In this episode, we have our guest Andrew Deutsch, who discusses pricing strategies for companies. He shares his thoughts on how to shift from the transactional mindset to value-driven pricing. Finally, he touches on several other pricing-related topics, including organizational alignment on pricing, channel conflict issues about pricing, pricing-driven customer experience, and promotional pricing.
- [0:24] Intro
- [2:55] Personal journey and current focus
- [3:39] Perspective on growth
- [4:43] Who is responsible for driving pricing strategies?
- [7:59] Breakthrough point for pricing strategies
- [12:36] How to justify the price for complex products?
- [20:06] How to differentiate when competitors overclaim their capabilities?
- [26:02] Pricing strategies with potential channel conflict
- [31:33] The need for systems and architecture to achieve centralized pricing strategies
- [40:37] Closing thoughts
- [41:16] Outro
- When it comes to working on pricing strategies, typically, the marketing team is the one who’s out looking at the competitive analysis of pricing to begin to understand it. And then also, as you’re building that go-to-market strategy, incorporating that information into what you’re doing.
- Marketing helps determine what does the market currently pays. Or what’s it willing to pay for that product. It’s not a cost-plus, which is again one of those things that can lead to disaster in any business.
- If you can provide a level of service that changes the way that your customer does business, pricing is not as important as the fact that you’re never going to have to shut down production because you’re doing business with me.
- Price sensitivity when you have the ability to answer and solve their problem in a way that nobody else really can, is when pricing is no longer the issue that it would have been if you were just comparing prices.
- If you’re a salesperson who’s just taking orders and in transaction mode, pricing is everything, if you have the ability to truly show a value, whether it’s the product, whether it’s delivery of the product, whether it’s post service, whether all of those things to create where that value prop is, then pricing is not the final decision-making point it rarely is.
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Andrew Deutsch is a strategy-first multilingual global marketing and sales consultant who has successfully driven business growth in more than 100 countries. He studied both International trade and psychology building his unique methodology focused on converting everyone a company touches into brand advocates as a strategic base for sustainable growth. He has traveled for work extensively all over the world including his 10-year stint living and working in Brazil where all his training led to his unique skill set and his bold and innovative methods.
His company Fangled Technologies helps businesses in 5 integrated ways: 1) Strategy first strategic marketing consulting and fractional CMO programs 2) Advanced sales strategy and coaching 3) Creative design including print, digital, video, and more. 4) Global trade and development 5)Innovation and product development
Andrew Deutsch 0:00
Pricing becomes a very important factor because you’re basically out there fighting in that red ocean of blood for the best price. If I can provide a level of service that changes the way that you do business, pricing is not as important as the fact that you’re never gonna have to shut down production.
Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.
Sam Gupta 0:59
Hey everyone, welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at a digital transformation consulting firm, ElevatIQ.
Product pricing strategies is more than just the dollar amount printed on the packaging or price labels. It drives consumer behaviors, affects the customer experience, and impacts the bottom line. Right pricing strategies could catalyze your growth and provide a competitive advantage. On the other hand, overly promotional pricing strategies could be counterproductive and increase operational complexity when it comes to pricing. It’s the balance that matters.
In today’s episode, we have our guest, Andrew Deutsch, who discusses pricing strategies for companies. He shares his thoughts on how to shift from the transaction mindset to value-driven pricing. Finally, he touches on several other pricing-related topics, including organizational alignment on pricing channel conflict, issues about pricing that ruin customer experience, and promotional pricing. Let me introduce Andrew to you.
Andrew Deutch is a strategy-first multilingual, global marketing and sales consultant who has successfully driven business growth in more than 100 countries. He studied both international trade and psychology, building his unique methodology focused on converting everyone a company touches into brand aggregates as a strategic base for sustainable growth.
He has traveled for work extensively all over the world, including his ten-year stint living and working in Brazil, where his strategy led to his unique skill set and his bold and innovative methods. His company Fangled Technologies, helps businesses in five integrated ways strategy first, strategic marketing, consulting and fractional CMO programs, advanced sales strategy and coaching, creative design, including print, digital video, and more Global Trade and Development, innovation, and product development.
With that, let’s get to the conversation.
Hey, Andrew, welcome to the show.
Andrew Deutsch 2:53
Hey, thanks for having me on.
Sam Gupta 2:55
Of course, my pleasure. Just to kick things off, do you want to start with your personal story and current focus?
Andrew Deutsch 3:00
Sure, my background is actually in global trade, helping companies in the US and abroad find markets and create a story that makes sense for them to grow their business globally.
My company, Frangal technologies, is a strategy first marketing consultancy where we help companies in the US and abroad figure out and really understand who their customer is, what their needs are, desires, pains, all of those wonderful things we talk about in business, and then how we help our customers differentiate in a way that speaks to and answers and solves those challenges in ways that none of the competitors can come close to.
Sam Gupta 3:39
Okay, amazing, so we are obviously going to be discussing the pricing strategies today because that is one of the Ps of marketing. But before we do that, we have one of the standard questions here that we ask every single guest, and that is going to be your perspective on business on growth. When you think of growth, what does it mean to you?
Andrew Deutsch 3:59
That’s a big subject. We could take the whole podcast just talking about that for companies to grow. They have to grow in a way that makes sense and is sustainable to who they are as a brand. The idea of just growing for the sake of growth without considering all of the other aspects, including stability and the future of the company, is a recipe for disaster.
So what we want to do when we help companies grow is to truly look at where they are now. What are those needs and desires that their customer base has, and how they’re going to best serve them going into the future? So that as they continue to grow, they have the facility and the ability to do it and become that person. It actually is going to feed quite a bit into our conversation about pricing strategies.
Who is responsible for driving pricing strategies?
Sam Gupta 4:43
Yeah, amazing. So let’s talk about pricing strategies. Right, so one of the trends that I typically see, especially among SMB manufacturers, is pricing, discount loyalty coupons. When you talk about these terms, they are typically driven by finance, but from my perspective, when I look at from the pricing, as I mentioned, towards the beginning of the conversation, the P of price is supposed to be for marketing because you have to consider the external factors when you determine your pricing. So from the strategy perspective, and what do you think should be driving the pricing? Should it be finance? Should it be marketing?
Andrew Deutsch 5:20
Well, everyone in the organization is involved in marketing. I consider whether you’re the guy who’s cutting the grass in the parking lot to the operations division. All of those people are the face of the brand of the company. So when it comes to working on pricing strategies, typically, the marketing team is the one who’s out, looking at the competitive analysis of pricing to begin to understand it.
And then also, as you’re building that go-to-market strategy, incorporating that information into what you’re doing. I’ll give you an example of pricing strategies that has nothing to do with industry but relates to our conversation where I live. I’m very close to the Amish community. And I have great friends in that community, of which one is a farmer who creates produce. Yeah. And his name coincidentally is the same as mine, his name is also, but we’ll call him Andy, for this purpose, so that he understands.
Andrew Deutsch 6:10
So I would go out on a Saturday to buy, and certain items were always sold out first thing in the morning. And I would say to him, why don’t you have, for example, let us so well, people come out and they buy it all up right away? Yeah. And I said, well, that’s because you’re not charging enough.
And he said, What do you mean, I charge a fair price, I said fair, to who? There’s a strategy behind pricing. Yeah. So we did an experiment, everything that sold out before noon, raise the price by five cents, and continue to do that to every item, by five cents every week, until afternoon, you still have one or two items left.
And he said that it’s crazy that people don’t want to pay that. And they don’t want to pay it. You’re going to find out immediately because you’re going to end up with a huge surplus.
Andrew Deutsch 6:57
But nonetheless, Andy would like every week. He was raising it five cents per item, and for some of the items, he raised 10 and then was doing fives. And at the end of the year, he looked at his bottom line. And he realized that really it was old supply and demand, which of course, an average guy doesn’t learn when he goes to school until eighth grade, what that really means.
But the strategy behind his pricing was, am I fair to the market? And am I fair to my customer, am I fair to myself? Yeah, he was continuing to sell almost all of his products had a little bit leftover at the end of the day. But when he did his books for the year, his expectations for earning, he made almost $25,000 more in one season than you’d ever made before selling his produce. So is that marketing? Is it financial or otherwise?
Well, marketing helps to determine what does the market currently pays. Or what’s it willing to pay for that product. It’s not a cost-plus, which is again one of those things that can lead to disaster in any business. It costs me $1 to make or sell for $1.50, even though all the competitors are at $5.
Breakthrough point for pricing strategies
Sam Gupta 7:59
Yeah. So let’s talk about this fear of pricing, right? So when we look at these smaller businesses, so let’s say if we are doing the experiment with pricing stategies, sometimes, at least in my experience, I have seen that businesses are afraid of losing those customers losing the relationship and have this fear that if they start charging more, then they are going to come across as unfair. Right.
So as you mentioned, your comment about being fair, but there is a relationship play here, right? There is a little bit of fear. In your experience, what should business owners do to alleviate this fear? Let’s say if you increase the price, you might end up losing that customer, that customer might end up talking over social media, that this particular business is charging more than it is bad.
So how would you approach this? Why do you still increase the price, even if you are probably going to lose the customer? Just because you are going to come across as unfair?
Andrew Deutsch 9:06
Well, I want to deal with that by unpacking it a little bit. Because Yeah, people say, Oh, I’m afraid that if I raise the price, that could happen. My question is, why aren’t you afraid that you’re leaving money on the table, and people are looking at your business transactionally as opposed to the value that you provide?
And I’ll give you an example in the steel drum industry, which I did quite a bit of work in a while back. I worked for a company that did not have the lowest prices on their drums in the market, nor did they ever intend to because the real cost in that industry is what happens when the supplier can’t bring them to me on a timely basis. What if a company could guarantee delivery and that personal touch to deal with runs in your production?
Andrew Deutsch 9:53
What would happen if I wasn’t able to fulfill that and your factory had to shut down because you had no packaging to put your products in. So if you look at it, as I’m selling you a commodity, you need a drum, I got a drum, then pricing strategies becomes a very important factor of it because you’re basically out there fighting in that red ocean of blood for the best price.
If I can provide a level of service that changes the way that you do business, pricing is not as important as the fact that you’re never going to have to shut down production because you’re doing business with me. An example would be an industrial supplier I worked with. They are never the lowest price guy in the market that I’m aware of, especially in the industrial space yet, but if you talk to buyers, there’s a mantra among buyers about doing business with 3M. They’ll tell you, well, I know you’ve got an alternative to what they have, and your pricing is a little bit better.
Andrew Deutsch 10:44
But you know what, no buyer ever lost his job for buying from 3M. In other words, no buyer loses their job by taking the safe route. Because we know with 3M we’re getting what we get, the quality is going to be perfect. You’re not going to shut down my plant. It’s going to be here on all of those things, and I hope that it’s as good.
So as soon as you can get folks out of the mindset, what you make is a commodity, the way you do business is commoditized. And it’s just a transaction. As soon as you can get past that into that true value sell, the pricing isn’t as important. Now on the other side of it, if doing business with, say example, for example, 3M product from 3M costs you $100. And there’s an alternative solution that costs five. All of a sudden, that huge difference in price makes that value prop a lot harder to prove.
Sam Gupta 11:37
So in your experience, let’s say obviously, if you have some sort of bundle around your product, then it’s going to be easier to prove the price. And I am actually going to tell you a story from yesterday about the pricing. So vendors have to differentiate themselves and improve the price. And in this aftermarket and this could be very applicable to the manufacturing product as well. So in the software market, you have a sort of fear of being invisible because it’s very hard to prove the value prop.
So even if your product is going to be superior, sometimes it just harder to communicate. And I like the, let’s say, the consultant or the technical expert, or people to let someone know that one product is probably superior to the other. But let’s say if you are looking at a person who has never bought the software, the value is going to be much harder to prove. The same goes for your hardware or manufactured products, right?
How to justify the price for complex products?
Sam Gupta 12:36
So in the case of manufactured product, let’s say you’re buying a machine, and if the machine is very complex, now, if a buyer who is not as sophisticated in buying that machine, for them, it’s machine one versus machine two, it’s going to be just your CNC machine.
So how do you still prove the value and justify your price? In my experience, that’s extremely hard. So do you have any stories where you were able to, let’s say, prove the value of the product and convinced that the price should be, let’s say, one point, point two, five, or 1.5x, of what the competitor would charge?
Andrew Deutsch 13:11
Sure, there are sort of two different examples. Let’s talk first about the software space. Yeah. And then, I’ll give you an example in the industrial space. So when really high-quality marketing people are involved in that software as a service or other software sales, they have to have histories of accomplishment.
So, for example, in your space where I know, you’ve got more expertise than most people that I know, which is the ERP space, what would happen if I was the salesman and I was able to share data, showing that our implementations happen in half the time as my competitor, or I have evidence that productivity changed in my clients by this much data-driven accomplishments to show the value if one was an investment is a $500,000, to get the ERP up and running. And the other is a $750,000 cost.
Andrew Deutsch 14:04
So there’s a difference there. But the 750,000 can prove that they’ve done 20 applications where they brought it in before the time. And these were the financial accomplishments of those companies. Whereas the company that’s 500,000 takes twice as long to implement. And they don’t have a list of people that can share the data of the effectiveness of that implementation. It would be a much more powerful sell because, yes, it’s more.
But we’re going to get you in and half the time, and you’re going to be gaining and benefiting from it at a much faster case. That’s where the quality part of your accomplishments in the past and how you speak of your company, the brand of your company, the efficiency of your company make up the pricing not as important.
So that’s kind of one example the other I’m going to take you back to when I was first involved. I was living in Brazil, and the US company that manufactured plastic strapping guy in touch with me and asked me if I could help them break the tobacco industry in Brazil.
Andrew Deutsch 15:05
So when tobacco gets shipped, not cigarettes, but the actual process tobacco, it’s packed into these 150-kilo pallets that have multiple straps on the pallet that are held together with a plastic polyester. It’s a very high-strength strap that replaced steel in that market years ago.
And they were buying a product locally in the market. That was about 35% less expensive than this American-made plastic strapping. So the thought was, how could we possibly break that market? Well, we did the research. And we discovered that the domestic made plastic strapping was having a failure rate of almost 6% and the equipment.
So every time the strap wouldn’t automatically go around the box and seal, it would shut down production for a period of time. We were able to quantify what that cost is for everyone in the plant to wait for them to reload that machine to make that happen and quantified what that cost was.
Andrew Deutsch 15:59
So it was determined that the difference in price for our strapping, which was a what was it 20 to 30% higher, actually would bring them half the cost that they currently have in packaging, and what it would save in the failure rate because our strap had a point 0001 failure rate in a day, they might have one failure, it was usually operator error, not the strap.
So when we were able to show them, we could have your crew process more material every day. As a benefit of this much money, it was almost free to buy our strap at the pricing that we were selling it at. So again, when you take it off of the transactional mindset and bring it into the value mindset, the sensitivity of pricing sort of becomes the third tier of importance.
Sam Gupta 16:44
Yeah, so that’s a very interesting point. And I’m actually gonna touch your first story a bit deeper level, right? So let’s say, reducing the implementation time in case of manufacturing that could be reusing the installation time or reducing the total setup time when you move from one operation to the next.
The problem as in the sales and marketing world, there is a lot of noise. Now, if you look at the software space, everybody’s claiming that they can implement the ERP in three weeks. We both know and view that the ERP can never be implemented in three weeks. There is no way anybody can pull that off.
Andrew Deutsch 17:18
Okay, well, very rare. The difference between making a claim and demonstrating proof of what you’re claiming are two different things. Yeah, I mean, it’s kind of like, you’re gonna hire a guy to paint your house. Yeah, he says, I can get it done in a day. You have a mansion.
And you go, dude, I appreciate the offer, but now I don’t believe you. So the fact that people make claims that happens every day, yeah, it’s the ability through proper marketing, and references and all of the things that are involved in building that marketing campaign.
Don’t say it if you can’t prove it. And buyers are so much savvier, to get when someone is full of you know what to call you on your own nonsense. So you know that if you’re going to create a campaign to say we can implement it faster, you better be prepared to prove it, right.
Sam Gupta 18:09
But these things are easier said than done. Right now, if you look at the market, everybody’s trying to blame, as I mentioned, right? And everybody’s claiming that it’s almost like a rat race at this point in time. If you ask any concept, then nobody would agree that any ERP can be done in three weeks.
And a person who has implemented the ERP would never believe that it can be done. Because ERP implementation is more than a tool, you have to go through your change. You have to go through your change management. And then you can implement Yeah. The same goes for a complex machine as well.
And because you’ll have to look at your process, you have to look at your specifications, the way the machine is actually going to change your production process. You have to make sure people are comfortable with you have to make sure people are trained with it.
Andrew Deutsch 18:58
What if you go back in your history, and I know you’re one of the kings in the ERP world? What’s the least expensive ERP implementation you’ve ever done?
Sam Gupta 19:09
Well, it depends upon how we are talking about because ERP implementation is different, right?
Andrew Deutsch 19:15
So if I said to you, what would be the minimum dollar before you that someone would have to invest before they would talk to you? If I came to you and said I got a guy with a $10,000 budget, you probably wouldn’t even hold the meeting because that’s exactly is where is the bottom? That’s what I’m asking you.
Sam Gupta 19:31
I would say roughly $100,000.
Andrew Deutsch 19:35
Okay, who is going to spend $100,000 responsible and accountable to their company, their board of directors, their stockholders, whatever that is? Without first going, I’m going to verify every single claim that these guys make.
It’s part of the due diligence of a company, and quite honestly, if someone is silly enough to spend 100,000 plus on an ERP implementation and not do the due diligence to make sure that all of those claims are provable, shame on them. They’re exceptions there. There’s an exception to the rule.
How to differentiate when competitors overclaim their capabilities?
Sam Gupta 20:06
But the problem in the market is, I mean, the whole market is doing the rat race, right? So I know that due diligence needs to be done. But at the same time, somehow, even the larger companies are actually getting into a rat race rather than educating the customers that it’s not real. They are not doing that.
Nobody is doing that in the market. So sometimes that becomes a problem for a lot of, for example, manufacturers, I mean, I’m pretty sure it’s going to be the same in the manufacturing community as well, that everybody’s sort of getting into the rat race, and I can do it the faster end of the day, this is a manual effort, people are going to take what they are going to take.
Andrew Deutsch 20:43
Yeah, it’s such a big-ticket item that properly marketed showing that value, unless the value that you’re showing isn’t something that your client actually values, in which case calling it a value is silly. But yeah, the price sensitivity when you have the ability to answer and solve their problem in a way that nobody else really can is when pricing is no longer the issue that it would have been if you were just comparing prices.
And I’ve seen it when you have been through an ERP implementation. And many of the times, I can’t think of a single DRP implementation I was involved with where the final decision was, well, it’s going to be between these two, but once cheaper, so let’s go with it. It was always that the salespeople involved were able to show a value of what that could do the best and all the other ERP implementations that were in the market, and the choice was made.
So I think that the price sensitivity thing, as I said from the beginning if you’re a salesperson who’s just taking orders and in transaction mode, pricing is everything, if you have the ability to truly show a value, whether it’s the product, whether it’s delivery of the product, whether it’s post service, whether all of those things to create where that value prop is, then pricing is not the final decision-making point it rarely is, in quality sales, people always beat the transactional guys, where there’s a true value that the customer can see.
Sam Gupta 22:08
Yeah, so let’s talk about some of these highly engineered components. And in my experience, typically, the pricing bribes, the customer experience, if you price right, then your sales cycle could become shorter, you could have less friction, with your customer interactions, you could make the whole process very smooth and seamless.
But especially when we look at the highly engineered components, and I’m sure you have disagreements as well, especially when you’re talking about, let’s say, highly engineered manufactured components or some sort of construction machinery, right.
So in their particular case, the majority of the time, how these companies are going to operate is let’s say if they have the court process, in case of court process, they are going to get a design from the customer, they are going to let’s say find the code based on the material based on the labor, then they are going to send to the customer, it’s going to take a very long time before a code can be approved, finalized.
Obviously, for customers, it’s very painful because they have to go through these interactions all the time. They have to look at everything. So tell us some of these strategies that you have seen in reducing the friction in designing the pricing model in a way that actually improves the customer experience. This expedites the sales cycle,
Andrew Deutsch 23:36
okay, well, like for example, if you’re selling into the automotive space, you’re selling into the high tech, imagine you’re selling an adhesive that’s used for manufacturing iPhones some sort of a date that holds there’s a lot of different things that you take into account.
So when you can get to where your product is, there are a few that can meet all of the specification criteria. For example, in the adhesive tape industry, for things that were going to the landing gear of airplanes, the silicone adhesive that you’re using has to perform at 30 below zero, and it has to perform y at 130 degrees Fahrenheit, and all of these different things that come into it, the more unique or closest to being unique that your product is to be able to solve the challenge in that highly specified area.
Again, less pricing is important. I was involved in a project years ago in Brazil, where they were selling traffic signaling equipment, the lenses that flash on the highway.
Andrew Deutsch 24:38
And the goal of all of those companies was to get the highway regulators to create a specification to eliminate all the competitors. So if you needed to provide X number of lumens per millimeter squared at a distance of whatever, if you were able to meet that spec and nobody else could, all of a sudden, pricing didn’t even matter because they had to buy the equipment.
And If you’re the only one who can make it, it’s your business. Now, if you created a pricing structure that was so ridiculously expensive, they couldn’t afford it, they would have to go back and say, What do we really need the spec. So there are all sorts of odd strategies and things that are done when you’re at that highly specified engineered product, part of the market to where, where you want to design in a way, and it’s one of the reasons people seek patent protections on certain technology.
If you’re the only one who can make it, and people have to have it, that’s a very different pricing model than I’ve got to compete against 100 people who can meet the spec.
Andrew Deutsch 25:32
But now I have to figure out a value to be able to get the pricing that I want, where they can’t deliver it or perform or service it in a way that I can all of those things factor. There’s no cookie-cutter answer to that question. Each strategy is unique to that specific market, the players, the needs, desires. And that’s why as a company, we take all of our customers back to understanding their core strategy before we look at how we build pricing models and all the other tactical tools to go forward.
Pricing strategies with potential channel conflict
Sam Gupta 26:02
Okay, so let’s talk about the customer groups. So obviously, the majority of the organizations are going to have some sort of customer groups, let’s say, if there are going to be some loyal customers, then you are going to be slightly friendlier with them in terms of pricing, let’s say if your employees are buying the goods from you as well, then you are probably going to be slightly friendlier, just because you want to encourage them to buy the products from you.
And then let’s say if you have the distributors involved, then your pricing model is going to be fairly different. And let’s say if you have the mix of channel plus direct, then you are going to have channel conflict issues. So tell us some of the strategies around how to identify these customers groups. What are some of the pricing strategies that you might be able to use? And if you have any stories around these customers groups, how you have done it, what kind of challenges you have faced in designing the pricing model?
Andrew Deutsch 26:51
The question is kind of doesn’t have a cookie-cutter answer. But let’s start with employees. If you have employees, who are also consumers, or potential consumers of what it is that you make, yeah, you absolutely want to entice them to with pricing or strategy even rewards to be advocates for your brain because everyone in the building should become a voracious advocate for what you do.
So they can get everybody they need to be that way. So that’s why for example, if you’re a boy, you have, say, Honda motors, you can get a great discount when somebody shows up at the plant and drives through the parking lot. And they see Honda cars everywhere they go. Wow, these people really love what they make if the employees want, there’s some real marketing benefit there.
Andrew Deutsch 27:31
But the employee, part of it is the least important in terms of pricing, when you start to look at, if I’ve got a product line that I sell at retail, through and the retail is Director retail, I’ve got distributors who sell them to the small mom and pop shops, I’ve got manufacturers reps who are out there who can sell directly to end-users, you have to balance all of that.
So that you don’t have those channel conflicts, no direct retailer who’s buying directly from you should be able to buy from when you go to distributors for a better price, and they buy from you directly.
And this is where that the finance people have to be directly involved in the actual implementation of that strategy to make sure that as you build that model, Now certainly quantity discounts. And volume should have a play in most consumable products that are out there. If you’re going back to the tape industry, you’ve got to target the guy who is buying a roll of tape. And you’ve got to target a guy who’s buying cases and a guy who’s buying truckloads.
Andrew Deutsch 28:26
All of those pieces have to fit together to make sense. So there’s no cookie-cutter answer to that, except that it has to be well thought through. Totally. Before you start taking action. It’s much easier in today’s world to lower prices than it is to increase.
At the same time, you have to build your strategy also around where pricing might go because raw materials change. I know right now if you’re in the industry that uses steel to make your products, you’re going absolutely nuts. Because there’s a shortage of steel, there’s a crazy increase in prices.
If you look at the data, if you sold items three months ago that you’re not going to be delivering until the end of the year, you might be making those products at a loss because the index has changed so much. And you’re when you calculate your cost. Your raw material cost is very different than what the end-user is going to be.
Andrew Deutsch 29:14
These are all things that are outside of the realm of the marketing decision. But why do marketing and operations and purchasing always have to be in alignment? If you’re using volatile cost raw materials, the pricing strategies have to be on a different basis. You have to warn your customers in advance. I know in the drum industry, we typically would alter our pricing quarterly based on certain indexes and a calculation that all of our customers understood because you couldn’t guarantee pricing for a year.
And of course, the manufacturers who were buying the drums wanting to use them would want you to know annual pricing strategies, and it could. It just couldn’t happen because steel’s as crazy as a teenager in high school. You never know what they’re going to do next. So, I’d love to give you. Hey, this is what you do. And what you do is you have to be alert, aware, and understand the volatility of your specific market to then build your pricing strategies around? What are the channels to market that you have and the volatility of those prices?
Sam Gupta 30:06
So do you have any stories or examples about how you would balance this?
Andrew Deutsch 30:11
Sure, I’m gonna go back to the tapes industry we had as a manufacturer. We, for the most part, made what were considered master rolls of material. So that huge jumbo of an adhesive tape product would go out to what was called a converter. Yeah, and converters have customers who will say I want that product to die cut into pieces like this.
I want that product slid into rolls one inch wide with 100 meters on it. They all have these different ways that they do it. Now, if we had an end-user who required truckloads of a finished product, we also could sell them directly. The trick to doing that is making sure that when you do it, you’re not making the distributor feel like, Oh, so you get the big fish, and I get all the scraps.
Andrew Deutsch 30:54
So you would have to competitively price even the end-users in a way that wouldn’t inhibit your distributors from being able to pick up some of that business also, and it became quite a balancing act for the product managers to create pricing strategies so that we weren’t giving ourselves an unfair advantage over distributors and giving them the opportunity to do work.
Then we started to get into some of the retail space with some specialty items that we came with, which then required a different set of pricing because it involved labor and packaging and other things that weren’t part. So to be successful, you’ve really got to understand the needs of each of the ways that your product goes to market.
The need for systems and architecture to achieve centralized pricing strategies
Sam Gupta 31:33
Okay, so since you mentioned retail, right, so we are going to be talking about, let’s say if you have the pricing scheme that you are promoting to your different systems, because let’s say if you have a retail outlet, that’s probably going to use some sort of POS system, right.
And then you might have the e-outlet that is going to use some sort of e-commerce system. And then your customers might be calling you and your customer service reps, maybe fulfilling your orders, let’s say from the ERP system, or maybe the customer service system.
Sam Gupta 32:01
So sometimes this could be challenging to number one, make the pricing consistent in all of these systems. In our case, I mean, we have seen with our customers that there are scenarios of, let’s say, double-dipping, especially when you talk about these promos or coupons because the customers have figured out that your systems are not really synced.
And they might be, let’s say, going to first the ecommerce outlet to get the discount, and then they might go to your POS system, then they might go to your customer service reps, right? So companies might lose a lot of money because of that. So have you seen similar issues in your space? Do you have any stories where there were issues with respect to pricing, and there were real pricing loopholes that customers could utilize and have something to prevent them?
Andrew Deutsch 32:48
Well, I can give you an example of one that’s really blatant in the market. So if you if you’re a hobbyist woodworker, and you go to one of the great retailers out there like Rockler, or Woodcraft, or otherwise, that sell hardware, even Home Depot, and you buy European hinges for making cabinets, for example, and you look at the pricing there, and then you go to a wholesaler who sells to actual cabinet manufacturing companies.
The retail price of a hinge at a retail store might be $3 a pair, and it at the wholesaler, they’re a buck. Yeah, and if you’re an experienced woodworker who makes a cabinet every once in a while, you’re going to go to pay the $3 a hinge because of the convenience and the simplicity.
Andrew Deutsch 33:32
And the big wholesalers aren’t going to just sell you what they’re interested in. You know they’re not set up in a way to make it convenient for you to purchase, and if you buy from Woodcraft, or otherwise, with a bunch of other things that you’re buying, the freight is covered because they have a minimum whereas, with a cabinet, they’ve created a way of doing that so that cabinet makers can get wholesale pricing and be able to manufacture cabinets that they can resell and make a profit where the hobbyist doesn’t really have access to that market.
And there’s a lot of products that are that way. In the strapping industry, the packaging industry, most manufacturers have truckload pricing to huge consumers of their product. They also sell through distributors. So imagine if I’m a card, a corrugated box manufacturing plant, I’m going to get a truckload of strapping to strap all the bales and strap the pallets.
Andrew Deutsch 34:21
Maybe once or twice a month, I’ll get a truckload. If I’m a guy who needs a roll of strap, I don’t have access to that from the manufacturer, you can call it, and they’re not going to sell it to you. They’re immediately going to refer you to a distributor.
And that was what we had set up when I was in that industry. So if I was looking to buy a pallet of product or a couple of pallets, I was only able to get pricing and purchase directly from a distributor because that’s how distributors make money as they buy large quantities of things, break it up and sell it in that form, also from a service component.
If you were buying truckloads of material, you’re not going to get the same level of service if you have a challenge with that strategy. When you’re dealing with a distributor who’s selling you that strap, they’re selling you tape. They’re probably selling you staplers, everything else that you need.
Andrew Deutsch 35:07
They have that customer service edge that you’re paying for when you’re buying from them. That gives you an advantage as a company. You know who to go to when you have a problem. The big manufacturers typically don’t have that level of service because their assumption is if you’re buying that volume, you know what the heck you’re doing with it.
Sam Gupta 35:23
Yeah, so let’s talk about this problem from the marketing versus finance perspective, right. So let’s say if we look at some of the promos, or coupons, or loyalty, from the marketing perspective, these two or three things would be different because typically, these are driven by how consumers are going to perceive these offers or promos.
So, for example, buy one get one could have a very different perception, then throwing a product as part of a bundle of three because you are trying to promote that specific product. Right. So now, let’s look at it from the finance perspective.
So typically, if you look at the majority of the AP systems, or accounting systems, they don’t want to overcomplicate this process. And they typically don’t recognize, let’s say, the promo or loyalty. For the most part, they are probably going to have just the pricing and discount.
So in your experience, if you were to recommend somebody, let’s say if you have a retailer or the manufacturer, and they are trying to design their promo or coupons, what will be some of these strategies to simplify the promo so that number one, they work, but they are not over complicated? At the same time, so that it could be confusing.
Andrew Deutsch 36:29
Yeah, I had this conversation many times about companies that have coupons themselves to death. Yeah, I’ll give you an example of Bed Bath and Beyond, who’s really in financial trouble. Now, there was a time where you would get in line there, and the person in front of you had a stack of 100.
Yep, 20% off coupons. And if you went into a Bed Bath and Beyond because of the history of couponing there, and you went in and said, You know what, I just want to buy, I don’t know, hangers for $2. And you get to the counter, and you don’t have that coupon. You leave the store feeling like you got ripped off.
Yeah, and you know what’s funny? You’re feeling ripped off because you didn’t save the 25 or 30 cents that you would have gotten if you had a coupon. Yeah, it’s the same back in the day, when fast food even back in the 70s and 80s, when 1970s and 80s, when fast food was really growing, there were certain chains like Kentucky Fried Chicken, and which is now KFC, that if you went in there and you didn’t have the coupon, you felt like you’re getting ripped off.
Andrew Deutsch 37:24
Yeah, so that’s one end of it. Now, a lot of times, there are certain times of the year where the coupon might make sense. For example, if you’re a retailer, and you’ve got inventory that is seasonal, and you want to create a promotion to get rid of it after the season’s over, you don’t have to store it until the next year.
That makes sense. If there’s a competitive advantage or a product line that you want to finalize and get out to move on to the next thing, the end of model your clearance, those kinds of things, it makes sense.
But when your company has a history of constantly having those promotions, it can kill you. We in my we have a side project called the virtual presenter course, which is a training website. And most of the people who go on there get to buy through one of our affiliates.
Andrew Deutsch 38:06
And if you go on the website with an affiliate link, it gives you a discount in the cart, which is basically the true street price, is the discounted price. That’s what we charge. We never discount below that now we don’t have a place on the website for someone to put in a coupon code. And we did that on purpose because like you’ll listen to the radio and they’ll say, hey, if you go to my place, and as a radio hostname is a john.
So when you go to the website to buy this product, put my name, John, and it’ll get you a discount. Yeah, well, we discovered there’s a lot of data out there to prove it. If you go on an e-commerce website, and there’s a space to put in a discount code, and you don’t have one, people will stop the transaction. They won’t close the cart. They’ll go online and spend time searching Yeah, or that discount code and may never come back to the cart and make the purchase.
Andrew Deutsch 38:53
So what we decided was to experiment with a link only if you go on our website. You don’t see a coupon space because we don’t want people to go out searching for it. We want them to complete the cart. Yeah. And it helps easily streamline how we do business.
I don’t think that in the last two months that we’ve had a single transaction that wasn’t with the affiliate discount, we haven’t had anyone organically go to the website and pay full price, which is really not really the full price to see it’s the elevated price of that person get a discount.
But the couponing idea has really changed, and sort of cheap, and you know it’s interesting during COVID there’s Costco. Costco sends out a coupon book now so that you know where the discounts are yet because you’re a Costco member, those coupon codes are already in the system, you’re going to get the discount whether you remember to clip them or not.
So it’s basically these things are on sale this month, and you should go buy them VJs on the other hand, now if you want to use the virtual coupons, you actually have to go on your phone or on your computer and go item by item by item electronically clipping each of those coupons before you go to the store or you don’t get the discount.
Andrew Deutsch 39:57
So what they basically did was they forced them to spend 20 minutes to 30 minutes going through their app, clicking on the things that they wanted. So what happens now and the behavior that I’ve heard from some folks involved in that organization is the average consumer who wants to discount hands the phone to their kid and says, hey, let’s play a game, Jimmy, go through and click every free one of these little coupons for me.
And when you get done, I’ll give you some candy. So it’s completely turned it upside down. So people don’t even know whether they did or didn’t clip. They’ve looked through the book, and they know what they want. But what they’ve done is they’ve created a job for the consumer that I think is totally counterproductive to people understanding the brand of VJs and the convenience and the discounts that you get by shopping there.
Sam Gupta 40:37
So, Andrew, that’s it for today. Do you have any last-minute closing thoughts, by any chance?
Andrew Deutsch 40:42
I didn’t have any opening thoughts. So, no, I don’t have closing thoughts.
Sam Gupta 40:48
Always trying to make up for that. I did not give you a chance to do the opening thoughts, and all you can do is the closing thoughts.
Andrew Deutsch 40:55
So shame on you for my friend.
Sam Gupta 40:57
Shame on me.
Andrew Deutsch 41:00
That’s it interview is over. No, I really had a great time. It’s always fun to kind of get off and discuss the topics that I usually don’t get asked about. Yeah, so I appreciate the exercise and the kindness of bringing me on the show to talk a little bit about pricing. This was a great experience. I really appreciate it.
Sam Gupta 41:16
Okay, thank you so much for your time. This has been a fun conversation and very insightful, and thank you. I cannot thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learned something new today. If you want to learn more about Andrew, head over to fangledtech.com. Links and more information will also be available in the show notes.
If anything in this podcast resonated with you and your business, you might want to check other related episodes, including the interview with Kirk Thompson from Chief Outsiders, who discusses how team alignment may be necessary to align with your customer experience strategy. Also, the interview with Mark Jaffe from Strategic Growth Consulting who discusses how macroeconomic trends impact consumer behaviors.
Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I hope to get you on the next episode of the WBS podcast.
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