that they're bringing something new from other industries that can be easily applied to B2B. It's just a mindset change. And having that diversity and bringing those new skills in would be an enormous benefit. Especially for businesses with huge product portfolios. Just understanding and not just thinking about shifting stock. But thinking about the dynamically pricing stock. B2B is a very fixed pricing arrangement. I think the cruise line thinking could add value into more change into product and price segmentation tiers. Just logic I mean I can go into the detail. But there are so many different types of skills that could be applied. It is thinking differently now about talent. Because when you think differently about a talent you create more opportunity and growth. That's an important thing if we shut down opportunities. Then the number of people that are going to have a dead-end career in pricing is going to be huge. That doesn't need to be that way. They're easily transferable skills that can add value to different sectors.

I think certainly the cruise ship and this is one we probably cover in a future episode. That is very much discretionary expansion. People choose what sort of holiday or vacation they want to have. If COVID declines and we're back enjoying ourselves again actually living life. Why do people choose to go on a cruise? Why do they choose to spend their money where they're in an environment where they can only spend it with one company? The goal is they can choose the type of cabin they want. They can choose the number of days you want to go for etc and different locations. There's a lot of customer segmentation. There are a lot of customer value drivers that none industry has worked on and is knowledgeable about. Those concepts can apply to many other industries. One of the things I suppose what we often see as people are like when they're looking for someone to join their company. They want to see, did that person almost does the exact same job before? They probably didn't, to what benefit would it be? Well, you're not going to somebody excellent who's done something very similar. But even better elsewhere in another industry and they can bring those ideas. It's almost as if people are, you know, they're almost a few that their own business and their own industry is perfect as it is. Then the question is if it's perfect, why do you want to change it? do you not want to move to somewhere else? Having new ideas, new skills it may challenge you. But it should also add certain benefits.

It should. But I think when you bring in new skills, a new way of thinking. When you read about that in Harvard Business Review it sounds all very exciting. And you think you're that sort of person that's going to easily accept this kind of new and diverse people and skills. But then, time and time again when it comes to it. When there is a change management situation. When somebody is challenging you on a fundamental belief system regarding pricing, making money and driving growth. That disagreement can hold many businesses progress in pricing. And pricing improvement programs go nowhere that just revert back to cost-plus. But look, we're on a tangent now I'm going to answer the question in terms of, how many people in Australia do pricing? When I say do pricing, do pricing properly in terms of value-based dynamic, strategic, price setting the whole lot. I would say under 1000. People that are good possibly like 300 of those. People that know about systems like AI pricing, PRO, Zilliant all of those sorts of cool fancy systems are being brought over gradually now. I think now we've been getting to a handful of people that can do all of that. I would say overall Australia is not at level five price maturity on that well-known maturity scale from I think was pricing solutions made up. That's optimising prices using fancy systems statistical testing and big data. That would be more advanced or probably around about three sorts of managed pricing capability price management systems. In a way, a country's maturity does hold talent back. Because you can only do what you can do within a certain context framework. Whether it's an institutional framework or the pricing framework or system that you're using. But there's certainly a lot of great talent here. I can see it, we've assessed it and I have excellent conversations with people that want to try. And do their best that they can just give them the opportunity. I see some businesses are opening up the gates again looking at growth. Rather than just cost management which is great news for people in pricing. Because some great people want to do proper pricing and drive growth again. Driving growth is important for economic productivity and the whole thing. So the pricing industry and the community do a great job in building the economy. And we have to keep our mindset on growth. And value as a country to ensure that we do give people the opportunity to be productive and to do the best pricing work they can.

I think, reiterating some of those points I think in the course of COVID world, it's not going to be easy. Let's be honest we're facing an economic catastrophe. So we have to grow businesses. We have seen new businesses. We have to have that economic capitalism destruction and creation. Traditionally Australia's been seen as the lucky country in many sectors with a duopoly. Where we haven't had new grown companies come in. And aggressive new companies with new value offer. That isn't something that I would characterise Australia as really having over the last 20 or 30 years. We do need to have that. With that, we need to be focusing on innovation. We need to be focusing on the value that these companies can offer to the customers. With that, we need to be thinking smarter, working better and pricing has to be a key part of that. Because if it's not we will have the remaining hoax to offer listed companies in every sector. That will just be a managing decline in those industries as everything else gets outsourced to be watching Netflix and getting Amazon shipped to our home. Yeah, it's hard work. But it's certainly, we will do it like a challenge. I'll be honest, nobody likes to challenge. People like to give it to them on a plate. But when a challenge comes along, you have to choose whether or not you make it. That's what defines winning or losing. So I think in this instance we need to be focusing on pricing. It's a small set of 300 jobs I think that's the number Joanna give. There should be 3000 jobs, there should be 10,000 jobs. Because without those jobs, the companies won't be being profitable. And they won't be delivering profitability internationally and nationally. They will not be creating those great jobs in all aspects that companies need for a vibrant economy.

It's come to a point now where at the fulcrum point of, do we continue to reject growth and new ideas in Australia? Or do we actually go? There are people here that can do exceptional things to drive profitability using pricing by their understanding of value, by their understanding of the customer, and how they consume. I just don't know it could be as a CEO, as an executive in the business. I need that in the business to mix things up. It might not be what I agree with. But I'm willing to try it. I'm willing to see it through as long as there's a process. And they're going to put a roadmap in ahead so we can all agree on each step of the way. I'm going to accept that. Because we're running out of alternatives. And I think the growth is so much better than cost-cutting when there's so much great talent out there that can give you the value that you want as a company.

In Lady Windemere's Fan, Oscar Wilde had Lord Darlington quip that a cynic was 'a man who knows the price of everything and the value of nothing.' As with so much of what Wilde wrote or said, it's more than just a nice turn of phrase – it hits at the heart of the problems of society. Lady Windemere's Fan was written in 1892, but what Wilde wrote is even more true now than it was 122 years ago. We discuss what it means in pricing - and is it overused and cliched - or does it offer anything value.

If anyone has spent any time whatsoever in the pricing profession you have almost certainly heard the Oscar Wilde quote. I suppose it's a quote. It's actually from one of his plays that goes along the lines of, "what is a cynic?" A man who knows the price of everything and the value of nothing. It's almost been so overused, we want to cover it today. Is it a cliché? Or, does it have any value to people in business and the pricing profession?

I think it's only used because it's a well-known quote. It's only used to define a cynic because it's great. But it's kind of underused in the pricing profession. Yes, it does exemplify the difference between people who understand the value. And people who are passionately against the understanding of value. To the point, they're just not willing to even contemplate it. They're real personas here. I've met very cynical managers and executives in businesses who are just ardently just do not want to give up on cost-plus pricing. They say the bill is idle of everything and there couldn't be anything else that could replace it. Even bringing up a concept of value would be sort of pushed aside. Like almost something ridiculous to discuss in a meeting room. Even though everyone else can kind of see that there has to be more to life. Then just literally, the sum of the component parts of each different type of thing and cost. Then adding a markup to get money. It's just too simplistic for words. So this quote means it does mean a lot to the pricing people but I think it's not discussed enough.

It highlights for me I don't think Oscar Wilde would appreciate other people changing the meaning of what he or what he wanted to say into something completely different. But I think it does differentiate. There is a massive difference in price and value. They're completely polar opposite things whether we want to call the person who sees that as a cynic or whatever else. On the flip side, of course, Oscar Wilde play was also a sentimentalist. It's the flip side of that coin. But you will see in companies where the company is very much focused as Joanna said on cost-plus or some other method. They will not invest in building the perceived value of the product. Increasing the value of the product, product innovation, those sort of aspects. They don't see the value that the product can offer and see as it is a marketing airy-fairy sort of nonsense. I work in companies. I'm sure many of you have where it's just dismissed. It's just dismissed by the old school accountant approach. And again I preach it was accounting so I'm not bashing that profession. But it's almost a negative side of that profession. Whereby people just dismiss the concept that value even exists or that value can help the prices increase. It's seen as either too complex or just fluffing mountains.

When I look at that quote, "a man who knows the price of everything". In terms of the business, they see the product portfolio as literally just stock sitting there on the shelf that needs to be moved. It's very transactional everything. I'm sure a great accountant would know all the prices very well. Have them catalogued, recorded and can model them. Can do all of that stuff. Have all in the mind or all in Excel. They can just quote it but that's it, that's what as far as it goes. In terms of the last statement of the value of nothing, or a person that will just see it as a very transactional thing. They won't think about okay, why are people coming to the business to buy these products? What is the value of it? Why are people consuming? That's a question that a good pricing person will ask, and many accountants don't ask. Again, I'm not bashing accountants. It's not their area to ask. But at the same time, the good ones do. And it just opens a whole different realm, a different subject, a different discussion. That is much bigger and that's where you can find greater price premiums to drive profitability. If you just stick in this volume game. These are the stock we need to push out the door. You're limiting yourself and that value equation.

Sometimes in many aspects of life, the truth can hide in plain sight. It can be so obvious that people can't see the wood for the trees, to use other literary expressions. We might start doing literary expressions or quotations on this podcast also. But sometimes it's so obvious to some people and so almost invisible to others. Even if you question stuff for a minute it becomes certainly clear that value can drive price. Say a wine business. You went to any wine shop or bottle shop and you're selecting a bottle of wine for a dinner party. There are very different products on those shelves. They might be in this same style of bottles. There may be the same ship, even the Label might be very similar. But the price from one versus another could be infinitely different. It's not just the tiers that people just talk about tiers. In an aspect, there are hundreds of differentiators. You look at champagne versus any other sparkling wine. You look at a cava, prosecco all these different things in all Australian sparkling wine. In many instances, champagne from the true shopping in France will sell at a premium. And it may not be that people purchasing the bottle prefer that flavour without tiers there could be other aspects too. It's been wine was more of a sensory thing. But obviously, this applies in pretty much every industry. Literally, when someone's denying it to that extent, they're not a cynic but they are being willfully blind to the truth.

I was trying to think of it a different way. The cynic can be a great person to have on the team. That is if you've got a diverse mix of other personalities and opinions on the team as well. Because a cynic almost makes you passionately reject. Sometimes that unwillingness to push the frontier. And think about a different topic in a different way just through the way they perceive life and the fact that there can't be any alternatives. A good pricing person will always sort of think that okay we're up for debate now when a cynic comes along. What Oscar Wilde says here about a cynic, I think it's interesting. Because a cynic does provoke a lot of great conversation through their unwillingness to sort of debate. But they do change as well. I know a lot of great cynics have done great work with pricing once they've got that outlier moment about value. Thinking about the market in terms of, how people behave and respond to their business? Why do they value their business? Not even just the product when they see doing business with them as something greater than just the sum of its parts. It makes their life and their role in their own business as an executive more rewarding as well. That's when you start getting meaningful partnerships with your customers.

I think we need pricers to be cynics. When we say that, we need them to have that skill set knowing the price and value are completely different. They need to question everything. They need to question, why the value should be this? What do we want it to be? Why the price is this? They need to be cynical. They can't just accept the status or whatever the company mantra. Many companies have what used to call Yes man. I suppose the yes culture in the corporate is still very prominent as much as ever. To transform a business and to increase profitability, you need to question things. To question things, you need to be cynical about stuff. You need to question to tick the tiers and see if it stands up to scrutiny. That's it for me I think.

I think a good cynic is a great scientist. I think we all know now that more scientific processes are coming to pricing. More data, more analytics, hypothesis testing, and a good cynic will impose the null hypothesis. Give you reasons to reject or accept our hypothesis and this is great. But we've got to have diversity on the team. Have that creative ability to construct alternative hypotheses that people hadn't thought about in the past. In terms of value, in terms of demand, in terms of what drives people, their behaviours, and their psychology. Because all of these things are related to the financial outcome businesses want to achieve. So yeah, I think I pretty much said all I wanna say. I think it's important to have that diversity. I think Oscar Wilde did say a great and very relevant quote from him about pricing, about life in general.

Oscar Wilde is not one of those people if you've ever said we're short of words or short of opinions. It'd be very interesting to see how he would be coping in 2020. It'll be legacy what he would have to say about the current situation.

In this episode of Pricing College - we discuss what a bubble is and why we do not really discuss speculation, investment or pricing options or financial instruments. Often what is described as a bubble is not a bubble - but rational demand driven prices for a hot item or service. Today we're gonna talk about a slightly different economic topic on like bubbles. But bubbles in housing, bubbles in IT, all those sorts of things. And we're gonna just talk a little bit about kind of why they're not talked about in pricing. Sometimes they are in certain industries and just go into a little bit more detail about them. Explain why we don't generally cover bubbles or pricing speculation, or those sort of things on our podcast. I suppose fundamentally the reason is that we specialise in pricing products services to either B2B or B2C consumers. Generally, we don't focus on investments. Whereby you think a product that you buy today for the $100 would go up to $500 in the future. Or, even a store value that might maintain its value over time. So that's not where we focus. There still is a transaction approach but you're not buying that item, that share, that dividend whatever it is that commodity for the usage after the value place out. You're buying it to potentially keep it in your portfolio or selling it later on. Hopefully, a price increase.

At the same time bubbles has some kind of human element to them, in terms of their relationship with consumer confidence, consumer demand, supply and demand. So there is that sort of I suppose general theme with bubbles that still related to human beings. But at the same time, it's quite hard to measure as a price-setting metric or even something that you can tangibly use to search prices for products and services. Yet in the real estate industry, people follow bubbles as one leading indicator of where the markets going. So it's not something that we completely ignore. But it's still for like products and services in B2B and B2C, it's still not useful enough to determine as a metric.

I think there is an overlap in the psychology of pricing in any aspect and the psychology of bubbles also. Generally in bubbles, when we're talking about speculation whether that's a Dutch Tulip Mania, the Japanese property bubble in the late 80s. Or, anything else based on some aspect of shortage or perceived shortage, some increase in demand. And people say just a mass-market belief that is going to increase. Whether that's supported by media coverage. Cheap money through very low-interest rates. Or something along those lines pushing people to think things that happened yesterday will continue in the future. Obviously with the sort of bubbles and speculations when it gets to the end. Often the price increase can accelerate. Because people want that increasing acceleration in price almost out where the perceived risk assuming when prices get higher. The risk of them collapsing increases also. The psychological aspect of what people look at. There certainly is overlap in that regard. I suppose, in our podcasts, and blogs different content we generally focus on products that are tangible usage. Or, some sort of usage to the customer, whereby the value the customer places on them is actually in line with the price they pay. Words and speculation of bubbles I think I'd make the differentiation that the price people pay is fundamentally, there's no other tangible benefit to it. In many cases, think of Bancassurance, one of the big four banks. There's no real value in having and accepting the actual price so the price and the price are the same. The value of the price is fundamentally the same thing in a modern environment. So it defeats the entire point built of advertising, marketing, value culture those sort of aspects.

I think when there's a bubble there's some kind of I think people like to relate the bubble to the price. I'm thinking here in terms of real estate when there's a bubble. You see prices going up. People think that is a direct correlation between or a direct link between the two. It's more just a correlation. So when there's, for instance, a speculative bubble in the housing market you'll see more activity in pricing. There'll be more variation in prices, broad prices tend to go up. Also, there's more like bids and an auction as opposed to direct sales through the real estate agent. When there is speculation for instance that the bubbles burst. What happens is less variation in price. Everyone's more nervous, consumer sentiment goes down, and real estate agents tend to do sort of more direct selling. You even get cold calling. More bids and all the auctions are close to that the pricing becomes more secretive. I think because of that sort of relationship between a bubble and pricing especially in the real estate industry people think there's a direct link. But it's just more again on that myth like sort of just a correlation. It's speculation. It's more confusion and people leading with their gut, as opposed to any evidence. That's still quite relevant in a lot of industries. A lot of pricing especially in the real estate industry when it's related to that bubble type of concept. It becomes very much a guesswork and gut feeling.

The other thing I would say is very often you'll hear popular players or even just people talking and they call things bubbles. In the reality, they're not a bubble at all. Prices can increase in short periods of time. And there are very often real value-based pricing reasons for that. The Superbowl Sunday say if it's in Miami. Hotel prices will increase for the weekend before that game. That's perfectly understandable. Just because it increased it doesn't mean there's a bubble in them. Unless the only way it could be a bubble, in theory, will be of people booking the rooms. Then subletting them or renting them out to somebody else. That's in a secondary market prior to that which could happen in scalping for tickets to sports events and those sort of things. The other thing I'd say is the price in Australia and I believe other countries have covered real increasing prices for puppies. Recently during the whole COVID crisis. Prices for dogs have gone through the roof for certain suitable dogs that can live in cities and apartments, etc. Is there a logical reason for that to happen? Yes, of course. People are stuck at home. There are a lot of people lonely. There are a lot of people looking for a company. Obviously, dogs are real living animals. So you can't produce an infinite amount of dogs in a week. Then much lower amount the next. So it's very much a demand-driven increase in a commodity or capacity-constrained environment.

In a way, people's discussion of bubbles is almost a misunderstanding of supply and demand. It has a mythical status for laypeople who potentially don't know as much as pricing experts about the dynamics between supply and demand. Customer demand driving up to various industries, various products. Then there's a decline. Pricing people know that. They make money out of it. They do yield management and such. But maybe other industries aren't sophisticated in their pricing knowledge. Then they use this sort of bubble as the soothsaying sort of mythical bubble as an explanation for price increases. And consumer demand it could be that.

I don't think, in general terms, our podcast is not focused on pricing areas such as stock valuation, is not focused on derivative valuations. Often you'll see job ads and you'll probably see as many job ads for pricing people in banks. That is a very different skill set. Very much more evaluation based aspect. Or looking at, should you invest in companies, etc, which is a very different thing than what we talk about. We have mentioned Warren Buffett on the previous podcast when he looks at a company. He looks and sees the pricing power of the business. So even the best investors are looking at the pricing capability that a company has. That's different to them. That will help them form the valuation for the company that they have. But the pricing, they're looking at is a great different aspect and I think we should keep that in mind.

In this episode of Pricing College - we cover the trend for many manufacturers of food products to produce very similar unlabelled or supermarket own brands.

We discuss how this can be a problem for your business in the longer term.

In today's episode, we are going to look at "own brands". And how own brand in the world of food fast-moving consumer goods, those sort of items. How can damage the actual brand?

Thinking about how it all started with its own brands. It came about through a sort of private label strategy to supermarkets. Favouring Private Labels in a way help with everyday low pricing. Consumers and shoppers wanted a bit more variation when they were buying. They were saying the price was a major driver. Then, from there supermarkets came up with that pushing private label. Often a part of that strategy was to ask every supplier providing the branded goods to make their own brand. A cheaper version of an own brand to compete or add depth to the category onto the product assortment. In theory, there are positives. It's giving consumers sort of what they want or what they think they want. But in a way, it's also damaged the supplier, supermarket retail relationships on a number of levels. Suppliers have lost a fair amount of margin over the years with their own brand private label strategy. Yes, in the short term they did have sort of some kind of spike in revenue and volume, which I'm sure that they enjoyed from their brand. But at the same time, over time, a lot of the brands have worked too. But bite them because now they're being asked to put the well known branded goods on to a program called EDLP, everyday low pricing. And overall I think this is reducing sort of the value of the category year on year. And consumers are not nonplussed about it either. So I do think there have been some negative effects.

I think you can understand from a manufacturer's perspective why they will look at their brand or unbranded version. So let's say you produce any sort of product whether it's washing powder or whatever it is. You've invested in the brand. You spend money on television adverts and it's a very common item in people's minds. You have a target market out there that want to purchase that product. Buy it every week when they do the weekly shop and they want that item. There's pressure on you and from the supermarket or the retailer to lower prices. Fundamentally, you don't want to lower prices. You want to keep your star product where it is. And to keep it seen as a prestige product and keep those prices up to keep profitability and margin high. Potentially, launching lower value, unbranded, unpackaged or whatever, it is the cheaper version of the same product. In many instances, they'll come from the same factory. I think we've all heard of examples whether it's a loaf of bread or you know whatever it is. The item will be coming from the same place just go down a different shoot in the factory and different branding going on it. You can even see examples of this in re-badging in the auto industry where the same product is sold. Fundamentally just with different badges at very different prices. But certainly, in the supermarket food categories or household cleaners, etc., the item will be very similar. There might be small differentials in the actual content. But in reality, the biggest difference will be in the packaging and what it looks like. It could be sold at a price differential of a third of the price of the original. With that issue, that might be your margins in the meantime. But over time, as customers who always shop for seeing this item on the shelf next to it. They might start going to I'll try the cheaper one I'm saving X number of dollars each time, why not give it a try? If they do try it, fundamentally, are you producing a product that you don't want people to buy? That's a strategy that over the long term there's an issue there. So if you're producing a product in theory you don't want people to choose. But you can't make it inferior and still has to be as internally as good from a health perspective from the food requirement perspective. You are gonna be facing issues. Over time a certain percentage of people who are either price-aware or value shoppers or just, to be honest, don't care about the packaging. You will see a large number of people choosing the cheaper option. And you'll cannibalise your sales, your margins and your profitability.

In the early days, you're right. It did provide some kind of price structure customer and segmentation structure by offering private label. A few years ago, I'm thinking Kellogg's for instance they were leading in the market. Everybody went to the Kellogg's brand. But they needed to be more variety within that sort of category for people. So offering that own brand was a good idea especially for price-sensitive consumers that wanted that Kellogg experience. But they just felt like they weren't willing to pay. Couldn't afford it for some reason. In the basket of goods, total spending went up so they wanted to make allowances and wanted to then go to their own brand. That makes complete sense there's logic. You've got a good better best strategy working quite well. But what's happened over time is just yet another own brand, another variation. Let's just use the Kellogg example here, what you end up having is just a huge amount of assortment of one product. Just think about the supermarket aisle when you go through the cereal aisle and the snacks aisle. It's row upon row of the same sort of stuff. This is the negative result almost of own brand. Where you just keep on competing with that expanding that same product category. Just keep working and working until there's no variety left in the supermarket. This is a major issue for customers going to the supermarket now. This is why a lot of consumers and shoppers are going elsewhere for their basic groceries. Because there's a lack of variety in the supermarket based on private label EDLP strategy. So they go to niche, smaller businesses that provide them what they want and they're willing to do the homework for that, and surprisingly pay more. It's not a surprise because people do want diversity in their grocery goods, as well as in their price points. The business that provides that and the pricing team that sees that is going to win that market share. The niches that arise as a result of all these different strategies.

I think a lot of this is short-termism versus long-termism. In the short term, an own-brand strategy can seem sensible even if you're producing branded goods you can justify yourself why you would go along with it. But if you're not differentiating the value. Understanding the drivers of why people purchase your product. Especially when something let's say that you're not showing the people that are not prestige items. Let's say a washing powder where theoretically there might be studies that show a branded washing powder performs 10X better than an unbranded version. But if one costs three times the price of the other. I don't believe for a minute that one performs three times as good as a similar one on a similar shelf. And at least you've worked out for one or two tries. So you are going to undermine your brand offer. If you don't invest in the value that you provide. If you don't protect that value through moats or some sort of mechanism. Where the unbranded version has to be discernibly inferior in performance, reliability or some other aspect. If it's not discernibly different people over time have become aware of that, just choose the cheaper one.

I think my point here is as well that supermarkets and suppliers due to the same brand issue they've been stuck in that one category. They're not forgetting that they're just working that product in that category to death. To the point that there's no other choice for consumers and that's driving them outside of the supermarket. Driving to other suppliers that provide a variety in the range and assortment. So what I'm saying is sometimes own brand and that sort of competition to compete based on price not only do cannibalise your own brands by doing that. You've stopped thinking about the market and what customers want to buy. Yes, you may provide them with all the cheapest possible product variations of the same product. But yet they still don't buy. Why? Because they want to buy something else. This is where big leading brands are now finding that it's the smaller entrant, providing that are the big competitors in the market for them now. Even their lean down cost-focused and streamlined manufacturing is not enough to compete with them. Because the product innovation from leading companies is too slow. They're not thinking about, how people consume? what do they want to consume? They're just thinking about that sort of private label, a typical sort of strategy. Because their whole manufacturing operational capability is based on a very small range of brands that are almost yesteryear brands. Unfortunately, consumers and the market are moving on. And it's the agile smaller startups that provide exciting new tastes at price points that people can afford are the ones that are winning now.

The other aspect of it is if you're investing in a brand that takes years and years to do it. It takes years to gain customer awareness. There's a large upfront expense of product development, distribution, advertising and marketing getting to where it needs a mass brand. You don't want to kill that golden goose before it pays off. If the entirety of the supermarket in the industry is dedicated to as soon as possible pumping out cheaper alternatives to your brand. Why would you even invest in developing new products or services through that sales mechanism? It's almost doomed to failure. I think when you're going to the supermarket and you're thinking, what would you have for dinner. You think there are limited options. To some extent, it seems sometimes everyone just eats chicken, and there are limited options to some extent. You're thinking there's got to be more than this but if there are no financial incentives for people really to pursue it. I think to some extent, it is logical that over time it becomes more just similar similar stuff.

And I think a lot of suppliers, new entrants, new startups in the grocery game look at a potential relationship with a supermarket retailer. And think you know what I don't want to go down that same old groove like everyone else is doing. They buy my brand because it's something new, it's something that people like. Then within no time at all, I'm told to reduce prices. I'm told to provide an alternative and own brand. A cheaper variation to provide some kind of distinction and attraction mechanism for price-sensitive customers. Then over time told to promote and fund that promotion. A lot of people just like you know what, I can do my own distribution, I can do my own marketing, I can target the niche audiences that I want online, and I'm going to invest online to find my niche, find my customer base and give them what they want. This is exactly what's happening now. What's happening to the supermarket retailers and leading suppliers that serve that old fashioned market. They're struggling and they don't even have that sophisticated online strategy by segment, by price point to attract the right customers. It's a long story that all comes from that interesting private label issue and I suppose it all ties up together. What is clear? Things have to change. Distribution is changing. There are new entrants. And having an IT capability is going to be enormous for everybody leading companies, smaller entrants. They've already got a niche foothold in that market and are pulling that. They're not going down the private label own brand. Because they know over time that's just going to ruin their business. Not just their brand, their business. And it's going to upset the customers. There's one thing that startups do only focus on and that is customers. Because they know if they don't hit it with their customers and give them what they want when they want it. Then they're not going to survive. I think there's a lesson here for leading businesses too.

When companies buy lots of brands - they sometimes have real issues integrating them and differentiating their offers.

This can create real pricing issues - by dragging pricing down to the lowest rung.

We discuss this issue today.

In this podcast, we want to follow up on our last episode about segmentation and branding. And ask the question, what problems can arise when a company has too many brands or too many legacy brands?

We were talking before about how businesses now through disruption, through market competition, aggressive pricing and downward pressure on pricing. That businesses are now acquiring lots of brands. Lots of different businesses may be thinking about product innovation. And creating new brands to compete in the market. We were wondering, what is that doing to a pricing structure? Do companies know that buying these brands or having these different businesses in their portfolio can have a tremendous impact both positive and negative on the pricing structure? In particular, when you have a pricing structure you need order and logic to that pricing structure. To ensure that you're getting the most out of each price point. And, the price aligns with the market and customers are willing to pay for these different brands according to how you hypothesize these brands. You bought these brands for a reason. And you want to make money out of them. You don't want to make to cannibalise your product portfolio with competing brands. So we're thinking very much about pricing structure, what do you need to look at? How can you improve that? What are the problems?

I think a lot of people become attached to brands then over history, the legacy. With a brand to build it, you have spent a lot of money in advertising, customer service over the years. You can't build a brand overnight. With all that effort there's often a reluctance on companies or anyone else to stop a brand. Or, to shell a bit or to integrate it into another brand that you may have. But the issue would be if you have two brands that are in the same sector. And you haven't invested in the value differentiators between the two. You don't have that value culture in play. There is the real danger that what will happen is the two brands will become confused in the customers' minds. If they are saying similar items let's give an example of maybe tools or something like that or even vehicles cars. I will give the example of this car company of Hyundai and Kia owned by the same Korean larger company. I believe chaebol I think is the Korean sort of term for it. But over time those two brands have sort of become similar. You'll also see the same in France with that Peugeot and Citroen. I'm sure a French person could tell me which has historically had the higher brand recognition. But a lot of people who weren't very into cars that this sort of integrated into the same thing. And what would happen with that is if one is on sale for a lower significantly lower price than the other. And there's not about brand recognition the real appreciation of value or perception of value between the two. Generally, people will either be the more cost-effective or the cheaper one. Or, there will be pressure on the salesperson to reduce their price on the higher branded one to the lower price. So it's almost a race to the bottom.

That's a really good example of when the higher business strategy or requisition and buying brands is misaligned to the sorts of pricing strategy and the pricing structures. Often it's symptomatic when that happens that (A) there's not even a pricing team on board managing the show or (B) they've got the pricing team but they're not very strategic. They're more of a maintenance operational pricing team making do with what they've got sort of second-hand news of the wider business strategy. And they're sort of a very loose term about how they're supposed to implement strategy from there. I often find when there's a major consolidation on a sort of higher-level from a strategic acquisitions team that they're often been done. Because they want to increase the product portfolio with the idea to upsell and cross-sell to more customers. In some people's minds at the executive level is enough to go on. Surely the hypothesis here is we have more products. We've got a huge market presence in one country, surely we'd have the same market presence in another. There are a lot of assumptions here that are untested. It possibly is true. But from a pricing perspective you've got to think, Is that true? Can we test it? Is that cross-sell strategy the right one for us considering we're going for a more value-based approach? Another thing to consider is, Is the brand that you're acquiring competing with the local brand? And then inadvertently, are you competing with yourself on price? You've got to have those clear fences between brands from a pricing team perspective. A pricing team will look very closely at that. Because otherwise really what you've got is you're playing with is a volume game. Just based simply on revenue and volume. There's no real tiering system based on value. From a market perspective and a customer perspective, it indicates that (A) you don't have that market Intel (B) you're not sure what your customers are willing to buy and you don't have a leadership position. You're just playing it on a very tactical level.

I think it all comes back certainly in branding to this concept of the value culture that should be embedded throughout the business. Certainly in the pricing perspective. It's one thing for the company to understand their brand. To know what it is to emphasise those aspects. But at the same time, you also have to make sure the customer knows as well. Educating the customer and getting it across to the customer. In many instances, there can be confusion in the customer mind. If that message isn't getting across perfectly it can create issues. One example I gave is the luxury watch market. So everybody's heard of Rolex I was heard of certain brands like that. One of the biggest or most luxurious brands in the world from a technical perspective is the Japanese brand Grand Seiko. Which is probably more famous for the lower end brands Seiko. So just a small one-word difference Grand Seiko versus Seiko, there's probably a price differential of 10 times. But in many people's mindsets if you want to watch aficionados there would be confusion added. With that outside of Japan and some Asian countries, Grand Seiko may not have brand recognition. Or the acceptance as a luxury competitor to people like Rolex. The technical specifics etc of the watch are very similar. But to some extent, the branding, the image, and making people aware through the marketing of that value differential. What it does is breaks down the potential differentiators. The potential division between the two brands. Would they do better if they're distinctly different names? It probably is a good question. There's great difficulty in making the choice about changing brands once you've built them both up. And that's something that really should consider from the beginning.

I think that's the point when you consolidate buy new brands to existing portfolios. You've got to understand on a very detailed level or like on a skill level. What is each of those products? What their value profile is? Where do they fit? Is the hot product price hierarchy built based on an understanding of the SKU's profile? Now I'm getting quite detailed here but this is what the good pricing team should do. When a team doesn't know what to do, there's no pricing strategy. Because the business strategies are vague. It's hard to sort of translate into a value-based strategy. And, the team is just all of a sudden giving a huge product portfolio that's all in a mess. It comes down to serious hard work. It comes down to understanding what you're selling. From your perspective first, and then you've got to then test all those assumptions in the market. Because often what you find is like an important high-value product or fast-moving it may be. That's such a vague definition. It's not good enough to say oh this is fast-moving, therefore, we'll price this. You need to know, why people are buying? how do people are consuming your products? This comes down to B2B, from tools. You've got to say yeah we've acquired this brand. But, are these tools the same as our tools, our existing tools under this brand. And you can't just say… "oh yeah we think that they are, we think that they're all the same". It just doesn't work like that from a pricing perspective. You need to create some order in the price structure to make money out of them. That does require a lot of work from a line item analysis.

I think, one final point I'm making in this instance is it highlights pricing is not a distinct function. It needs to work hand in hand with other functions. So let's give the example of starting a brand, building a brand, and understanding the brand. You have to be working with whoever's designing, building and developing the service. Whoever the marketing people, advertising and sales. You have to be working with all of them. Because your message from the marketing department is not completely congruent with your message from the pricing department. It just won't work. What are you hoping to achieve? This is why we say the value culture has to be embedded throughout the entire business. Pricing is one important aspect of doing that and it is seen as a specialist skillset. But that skill set massively overlaps and one of them falls. It just isn't going to work. So yeah that's about it for me on this topic. I'm gonna say Have a nice day.