Today's episode is a bit like Part B or a follow-up from our last episode a couple of weeks ago, where we introduced our new project, which we're calling Value Culture.

TIME-STAMPED NOTES:

[00:00] Introduction

[03:05] Why do not all companies have specialised pricing experts or teams?

[4:35] What can Value Culture do?

[10:19] What can clients benefit from Value Culture?

[11:17] The Ultimate Objective And The Essence Of Value Culture

What is Value Culture?

Aidan: Hello, and welcome to another edition of Pricing College with your hosts, Aidan Campbell. And 

Joanna: Joanna Wells. 

Aidan: Today's episode is a bit like Part B or a follow-up from our last episode a couple of weeks ago, where we introduced our new project, which we're calling Value Culture. But I suppose in this episode, I wanted to ask Joanna, really, why is this sort of project happening? What did we see?

Why did we think companies needed this sort of product? Like, what is the need or what is the problem that a lot of businesses, smaller businesses and, you know, medium-sized businesses, are facing? 

Joanna: Yeah, that's right. I mean, primarily, what we are doing is creating and implementing an essentially commercial platform called Value Culture, which is really aimed, as you said, at small and medium-sized businesses and enterprise businesses too.

And the reason that we have done this, and we're calling it a platform; it is a tech platform and not traditional consulting, is because we saw the mass need, the scale of the need of smaller, medium-sized businesses. Considering that about 98% of all businesses in Australia are small to medium-sized businesses.

In terms of the problem, we've seen consistently when we're speaking to startups, SMEs, medium-sized businesses, privately owned businesses, and then your ASX listed and Fortune 500s’ very common problems with pricing that we want to solve.

And ultimately, as you know, the problem was quite simple.

People feel that price can be something that is added at the end of a list of commercial tasks. For instance, when you're launching a new product, often the assumption is that it's okay. We can just set any price and then adjust that price later without really understanding the data inputs required to set pricing, the different pricing methodologies out there, and the metrics that they need to prepare and track along the way. And as you know, customer price response has a significant impact on your ability to change prices. Essentially, once you have your prices out there in the market, it's very difficult to change prices.

And often when people do that, companies small to large, when they just do that guesswork pricing or cost plus, they regret it because they end up essentially either overcharging their customers or losing revenue and volume.

You know, even selling below cost when they've got such great businesses essentially means they're undervaluing their proposition.

Aidan: I suppose, you know, here at Taylor Wells, one of the things I'd be very aware of, you know, on this podcast we've spoken many times about how getting a pricing person in really will give benefits to a company. But I think, you know, we're realists as well, and we're completely aware that if your business is doing a million Australian dollars in revenue, you know, you probably cannot afford, like, let's be honest, to go out and pay someone a hundred grand who's a high performer in pricing.

So I think, you know, there's a real gap in the market there. The vast majority of companies are small. As you said, Joanna, and I agree with that, there's a real gap whereby, in smaller companies, people tend to be doing multiple tasks. People tend to not be specialists, and the people often put their hand up and suffer the most stress and go, “Oh, I need some guidance on pricing. Can somebody help me today?” They fall into a trap, a gap, I guess, whereby they're not big enough revenue-wise to finance. A specialist, and to be honest, they're also, you know, there's not much point in getting consultancy for them either because there's nobody internally who could be dedicated.

Joanna: Oh yeah. Look, that's a great point, and that's a big part of the problem too. Pricing then just becomes this quite onerous task that puts real pressure on people who are really out of their depth and don't know where to start, what to do, or how to move forwards with pricing.

And really, what Value Culture does is give them that start, that ability to forge ahead when things are very unclear, the starting point, and then moving forwards, learning things step by step, getting the simple things mastered first before tackling the bigger, bigger things.

And then, step by step, feeding the right information in the right direction, whether that's in terms of getting the right inputs, data inputs, and information inputs together for price analysis and cost analysis or what, or whether it's more, okay, we need to learn different types of pricing methodology to set pricing, whatever the key area of the problem is.

Value Culture can give that first start and then move people along their journey.

So all of the pricing plans are customised to a roadmap that makes sense for that business. Those roadmaps are very closely aligned with business strategy. And then, if there are requirements to pressure test business strategy, Value Culture can go back to basics with strategic plans too, just to make sure that they're actually resonating in terms of the market and are indeed right for the business.

And then again, once that's solid and done correctly, we can start the process with pricing, get the roadmaps in order, get the individual team plans, get the individual plans, and then before you know it, it's different people in the business, say if it's a medium-sized business, or knowing how they're feeding into pricing, whether that's a price rise implementation or a new price for a product or even a tenderer, or even if it's thinking about how to simplify a very complex legacy system to make more revenue and to ensure pricing above costs. 

Aidan: Just listening to you there, Joanna, it sort of reminds me of the Pareto principle, which I think I'd heard of once, and don't quote me on what that actually means, but I believe it's like the 80/20 rule or the 90/10 rule.

You know what I really do think? There's a real gap in the market whereby people will get a huge amount of benefit; they'll get 80% of the benefit, by doing the simple things first.

Like there's a whole echelon of companies out there who are doing no pricing, right? like zero. And I don't think we're proposing that these companies will be jumping on day one to perfect pricing and apple style, you know, maximising profitability.

But I think you will get 80% of the benefits with small amounts of work, but where I really see the value, you know, in the way you're describing it, there is, it's just a format, it's a structure. It's like when people go to the gym and have no idea what they're doing. Oftentimes, they can just waste their time, for years.

If somebody sensible gives you a very simple programme, it's better to take simple steps that are concrete and get you in the right direction, and you're making real progress. And I think, you know, if this project can do that, I think there's a real, you know, benefit. 

Joanna: Yeah, I think you're right. I mean, when you were speaking there, it just reminded me of numerous case studies where people go, and what we need, is to fix pricing. Get me that right price. 

And they just focus on that because they actually don't want to get into the bigger problem, which could be not enough volume, not enough leads coming through the website, which could be a mess.

There aren't the right online quote tools to really inform and educate customers on the pricing. There's no value proposition. It's an ill-conceived value proposition. So rather than think about that, there's no understanding of pricing and its impact on the P&L. Costs could be everywhere. There's no sort of understanding of different cost centres. So often they go, "Okay, but that's too much of a difficult problem to solve." What we need is just the right price. Because if you increase pricing, we'll make a significant profit improvement.

And that would be enough to save this quarter and keep the business afloat. But not necessarily, because you've got to think of the pricing and its impact on the customers. You can't just overcharge customers because you haven't got enough of them to lose the very customers that you've already got.

Does your offer really warrant that price increase? Or are you underpricing? So Aidan, when you say that, yes, you've really got, when you start with pricing, what we find is the big epiphany, um, with both small and medium and large businesses, is that pricing is bigger than the price point that you set, right?

You can't just make it up. You've really got to think about your whole business. From costs to marketing online. You've got to think about your positioning and approach. You've got to think about your business strategy. And you've got to get all your ducks in order. You've got to know how many leads you're getting. You've got to know your quote-to-book ratios and things like that. And these are highly valuable inputs to a price model, so it's not wasting time going through each of those things in detail or as much as you can as you get that information through. Because remember, you can't do it all at once.

It is a journey, but each of those steps is valuable, and in the end, you will get a price model that is absolutely customised for your business. And you probably think, wow, at the beginning of this journey, I've had so many people say that at the beginning of this journey, I never thought I'd be covering so much ground.

I just didn't realise it. And look at this. Now we've got a price model that I understand and can clearly articulate to the directors and the board. It's making money for the business. There's ongoing recurring cash flow. I mean, this is a good news story, and it doesn't happen over and over. But each of those individual tasks and successes helps and gets you that one step closer to that peace of mind, feeling less pressure, and feeling good about what you've done and what you've done for the business because you actually generated value for the business and even more so value for your customers.

Aidan: Yeah, look, I think just the way you're describing it, what I'm looking forward to seeing is just keeping it simple. Giving people who are coming in, who are time poor, who are, you know, often, maybe they're owner-managers, maybe they're people who are running their own business, maybe they're feeling the pressure and it's on their to-do list that they got this year.

Take a look at the pricing and take this system. Hopefully, you can help them do that. So yeah, I'm looking forward to that. Do you have anything else to add, Joanna? 

Joanna: Yeah. I mean, again, keeping it simple is so important because yeah, people are very busy and especially from a small business and you're tasked with pricing, and you really are out for your debts, but you want to pursue that.

You need to keep it simple. And with Value Culture, this is what we've done.

As I mentioned at the beginning, it's an online platform. There's a highly sophisticated project management system that we can use for businesses to make decisions and plan. Simple. So everybody knows what they're doing at what time, and if they don't know what they're doing, there are templates.

There are guidelines and dashboards, and for each different stakeholder, there are dashboards, tracking dashboards and results, price, and performance dashboards. So every step of the journey. Full visibility, absolute simplicity. And then, at the end of the quarter, you can see the results.

Aidan: Super. When is this available? I want it right now. He says... 

Joanna: Oh yeah. Look, it's been a process of hard work getting this together, but yes, look, it's available. It's been created, and we're implementing it with our clients. So look, if you want any more information about Value Culture for small and medium-sized businesses or if you're interested at an enterprise level, we can certainly give you a demo, run you through it, and talk about it in more detail. But, yeah, look, we're super excited about Value Culture. We highly believe that's serving a great need in a core market. And we just look forward to sharing that all with you. Thank you for listening. 

Aidan: Thank you and have a great weekend. Bye for me. 

Joanna: Goodbye.

Why Pricing Requires CEO and Csuite Backing

Aidan: In today’s episode, we want to dig a bit deeper into a topic we’ve covered a couple of times in previous episodes. And that it’s vital, it’s so important that a pricing transformation or a major pricing project has CEO, C-suite backing.

And I suppose today we’re going to dig into that. We’re gonna do a bit of a question-and-answer format. Cause it works quite well. So we’ll be asking our resident pricing expert, Joanna, these questions. I suppose then she’s smiling at that suggestion. So the first one is, I suppose an open-ended question.

Why is it important to have CEO and Csuite backing?

Joanna: Well, let’s start with the simple truths and facts about pricing. The importance of CEO and C-Suite backing comes down to the returns that you can get from pricing. They’re more than substantial and very impressive when you compare a change in price to changes in cost volume, a mix for instance.

So you can say if you were going for a 2% increase in prices, versus not increasing prices, can lead to an impressive and direct flow to the bottom line of 20 to 30%. Obviously, here I’m thinking, volume is the same and constant and we’ve got our supply chain and costs in control.

But I think you can hear the message here if you just make very small improvements and changes to pricing. You can get a lot of money for it. So that’s why number one, it’s very important that the the C-suite understand how much monetary leverage they have with pricing.

And equally, if they do pricing incorrectly, how much margin they could potentially lose? 

Aidan: Okay, so I think we understand, that’s clear that it’s important for the business, but does the CEO have to be involved in this project? Does the Csuite have to be involved? Can they not just delegate it down to a finance manager or someone like that?

Joanna: I like how you mentioned delegating down. It’s always about, I hear this a lot and look, I agree with delegating to the right people, but if that in itself can be a problem. I think initially it’s very important for the executive team. A) to understand the importance of it as I’ve already stressed, and B) to get behind it and to be shown as a consistent voice on the topic of pricing.

Even if their areas of expertise are in supply chain sales, and product pricing. They still need to get behind the pricing project because pricing often touches all of those areas inadvertently. And what we also find, if the executive team, you know, they’re role models for change.

What we commonly see within our clients, if they’re not really behind it, they don’t understand it, they’re not committed, and they’re just more focused on their area, almost this siloed culture. And they’re sort of paying lip service to the role of pricing.

Yes, it’s important we get that. But that really isn’t what I call sponsorship, that’s just lip service to sponsorship. You’ve really gotta take an active role because if the executives don’t do that, then it sends a clear message to anyone, that they’re gonna delegate the responsibility of pricing to that. It’s really not that serious, and they can just tack it on at the end of the normal day job and nothing really gets done. Or if it gets done, it gets done poorly. 

Aidan: You know, that makes sense to me. I think we’ve covered also some other podcasts, and how pricing often slips between the gaps. Which function does it fit into? Is it finance? Is it marketing? Or is it sales? Or is it the commercial function, which some companies, let’s be honest, don’t really have?

So, I completely understand that it needs to be for a real pricing project to really work, it needs to work across multiple functions. So I completely understand that. The other thing I think is if, just on this point, if people do what they’re incentivised to do, and I think that concept you mentioned of leadership, role modelling. People know what if the higher-ups care about something. I think there’s an old anecdote about it.

Some executive, what do you care about today? I care about what my boss cares about, and that’s how you get promoted. So I think it is really important that it makes a lot of sense to me.

Joanna: I think, when you mentioned, Where it should be delegated to, should it be the finance manager? And often if there isn’t an established pricing team, it does go to some kind of finance manager often, or a commercial manager. And I think, when it gets down to it, the real reason why you need executive sponsorship, especially if you’re gonna move to strategic pricing or a value-based pricing system, you really do need sponsorship there because what you’re actually saying is, I’m going to change how we think about our customer.

How we think about how we do business, how we think about making money. We’re no longer going to anchor ourselves to our costs. We are no longer just going to look at maximising margin by putting pressure on our suppliers and thinking smart about procurement. We’re actually gonna believe in ourselves and the value of our products, and we are going to articulate that to the market and we are gonna invest in our sales team’s capability. We are going to install a new pricing manager, and we are no longer just going to delegate pricing, a tactical pricing based on cost plus methodology and tools to a finance manager who just rolls out that same, tried and tested legacy pricing method based on cost plus.

Now, that is the crux of why you need sponsorship. It’s a mindset change, it’s a complete culture shift.

And you know what, Aidan, sometimes the CEO needs to be reminded of that because often obviously they’re not, they’re not a value-based pricing expert. They’ve been grounded in that cost-plus modelling and viewpoint of doing business.

Like 99% of businesses have been for the last hundreds of years, but it doesn’t work anymore. So sometimes a good CEO will ask for that additional support and education on why they must go to a new system. Often, they know deep down it’s right, but just like they need to be reminded, their teams need to be reminded because it’s a new habit, it’s a new way of thinking.

And once you’ve got that mindset change in place. You can then build capability and then you can keep reminding of the importance of pricing by getting your executive teams there, sponsoring, educating, nudging the teams, encouraging them, and recognising all the good work they’re doing in new areas rather than reacting and going back to cost plus when things get a bit hairy.

Aidan: I think that makes a lot of sense. Look, I’m assuming we’re not proposing that CEOs go to every meeting and sit in on pricing projects. But, at the same time, clearly, if pricing is successful or if this project, even if it’s a fiasco, the C-suite has to be aware that what’s happening in the business.

They have to be aware of the drivers. What are driving volume change, profitability change, and all that sort of stuff? So, I think the question I’ll ask is, what would you propose would be a sensible level of CEO or C-suite engagement? Would it be a weekly meeting?

Is there reporting style that they need to be looking at? Are they in kickoff meetings? Are they just championing stuff? Where would they be?

Joanna: These are good questions. And actually, I have met a number of CEOs that inadvertently have been the pricing manager for their businesses pretty much because they didn’t have the governance, the setup in the business, the right structures, the right approvals process in the business and everything, therefore was escalated to them by the sales manager or the finance manager.

So inadvertently they had to do all the pricing, like all the tender pricing, the negotiations with customers, and they were the most knowledgeable. However, that’s unsustainable. That’s not the role of the CEO. And a CEO would know that. So, what I would suggest. This is a balance between knowing the principles of pricing.

So everybody needs to have an understanding of the basic principles of value-based pricing (for CEO and Csuite backing).

And you also need to have your organisation set up appropriately and have the right approvals processes in place. So then, where there are serious matters like market changing matters or serious money at risk from a large customer who is threatening to switch and it’s going to impact the P&L. Those sorts of things would and should be escalated. But with a rationale and evidence for supporting the “Why” behind it. So a CEO could comprehensively read through the detail without having to get right into it. And then in my view here, and what I’ve seen work well is that the CEO is almost like a chairman of a meeting.

It’s not the ultimate decision-maker. It’s the people around him or her that need to make that decision. And that overall with the evidence provided that they together make the right call. Does that sort of answer your question? But you see, before I even get there, we’ve got a road of what level of education does a CEO need to know? I think the basic principles, the fundamentals of economics 101 and the reason for the change. Good case studies, understanding the business model changes and trying to align their pricing according to that.

Now, here I’m hearing as well, we also need to get everybody else on board so they trust their go-to people, their sales executive, their commercial executive. So when they feed the information to them, they go, “Okay, that makes sense. Okay. I think we’ve actually got more of a decision here than we actually thought.”

And then together they can make a call. But that does require capability build. And often I think sometimes executive teams shy away from pricing cause they don’t want to invest in themselves and build that capability even in the executive team. 

Aidan: You know what? Look, I think any senior leader, whether you’re like a general manager, whether you’re an executive or whether you’re the big dog, realistically you’re short in time.

I think everyone’s short in time. That’s the modern corporate world. You know, meetings, emails, appointments, travel, all this sort of stuff. So, like clearly, any executive’s got a very limited time for a new project, right? So, is there a sort of format or a best practice for dashboard reporting? 

Clearly these people, or it’s very unlikely, but clearly they’re not gonna all be on the C-suite. They’re not gonna all be by any means pricing experts or even commercial experts. So clearly there’s gotta be a level of detail that they should have, but that isn’t always granular. I’m assuming there’s some sort of, what would you suggest there? what metrics or what sort of stuff should they be looking at?

And does that change? Through the process? Through the project? Clearly, you know what you’re looking at in week one. To manage something, you need to know the detail. What is the detail they need to know? 

Joanna: Okay. Right. When I hear about this, I think, that’s why I started with the rationale, with the impact of pricing on the P&L being quite significant.

That if we can all agree at the C-suite that this is worth the effort, is pricing worth it? Yes, it is. But you’ve got to have an agreement on that. But what I often see is that, yes, executives may agree on that, but deep down they’re not prioritising correctly. So they go, “Yes well this is a priority”, but actually it’s put on the back burner. And then it’s, as you say, it’s delegated to a finance manager. And even though there are major in price increases at the moment, strategic pricing isn’t given the attention and investment that it requires, and then therefore people think it doesn’t work.

So, I think one of the problems here is that you have to have clear priorities as an executive team (CEO and Csuite backing).

And when you say pricing is a priority, you’ve gotta back it up. I think that clarifies a lot. Now, once you’ve decided that actually pricing is a priority, then you’ve got to put in place those commercial systems that I think you’re alluding to aid and that helps fast track and give executives what they want.

So, they are not crawling through the detail of every price rise, every price tender, every account. They just simply don’t have the time for that. But here, you know, to build that structure is a project. And throughout industries, we’re hearing those. To be referred to as pricing transformations.

Now, to really make sure that you wanna fast track that pricing transformation, just gets the fundamentals right, cause I think you just want an answer here. What I would do if I was the CEO of an executive team, I would make the first call here and say, should decision-making in pricing be centralised?

That will cut out huge amounts of work for you. Huge amounts of work because currently, as we all know, in most businesses, there’s discretionary pricing and hundreds of salespeople, and product managers, all having to change setting pricing price overrides. The whole lot’s happening. So it’s very difficult to escalate any sensible recommendation to the executive based on discussionary pricing.

To cut a long story short, if you want clearer answers and fast, think about centralising your strategic decision-making.

But obviously, you are in a complex B2B or B2C business. You want to give your sales teams the flexibility they need to make a sale. So here, think about and consider decentralising execution and putting the two together.

In that instance, you’ll go through a pricing transformation with a much clearer direction, and you’ll be able to be given the information that you require along the way. And over time, things will just get easier, but, I’m not saying this is a journey. It’s not just one or two decisions.

And here you’ve got your silver bullet recommendation. You just have to go through one or two pages and the decision is done. Things that work like that. We are realistic business people here. It doesn’t work in any other area like that. So it doesn’t work in pricing like that. So it’s small steps, but making the right decisions, and being guided by logic, sense and the market.

Aidan: Okay. So I suppose, just maybe a final point, what metrics should they know? And this is, I probably am pushing this point a bit, should they know margins? Should they know the general company’s margins? Should they be aware? I’m assuming they should be aware of the actual pricing strategy that we’re pursuing.

I’m assuming we should. If we’re doing value-based pricing, they should know that.

They should know about if we’re bundling, and they should know about what our overarching pricing strategy is. I’m assuming they should know our margins going up or down. I’m assuming they should know, what we’re doing to prevent margin decline. What we’re doing versus this and versus that? Should they know about it? And again, this is a CEO. I’m almost painting in my mind, a perfect CEO. They should know the values of the company, the pluses and weaknesses are, you know, those value drivers. Should that be something they should be discussed at these meetings? 

Joanna: I think this is, I mean, if they were discussing these sorts of things at meetings, it would be great. I rarely see it, however, but yes, I do think that would be absolutely a well-informed executive team meeting.

When I’ve gone into businesses, I’ve often found it’s very difficult for executives to make any call because their teams haven’t been able to provide them with even baselines on price metrics, on margin.

And often you think, “Gosh, it’s astounding.” But even th[e baseline level, like where we at now with costs? It’s incredibly difficult to get that level of detail, especially as we know there’s been major commodity changes and fluctuations and things like that. But in terms of pricing, yes, getting the baselines, understanding price elasticity, understanding the opportunity in long tail pricing.

I think we were talking about that, which connects with elasticity, understanding which parts of your products are highly sensitive and which you, I suppose make a change to pricing and nothing will happen. Those inelastic products, understanding in specifically the value drivers of your customers, Why they’re buying for you?”, those sorts of things are really interesting to executives and once they get that information, they can start piecing it together.

Then they don’t have to go into the details, the nuts and bolts of price management. Then you can trust your pricing team to do their job.

Bottomline: CEO and Csuite Backing

Aidan: Okay, look, I think we’ll leave it there today. I think all this is suggesting to me that wouldn’t it be wonderful if there was some format or system that would make this easy for CEOs to do, wouldn’t that be a valuable product or service?

Joanna: I suppose it would. And, we’ve been working with executives and CEOs in the past few years now on building commercial systems that provide these sorts of answers to and support systems to executives and their teams as they go through a pricing project. And overall what we have found accelerates the pricing transformation by three times shorter than just organically finding things out yourself and putting a hodgepodge of tools together, hoping that, that will fix the problem.

It never does. So yes, there are things out there fortunately for executives. And it’s great to see that these new tools and systems are there. 

Aidan: Well, that sounds really interesting, and I think that’s something that I would like to dig into in a future episode. So maybe that’s something we’ll discuss next week. Okay. I think we’ll leave it there today. Everyone has a great weekend.

Joanna: Yeah, thanks a lot.

In today’s episode, we want to explore the world of startups and I supposed at Taylor Wells we got asked or approach by quite a few startup businesses and the early stages of development with questions about pricing advice and pricing strategy and how start-ups should price. And I suppose we just really want to explore some of those ideas today and maybe just discuss some ideas.

TIME-STAMPED NOTES:

[00:00] Introduction

[03:00] What’s our advice on issues regarding pricing for start-ups?

[12:19] How can we advice start-ups in discovering value in pricing?

[16:57] Would you advice implementing various pricing strategies for start-ups?

[22:01] Pricing Advice For Start-ups: Don’t lose data. Keep learning, testing, and trialling.

Pricing Advice for Start-ups to Kick-start Their Growth

Especially quite recently. We’ve had a number of questions and inquiries from startups. And we’re talking about startups, people that are literally coming up with new business ideas. And often, it’s the first time that they’ve done that and they’re trying to launch either a new product.

Now, this could be ranging from, you know, an FMCG good product or you know even a Saas type product and you know, they come with legitimate concerns often they’ve heard the podcast and there’s thought, you know what, I never really considered any other approach to pricing, other than thinking about costs and putting a markup on the cost to give me that margin that I need to cover my costs and get revenue in through the door.

And I never really thought about value-based pricing but it really did change my viewpoint, not just on the price point, but also it gave me a new perspective on what I’m trying to do in the market, my business model, how I’m going to generate revenue, what the sources of value are that are going to help me do that and cover my cost, how I’m going to work with suppliers who my target customers are.

All these new and very important ideas came almost flooding in people’s heads after thinking about value-based pricing and, you know, we just going to explore today, you know, a little bit more about pricing for startups and a few techniques just to help people make those first few steps because it doesn’t have to be a difficult journey or long drawn-out journey, you can start pricing immediately, even though sometimes you think “God I’ve got so much else to do. I’m just going to get money through the door”, type of approach.

It’s clearly, you know, we’re not gonna go into cost-plus pricing on this podcast, but clearly for a start-up, it’s even more exacerbated.

You know, if you make one item, you know they’re your cost base is going to be higher than if you make a thousand. So, you know, as you grow in scale, do you intend to reduce prices? So, that makes no sense.

But clearly a start-up even number of issues that will make pricing more difficult: A) there is no right price for your product. At the beginning, you don’t know what a value provides to your customers you might have an idea, you might have you know obviously you’ve got your pitch deck and you’ve got your ballpark figure and your idea, your elevator pitch let’s say, you know and you thought about why you’re getting into the business and where you fit in the niche. But realistically what’s that old saying?

Everyone’s got a plan until they’re partially on the nose. I think Mike Tyson said and you know until you go out there and made customers and really get into the market you don’t really know, you look at statistics, how many companies, how many start-ups pivot?

How many really hit a niche and really make money it’s limited obviously we don’t want to put people off from starting up but you know those things have to be borne in mind and when you’re looking at pricing, that is the issue.

They are, you don’t have enough information at the beginning, there’s no saying that trying to get some customers, trying to get out there with some customers. Realistically, I don’t think the price of the beginning, we’ll get into this a bit later, but just winning customers is very important. Because then, you can explore value, it’s a value discovery process.

Almost look at it as a subsidized value discovery process where a customer is almost paying you, it may be too much, or it maybe too little, but hopefully they’re paying you and then you can explore and learn about your own business. So that’s the first thing I’d say, clearly, It’s very important to get customers on board. The second thing I say, unless you have funding and we’ll talk about, you know, series A or a large amount of funding, it is highly unlikely to have a pricing manager.

Let’s be honest. Most startups at the beginning have very limited revenue, and a good pricing manager’s salary probably will be quite expensive. So, you’re going to be doing an ad hoc, you’ll be doing it in-house. Probably the startup. The founder would be doing the pricing and so, you know how much attention you can really give the pricing at the beginning is limited.

I totally disagree with the point that, you know, people often come into the business with a really good plan.

In my experience even consulting with major corporates, medium-sized businesses, even you know, blue chip companies, often the surprising point is they don’t even have a plan when it comes to pricing or even their business strategy.

What they’ve actually got is a very flimsy outline of what they kind of want to do. Often the key question of, Why are we selling this product? How do our customers value this product? How do they perceive and value us? What are important in the eyes of our customers? How good are we at delivering what customers value? Are things that are hot, not addressed in, I would say, 98% of business strategies, even though that’s the most important questions you should be asking.

So, I would say, most startups don’t have a plan either to be fair. And really, there’s a little bit of hope and a prayer that this product, this new business is going to solve a gap in the market without actually, as Aidan said, approaching customers and seeing, you know, giving it that, you know, testing our assumptions.

Pricing Advice For Start-ups: Testing out, let’s call it a hypothesis about what we think we’ve got and how valuable that is, in the eyes of our customers.

Because essentially, if you’re going to get investment from private equity, seed investors, they’ll be asking that. I mean, because it’s the central aspect of a business, a new business model and operation system or it should be.

And if you haven’t got clear answers on that, you’re not going to get the funding and that brings me back to what I was saying before. You know, a lot of startups have come to us and even with you talking about value-based pricing, it made us think about value.

And it made us think that there was that major Gap in our business thinking, and our strategy, which has, in turn, delayed other things, not just pricing, but even you know, how we go and approach, our customers, our pitch, what do we say to them? You know, what is that compelling message?

All of these things, you know, were sort of underbaked and then have been preventing people from launching. So like Aidan was saying, let’s go back to basics.

Let’s ask and turn these questions into hypotheses and start going back and thinking about who our target market is.

Can we think about the personas of these customers, that would want to buy the products we’re trying to sell? How are we going to communicate that offer to them? How are we going to make it easy for them to buy from us? Now, these are the questions, like you’re not going to have the answers and don’t fear not having all of the answers.

When you approach your customers, the key here is to have some hypotheses in mind about what you’re doing, and what the value of the offer is, right? When you go in to speak with a customer. But then ask the questions and then listen. Listen, very very carefully to what they’re saying to you. What you will find, is that some customers that you’re talking to are really not your target market.

Even though you thought they were whereas other people really are potentially changing your viewpoint on your initial business model and plan and then iterating from there. This is the fundamental aspect of value-based pricing and as Aidan mentioned we call it a value discovery process, but really it’s essential. It’s an activity that leads to profitable revenue growth and it’s one that’s often ignored and skipped but it’s the central aspect of any pricing model and of any business strategy.

Pricing Advice For Start-ups: Let’s be honest at the beginning.

For anyone who’s ever started a business, every single interaction with a customer, feels like life and death. You know, you stressed about them.

You dig into too much, you know, all those are those interactions statistically valid, you know, is it over time when you scale up your business, you know, will that apply across a larger number of customers? Those questions have to be decided. I suppose at the beginning you have to have a ballpark figure.

As to what value you’re providing, you know, are you aiming to be the cheapest in the market and undercut traditional operators because of your cost of operation, you know, is that your model? If that is the case, likely, then you probably will be cheaper if you’re cutting costs; if you’re value-added or you’re cutting costs? If you’re value-added that you’re offering, we’re more features and benefits, you know, then you probably can be charged more than other people. Big questions.

Should you be going into the SAAS situation?

So many startups, Online businesses try to get onto a subscription. There’s a huge movement towards recurring revenue, showing recurring revenue. You have to really think. Does that suit your business? Is that really the type of business that you want to be operating? It gives investors confidence but you know, is it actually plausible into what you’re doing?

So that also has to be considered. I suppose you’re fundamentally, you have to really dig into what your business do. And what is the best way to charge for it? Just pick the best that you can think of at the beginning. Over time of course you can optimise, you can go into it once you get more professionalised, once one customer becomes ten, becomes one hundred and hopefully becomes thousands.

Then over time, you can start to optimise potentially bringing pricing expertise and pricing analyst over time and optimise that stuff. But you know you really got to think about what you know, I suppose companies will go through different strategies at different periods of their life cycle and development, you know, at the beginning.

Are you trying to grow your market share? Are you trying to get some sort of like give us good network effects?

I’m assuming that you’ll be wanting to try and grow the business and potentially to try and grow. You might be offering freemiums, or you might be offering lower quality, you know, tester versions of that. So again, all have to be considered, but you have to be, I suppose you put on the old saying a cart before the horse.

You know, what are you actually trying to sell? That’s the fundamental thing, pricing is not, it doesn’t separate, it is your commercial strategy. And the point I’m trying to make is, what is your business trying to do?

In an ideal world, let’s say, obviously you’re not going to do everything perfectly but is trying to do something and then once it’s doing that and a customer is, you know, bought into that and want that service or product or whatever it is, you know, how are you, what’s the best way to charge that customer for that while some shaving, your objectives of growing, you know, over kidding solvent until your next funding round? You know, that is the question.

I mean, you make a good point that you know, is a value discovery for one or two customers statistically valid? Obviously not, it wouldn’t be, but it gives you a starting point. And I think it’s an important point to note here, that value discovery is ongoing, it never stops. You’ve constantly got to do it.

Pricing Advice For Start-ups: So it’s important that you don’t lose track of the data and the insights that you learn from different customers, as you approach them, in terms of understanding value.

So actually, in a way, it’s a very scientific approach to understanding value and has to be set up as such for it to be meaningful in a statistical way.

And to give you insights that inform your strategy over time in regards to, when I was listening to Aidan there, you know, I agree, though there is certainly an evolution of pricing methodology that Startups and even big businesses, go through, starting with the rudimentary cost plus, knowing your cost and adding a simplistic markup going through that competitive benchmarking scenario.

When you line up all your competitors’ prices and then you go, “I think I’m going to be somewhere around here”, so you go, you pick lowest-highest and you go, “All right, I’m going to be here in this bit in this price bandwidth”. That’s what they call it. I’m not going to evaluate these methodologies will do that later on. And if you listen to other podcasts, you probably have heard us evaluate them.

I just talked about evolution and then I think Aidan was going on about SAAS businesses, using subscription models, now that’s a revenue model.

But the pricing methodology that tends to be adopted within that revenue model is called attribute-based pricing where they do look at the features and benefits of the product or plan and then they set their different price tiers.

You know, good-better-best essentially or decoy pricing based on those features and benefits, you know, evolution from there, you know, obviously got Dynamic pricing looking at, you know, inventory and capacity utilisation and demand and forecasting, and things like that.

And then in terms of evolutions of the subscription model, they go into like consumption-based pricing, where basically, you charge customers for how much they use different plans, that’s becoming particularly popular at the moment, and then from there, you know, a more sophisticated one is based on outcome-based pricing, but basically what a customer gets from using your service, your plan, your product.

Now, that’s a newer one. And all of these as Aidan says, it’s not like “Oh, that sounds good. I think we’ll just use that .”, even though 90% of SAAS businesses do that, they just go with trends.

Pricing Advice For Start-ups: You have to be very careful which one you choose because each have their limitations and it takes a hell of a lot of time and effort to integrate them successfully within the business model.

And if they’re out of sync with the market and the business model, they’re not going to generate profitable revenue growth, then, in turn, you’re actually going to lose probably more money than you make and overtime. So you’ve got to be right.

And this is why Aidan was talking about pricing expertise. It’s quite important to get that pricing expertise on board, but obviously, as a startup, you’ve got to be aware of the strengths and weaknesses of these different pricing methodologies. And what we’re trying to say is, the best way of doing that is, understanding your business model, thinking very closely and how it connects with the market.

And then thinking about, how you’re going to capitalise on the value that you’re offering based on the perceptions of the market, your customers and how they perceive and use that value. What do they get from working with you, in a very simplistic way.

From buying your product and working with you, how did they perceive value?

And what value do they actually generate in terms of, you know, do you help them lower cost, do you help them generate more revenue, I’m using your plan, your products, whatever. Are you helping mitigate some risk in a way for them? And those sorts of questions really give you a head start, when it comes to evaluating the best pricing model for your business.

I think everyone when you’re starting a business clearly you have to be a jack of all trades. You want to know a little bit about everything. But the thing about pricing is, I suppose people come and they go “Oh tell me, a pricing strategy” and we hear that a lot. The reality of it is, there’s no right or wrong pricing strategy.

There are many potential strategies you could implement. Some may be better than others clearly, obviously, how you implement them. There’s some science behind that, there are approaches, but you could have meant for many businesses.

Pricing Advice For Start-ups: You can Implement various strategies particularly when they were a very early stage.

When they haven’t proven anything you could tweak certain things in the trajectory that business will go in that are very different. So you could pick different ones at the beginning. Clearly, because they’re not tested by the market, they haven’t got many users and you haven’t got feedback. Clearly, some are more likely to be successful than others. And you have to visit.

There’s an art to picking that one. You know, the actual pricing strategy that commercial strategy used. Clearly, a lot depends on so many moving parts, you know your funding, you know, do your funding, or do you have to actually make profits from day one and grow boost route. You know, you look at MailChimp.

I think they never took on funding and grew pretty much organically by being profitable and then adding additional features over time, but not, you know, jumping massively, just growing gradually, Canva, probably the most famous Australian unicorn, fundamentally they grew at the beginning, by giving free service to huge numbers of people.

I don’t know what percentage of people who use that platform actually pay for it, I read, I think it’s in the papers this week, that it seems implausible, but apparently is true.

Every month over 1% of the world’s adult population uses canvas which does seem unbelievable. But apparently, those are statistics. So clearly they’re not all paying for this service but a significant proportion are.

So you know you’re thinking clearly they had funding and a lot of these startups are clearly lost making for many years. You’re thinking, Amazon, you’re thinking Uber, they’re clearly lost making for a very long period of time.

Pricing Advice For Start-ups: Until you know, the investors are confident that market share, skill, efficiencies, economies of scale all that stuff will factor in later, you know.

So those questions have to be asked and if your business needs skill to operate, to be profitable in three years time, then clearly you need to grow that scale and potentially, it could be, you know, using pricing strategies such as you know, skimming or like being even a loss leader or, you know, going in cheap and then over time adding additional services.

And you know upselling, so really look, the answer is,it really depends, but it all stems back to the beginning to having a clear view as to what your business does, having a rough idea is to what potential value it has and the longer term business model, focus on the business model.

And once you have that and confidence and backing in your team behind that business model, then you start charging forward and working out, putting in place, a model that can: a) keep your business solvent long enough until that’s achieved and, b) making as much profit as possible along the way. I think those are my comments today.

Bottomline: Pricing Advice For Start-ups

I like that. Don’t be afraid to try new pricing methodologies and revenue models. You’ve started your business now with a great proposition, you went with it, you’re already going in with an experimental sort of mindset, and you’re keen to learn. So just do the same thing with your pricing. I actually say, even in big businesses, it’s much better to learn quickly and fail quickly.

It’s okay if you make mistakes, as long as you learn from them, same applies, with startups, just learn and do exactly what you do when you’re passionate with your own product when it’s very the same mindset apply, so keep doing that and I hope along the way, we’ve given you some overview of all the different types of approaches that you can take.

That value-based approach mixed in with more of the technical sort of methodology that potentially is out there for you to utilise as you experiment and learn. Key to all of this is if you’ve got a number of different products and plans often, that means there would be different types of pricing approaches and models.

You don’t always use the same type of approach for everything, that’s sort of like when markets are more stable. So, having that creativity and thinking, a very granular level, when you have time about different products because every product has a different type of price sensitivity, and different value profile.

Pricing Advice For Start-ups: So you’ll find over time that different plans will require a different approach, but you’ll learn this. If you just keep on learning and testing and trialling but do so, you don’t lose that data.

You don’t lose all that learning. You apply it, feed it back and you continually update and learn and test and tweak, that really is pricing like it is with product development. It’s the same type of thing and same approach. I think overall I’ll leave it there. But feel free to ask any more questions about some great feedback from you guys recently. So keen to hear more, well thank you for listening.

[00:00:00] Aidan: Hello and welcome to another edition of Pricing College with your host Aidan Campbell 

[00:00:06] Joanna: and Joanna Wells 

[00:00:07] Aidan: Often at Pricing College, we find new ways to show that we live in the past. And so today we are going to talk about cinemas, cinema pricing, and I predict somebody will say movies are not as good as they were in the old days.

[00:00:21] So I'll let Joanna kick-off . 

[00:00:24] Joanna: I think we we're talking about cinema pricing, partly as response to that Bruce Springsteen, dynamic pricing scenario that occurred a few weeks ago. I'm sure we discussed it in a podcast few weeks ago, but it's been throughout the press and, you know, it reminded us of, you know, back a few years ago, when cinemas were sort of, I mean, struggling with their business model, less people going, demand for cinema and movies going down, rising of Netflix, all that sort of stuff. But, so they were thinking about, you know, how can we make more money and more margin as a cinema? What new pricing methods could we use?

[00:01:03] And they're really toying with the idea of dynamic pricing. So yeah, when I look at that now, that strategy and you think, Oh, well, it seems to be working in the ticket industry for other entertainments. Why is networking so well for cinemas? Well, partly, I mean, through the pandemic, you know, it's been very difficult for, you know, cinema to even test new pricing methods like dynamic pricing, because simply people weren't going out or allowed to go to the cinema for a long time.

[00:01:37] And still, you know, there's that, that knock on effect, on demand levels, you can see they're dropping. Very few people still going. Before we go onto that, let's think about how cinemas really do make money? How are cinemas still open today, considering very few people go?

[00:01:52] Well, the sales model really is based around the distributors really funding a lot of cinemas. Cinemas pretty much give way about 20. Well, let's say 80% of ticket sales in the first two weeks to distributors for movies. And after that point, they pretty much keep all their sales. So for them movies like Avatar are great because what they can do, they can bring out the old avatar movie, the first one.

[00:02:22] Because they sort of own the rights to that one. Now they don't have to pay the distributors anymore. Well, they don't own the rights of it as well. They've got, they can keep all of the sales revenue from that in preparation and then move on to, you know, forward forecasting for Avatar two.

[00:02:41] And that's a great way for the cinemas to make money, at which point they could potentially use dynamic pricing, you know, as they build demand for that movie, however, the customer experience and demand levels have to be optimised to be able to do that, and I really don't [00:03:00] think at this point cinemas will be able to test dynamic pricing. Hence, it's not really been tested. 

[00:03:08] Aidan: Yeah, like I find there's a lot of interesting pricing things we can look at with cinemas. You know, I think there's been an arms race, at least in Australia with the quality of the cinemas themselves, like the actual rooms, the buildings, not so much the locations because they've probably moved away from of market, red carpet style, CBD areas to, you know, malls on the edge in suburban malls.

[00:03:31] But one thing that, you know, we've seen in this Australia Gold class, I don't think there might even be a platinum class, almost like very leather beds. Fully flat seats. It's almost like the peripheral has really invested in that. And usually that's something we really push with or we promote here in Pricing College, talking about the value adds that they offer.

[00:03:51] You know, you're gonna have drinks brought to your seat. Some cinemas will have buttons you can press and a waiter will come up and bring you stuff, which all sounds very luxurious. But, you know, [00:04:00] I think almost can we argue that, And I think I'll be the first one to say that, you know, maybe the core of what they're offering has decreased, you know, the quality of movies, I think a lot of people admit that it isn't as good as it used to be.

[00:04:11] I think the only movies that are selling out now, there seem to be disney style movies or the never ending stream of Marvel, and DC comic sort of action hero movies. But I think cinema in general, you know, the normal cinema goers, I think that market has decreased.

[00:04:26] And to some extent you have to argue that the core value of the cinema, which is the actual movies, you know, there is a real risk there, a real issue there with what's being produced. Obviously the cinema owners don't have an influence on that. So that's the first thing I'll add. Second thing, I just think, we often talk on this podcast about, you know, revenue management and capacity constrained, like, and to a large extent, cinemas are capacity constrained also, there are number of seats watching a screen, but like, I cannot remember ever being in a cinema in the last 5, 6, 7 years and seeing a cinema full or even having difficulty in buying a ticket. So there's [00:05:00] clearly that revenue management aspect isn't been optimised. You know, and we're not arguing that you should be selling those tickets at 1 cent or two 10 cents, but, you know, maybe that is a question people should be asking.

[00:05:11] What is the revenue management model behind these screens? Look, I was at a movie maybe two weeks ago, midweek Thursday night, which used to be regarded as, you know, midweek shopping night. And I think we were the only people in the cinema, and it was potentially a 500 seat cinema.

[00:05:25] So you're really questioning the model there. Another thing I will add is, I think we'll get into a later on this podcast, but some things I'd like to look at are loyalty programs that they have that they try to get you into, you know, the rationale behind that. I'd also like to look at the geographic variation in pricing, where they charge you different to go to different locations.

[00:05:46] And I personally experienced that, which I find a little bit strange. You know, the actual differentiator is huge. And then the third one I think is, sometimes they try to sell you a subscription model whereby you can go infinite times for a flat fee, [00:06:00] which traditionally was in with students and maybe even later school students.

[00:06:04] So those are models that I think are interesting that maybe have they been fully developed and of course the classic of do movies, just, it's more of a conspiracy theory that I personally like the popcorn. Do cinemas favor bad movies in the teenagers because they eat more popcorn than old people. It's an interesting one. 

[00:06:21] Joanna: Well, if they look at their sales model, yeah, they really do. That's where they make their profit is. It's on the concessions on the food. It's literally pure profit for them. And I think a while ago there was some price tests being done on dynamic revenue management, on the concessions as opposed to the tickets.

[00:06:38] People didn't like the dynamic pricing on the tickets so much, but they optimised by a few cents on the food, which is already profitable for them. Now I can see, you know, potentially their backtracked cinemas are backtracked from that and they're now utilising more, like bundles using tiered pricing to upsell to, [00:07:00] you know, the large popcorn, based on price, because there's very limited price difference.

[00:07:04] So why not get the larger version and the theater makes more money? That's one that we all know. In terms of that, I just wanted to circle back to the customer experience that we were touching on before. I'm sure, consultants have come into major cinema businesses and said like, really the number one thing to think about before you look at optimising price or testing different pricing methodology is to really work on your customer experience.

[00:07:31] Because that in term will enable you to utilise and test these different pricing models like subscription pricing. The problem is you're not driving enough traffic to the theater and that's feedback from the market has said because we don't enjoy the experience and Aidan touched a point a lot of the theaters got.

[00:07:52] Quite run down and there wasn't enough money being invested into the cinema, the room itself. Some [00:08:00] cinemas got these nice, lovely leather seats recliners, reducing the number of seats in the cinema, thus reducing potential for that capacity constraint idea through dynamic pricing.

[00:08:12] Other cinemas then thought, Well, let's not improve the cinema. Let's look at how we can implement dynamic pricing by potentially looking at when people buy their cinema tickets, if they buy it closer to the cinema. The movie date or time, then we'll charge more. People didn't like that.

[00:08:31] And then really all of those things, if they didn't really help boost the experience, it took it away from the experience. So thinking about customer experience, often cinemas. That do well. And I'm thinking very much like the petrol stations, gas stations, they do well not just cause of, you know, the product or what they're selling in the store. It's actually the site where they are, where they're situated. Are there restaurants nearby? Are there like entertainment late at [00:09:00] night? Aidan made the point of most of the cinemas that are doing well at the moment, it's because they're showing, movies for kids, but potentially if they built a customer experience for adults. And by thinking about, you know, what's around that cinema? Would that actually bring more adults into the cinema because you think, Oh, you know, I'm not just gonna get, you know, I'm not, it's not just a, you know, gonna watch a film cause I can just watch a film at home. I'm gonna, you know, have something to eat.

[00:09:30] I might, you know, have a nice like drink before I go in and not the drink in the cinema. Do you know the gold class membership in the cinema? Rarely see anybody really in there, you know, taking in a nice drink before they go in. People prefer to have a drink with the dinner outside, then come in.

[00:09:48] So maybe I'm thinking here and boosting, you know. The customer experience by thinking a little bit outside of the walls of the cinema. And you know, partnering with [00:10:00] entertainment businesses, you know, partnerships, loyalty cards that look at how connecting, building a community outside of it, you know, that sort of stuff.

[00:10:09] It just requires a bit more creative thinking. And then once that's done, once you're bringing the people that you want to attract into your cinema, then you can start testing pricing models. 

[00:10:21] Aidan: I think that's a great point. I'm thinking some of the local cinemas, you know, in my area, and to be honest, they're deserts in the evening time. It's like you'd have to get in a car and drive at least 10 minutes to have a restaurant or somewhere. So the idea of having an evening out. It takes that away. It strips that away and when I think of the more successful ones I know of there's restaurants and some of the more recently renovated Westfield big shopping centers, they do have restaurant options, bar options near the cinema and reducing to be more of a buzz and it can create a date night atmosphere or stuff where people would go for an evening without having to plan a second location. So, you know, that is a big thing. Like the other thing I'd say is [00:11:00] cinemas, they've almost dumbed down.

[00:11:02] Like obviously people's society is dumbed down hugely, but I think with cinema and entertainment, and it is a bit like music. If you all go to the middle and we covered a bit of this in Bruce Springsteen where if you want people to pay top dollar and really be a addicted to watching bands.

[00:11:17] It's because it's not one size fits all. Some people love Bruce Springsteen. Some people love dance music. Some people love whatever rap music, et cetera. It's the same cinema. But in the mainstream cinemas, it's gone towards the popcorn selling, you know, rubbish in the middle spectrum.

[00:11:34] And the more art house or that sort of aspect, there doesn't seem to be appetite forward, or is it just that it's not provided? So potentially that is decreasing the attendance as well. When you minimise the offer. You know, again, in the pricing stuff we talkabout you optimise the tail. I don't see the tale of what's been provided being optimised really.

[00:11:54] And even the peripheral, not just you know, there's a cruise ship element to the cinema of course, too, whereby they've got you [00:12:00] captured once you come in the door, you know you're not supposed to bring in external food, et cetera. There's an opportunity to upsell you clearly. And I don't think the rate that really is developed much in the last, you know, 10, 15, 20 years, and to some extent it's even become more middle of the road.

[00:12:15] It fundamentally is in the main cinemas, it's popcorn, it's a Diet Coke or a Coca-Cola and a large bucket style container, you know, an a limited selection of lollies or sweets. I think even the pick and mix, which kids used to love hasn't really seemed to come back post covid.

[00:12:31] I haven't seen that really. And again, kids used to love that. And that was an element of stuff, but I just feel it's almost like in a shut or a slowdown of the cinema industry, you know, I think there's clearly opportunity for upselling on, you know, more, you've got them captured. So more ancillary services. Clearly you can be provided and creating more of an atmosphere. Building more of a community. Clearly it's like, cinema at least it used to be fans, it used to be, you know, people would [00:13:00] diehard of certain genres, they would go to the cinema on a regular, weekly basis.

[00:13:04] You know, you'd have season tickets, you'd have reduction. I just don't really see that happening. I know Hoyts, one of the cinemas where I'd be most used to going to. They have a loyalty program like that, to be honest, doesn't make a huge amount of sense to me. It almost like, you know, they're giving you a lot of value back immediately just from signing a former pay. I think it's $15 you pay annually and then you see, you know, x percent of every ticket sale. But it doesn't really seem to make a lot of sense to me. It seems to be almost. You know, they just want that 15 bucks up front, and then they're giving you back the 15 bucks immediately. So it's a strange one. And again, I'd be open to people telling me that there is method behind this, but to me it doesn't often stack up. 

[00:13:43] Joanna: I sometimes think, people go, Oh, you know, this generation's different. All they wanna do is stay home, watch the screens, and watch Netflix. They don't really wanna go out. It's a bit about the defeat attitude. Like, I'm thinking about this one restaurant. I know it's in the middle of nowhere. It's next to a [00:14:00] lovely beach, but it literallyhas nothing else around it, but they've made this restaurant a destination point in itself. And then after that, people can go to the beach, and it's a new business, right? But prior to them taking over the business, it wasn't at a destination. There was tons of different types of restaurants going in that really hadn't focused on how they could create this wonderful customer experience. So really what they did instead is like, it was an awful experience. People just went and they didn't even go to the beach, even though it's a gorgeous beach.

[00:14:31] They just were like, I just wanna leave. But they did it. And people go and even, you know, millennials and the whole lot of young people, they get out of their bedrooms. They go to this place because it's giving them something in return, right. Cinemas can do the same thing.

[00:14:49] And I do think it's a cop out for business to going, Oh, you know, things are changing. We can't keep up. Yes you can. You just got to think carefully and strategically about [00:15:00] what your customers want, how you can connect and partner with different businesses to correct, create an experience that is worth staying around for.

[00:15:09] You don't just go to the cinema to sit in a lonely, dark, dusty, old room to watch a poor film. And that's where we've got cinemas and distributors in the whole industry have to think differently. Now, thinking about that on the other side, What's happened to cinemas, they've been captured within the Westfield Mall type experience, which, as Aidan was saying, shuts down, especially in Australia at like six o'clock.

[00:15:38] It's a dead zone, partly because Westfield rent is ridiculously high and they can't attract niche and creative businesses in there for a long term before they shut down. So there's something with the whole ecosystem, with, you know, having cinemas in malls and reliant upon landlords who [00:16:00] charge too much, in which in turn negate the experience that bring customers in, because the rent's too high.

[00:16:07] But then they argue, well we need the rent to maintain such a big complex, Well, maybe this is the end of the mall and we know that this is happening in America. . However, what's happening in America isn't great either because that's just breaking down community at the same time. So like, are we going back to the old school way of, you know, high streets, independent businesses just clustered around actual areas that people congregate, they congregate around beaches , in metro city, you know, where there's life, people go, So rather than think we all go where there's life. Let's get into the creative zone and create life and bring traffic to you, rather than the passive reactive. Oh, I'll only go when I know there's a business case to set up a business, and everyone goes to malls. They don't go to malls anymore. It's a dying [00:17:00] business model. I think that's, I don't wanna rent anymore, but I think you get my gist here.

[00:17:05] I think we just gotta think completely different. Get our creative hats on, start to reach out and connect with businesses, not these major malls. That's not the answer anymore. It's the niche players, it's the startups and its partnerships. And from there you can build loyalty plans and pricing plans that are absolutely spot on.

[00:17:28] Aidan: Look, I think we're talking about a creative industry In a previous one. We, we covered that. Like, I think Hollywood often goes through these cycles of, you know, the big corporates, and then you have, you know, the new wave, the French movies where you have even in the seventies where it was like the alternative movies came through.

[00:17:43] And then you had in the nineties where you had like the Quentin Tarantinos and this new wave of directors. Like, I think that's Hollywood's crying out for at the minute. Like, clearly everything seems to be produced by committee and by what do you call it, focus groups, you know, whereby, so you, you get movies that are [00:18:00] basically cookie cutter and that appeals to the middle section.

[00:18:02] But when you appeal to the middle section, you don't get high emotions or you don't get, you know, people going to watch the movie twice or unmissable. There aren't really movies that you cannot miss anymore. There aren't movies that people talk about much, and I suppose it all spreads down from there. You know, at the end of the day, if people aren't overly fostering going to the movie, you know, the paraphernalia around it and all that, it then is a habit that if people are out of that habit, you know, maybe they won't get back into it. So, like, I would argue, you know, there's fundamentally, and you need better movies to be watching is the first thing.

[00:18:34] And secondly, there's clearly a pricing element about the peripheral around that, creating an evening out, creating an experience for people. And then it's trying to somehow charge them by optimising the pricing, which to me, you know, doesn't seem to really be happening. It just, you know, is it like, at the end of the day, if people don't want to see the movie, they're not going to pay less or more depending on the day. So fundamentally, you need the movie first, but then there's gotta be an optimisation process, that[00:19:00] is the ticket too high? Are people not going cause it's too expensive? Or, but at the end of the day, should a cinema be sitting empty, you know, during a peak time?

[00:19:07] And if that's the case, there's a severe issue. And are we facing a blockbuster video scenario where no pricing change? When no pricing strategy change will rescue what is, you know, a defunct business model. I'm not saying that, but you know, I think there should certainly be warning signals that people should be looking at this immediately and asking is the existing model, like, does it work or not?

[00:19:29] Joanna: Yeah, agreed. And I don't think it's a defunct model. I just think they need to do a complete mindset change. There's no point doing tactical price changes, and implementing new methodology. If you just don't have enough traffic to optimise a revenue based on demand, there is no demand. That's because as we were discussing, The whole proximity location is often wrong. There's no experience. There's no connection with other businesses. The movie itself is middle of the road and not drawing in enough traffic in and of [00:20:00] itself, and the experience around the cinema is dull. It's lifeless. The cinema itself is tatty tired. Leather seats will not compensate for that.

[00:20:09] However, the model in itself, the whole industry could be better. We know there have been great movies before which have driven in traffic. We know that when you put a cinema near a great restaurant, people go, Oh, the restaurant's great. Let's catch a movie after that too. It works. It's not rocket science, but you've got to start thinking differently and maybe breaking outside of the Westfield Mall premise, because I think that's capping revenue potential. And people are simply just not going to those sort of things anymore. So yeah, look, fear, like repeating ourselves, I think that's kind of what, what I've gotta say on that. And yeah, really keen to hear what you guys, are thinking about this particular topic. Well, thank you very much for listen. 

[00:20:55] Aidan: Yeah, just as a last point, like I wonder is there the opportunity for small, [00:21:00] regional, local, you know, niche cinemas, you know, to restart , it used to be that every major town had 10 or 15 cinemas showing with one screen, showing one movie or one genre, you know, is there room for that again, could you open a cinema in Sydney or Melbourne showing just horror movies, are showing just the latest, you know, international movies or French movies or Italian movies, is there an appetite for that? Would that model work? At the minute it's dominated by the big players, the Hoyts, the events, the major corporations, the Warner Villages. The small operators have left the market. Is there room for, you know, we've seen popup bars reappear to create life again in CBDs. Is there a popup cinema? And I'm not referring to council run open air cinemas showing 1980s movies, see if middle the ground for families. I'm not talking about slightly more challenging, slightly more things that people might, you know, make people think. Is there room for that? But obviously that's entrepreneurial. It takes risk building, it takes love of cinema and I don't know if love of cinema is there at the moment. So that's it for me [00:22:00] today. Have a great weekend.

[00:22:01] Joanna: Thank you. Bye.

In today’s episode, we are going to cover something that’s very close to our heart. If you just listen to our podcasts, you may think we are just pricing gurus, but we are also incredibly ripped.

And so we’re going to cover, gym memberships and gym pricing. A subject that I think a lot of people, both consumers and businesses can learn from. So I think we’ll let Joanna kick-off. 

Yeah. But firstly, starting with that, Aidan apparently goes to the gym five times a week. Not so sure. Maybe. Uh, anyway, aside from that gym pricing, gym pricing, now we wanted to speak about that yet.

Look, we do go to the gym, but I’ve actually worked with like a couple of gym companies with pricing. But I don’t really see improvement overall in the industry. Like really, Can anyone really think of a gym that has one clear price point for different plans? It seems as if, yeah, they’ve got millions of different price points.

To me it’s pricing, chaos and indicative of discretionary pricing led to predominantly by the franchisees, the owners, but more particularly by the individual sales people that are driving that sales. You know, they’re sort of dressed up as, you know, personal trainers. They wear the shorts, but really they really go for the hard sell.

And like from my experience, going to a gym and working for gyms for pricing. It seems like the maturity of pricing is still dominated by that person who wants a sale for their commission. There’s very little price transparency and to my thinking like. Is it fair? Is it very, It’s very promotional driven.

It’s always targeted on, you know, time based, promotions, getting people in , driving traffic to meet a sales quota. I’m thinking very much, it’s very similar to like the recruitment model . As a result of doing this over many years, it has led to a lack of trust in gym pricing, a lack of transparency, and you never really know what you’re gonna get.

 And sometimes the plans can even change as well. So you’re thinking what’s the value of this particular plan? In my opinion, I really don’t think I’ved looked at customer segmentation at all well, they’re really just driving traffic to get sales through the door for cash flow purposes, and I think it’s no wonder that gym profitability is declining as a result.

Like to some extent I think , I’m gonna disagree with this. I think, I actually think we can learn a lot from gyms. There’s a lot of interesting stuff happening in the way they do stuff. You know, it’s a subscription model. Before most things were like, I think it’s probably almost impossible to go in and pay just for a workout, in a gym.

You know, they’ll have an onboarding system and all this sort of stuff, which to be honest, is probably some health and safety aspect to that, but I’m sure it’s also just a barrier to actually letting you just, you know, work out once, et cetera. Say if you’re, you know, do wanna work out this week and then next week, so they get you on a subscription model, which is almost way before the, the whole SaaS revolution.

So where it’s a service. They also have a weird, they make it almost impossible, as Joanna mentioned, to compare pricing, virtually no gym will have a, a price on the internet. You have to go in, meet someone, chat to someone, you know, invest time and effort, shoe leather cost before you even get a price.

And so your willingness to shop around would be very low, clearly. You probably just go to the first one you get. You get to, you’ll decide based on, I don’t know what criteria, you know, we’ll get into the value drivers, but I think your ability to shop around is low. Unless they really try to rip you off or charge way above market rate.

But that aspect, your lack of ability to shop a around or compare is interesting. Also, the promos they offer tend to always be focused on like a fake joining fee. You know, joining fee wave for this week or joining fee 50% for this week. And in reality, joining fee for a gym is clearly preposterous.

The joining fee often is so low, it’s like maybe $15. It’s really just. I think it really is just used as a method to let them advertise something because they don’t wanna reduce their subscription fees. The other thing before I pass back to Joanna that I think is very interesting about gyms is they try to price at a level whereby, I think some of the stats we’ve read, the majority of people don’t visit the gym every month.

They take out memberships maybe in January or dry July or whatever, whatever the month is where you’re on a new health kick and people have all these great aspirations. We’re gonna work out every week, you know, and it sounds great value. And then they, of course, human nature. They stop and they don’t go back.

But then you’ve gotta think if you know, there’s a psychological aspect too. You wanna stop your gym membership cuz in theory that is quitting and giving up. Or do you just wanna keep that aspirational, Oh, I’ll start again next week. And so basically they have that subscription model set at a level whereby really , it’s almost designed just to be under the radar, not to cost too much pressure on people so that the letter keep ticking along.

I don’t know what the actual occupancy rate of a gym is based on their, you know, how many the sell, but clearly it’s a bit like an airline. Clearly they’re selling more tickets than there are seats on the plane. Clearly not everybody can do the, you know, the bench press, et cetera, at the same time. So it’s an interesting approach. 

I think that may be applicable for gyms that don’t have many, like gyms within the firm, like they don’t have like a large transactional. Sort of capability they may have, you know, a couple of gyms dotted around. Then they’re more likely to understand what their price bandwidth is and to get that more optimal price bandwidth that you were talking about, and then promote within that range.

However, with gyms with a number of different gyms and franchises within. Or geographically dispersed throughout the country, that may be more tricky, in terms of finding that optimal price bandwidth. And that’s what we’ve learned from research and to the point where, you know, it’s very difficult to price shop because there’s a lack of transparency. Is that a good thing? I mean, you just have to go on social media and see the reams and reams of complaints about that very topic. And looking at the data, what does that indicate? Yes, they probably attract customers using price point, which is, you know, one could argue with a great thing at the beginning, but then they lose profitability because the customer churn rate is actually quite significant. And although the customer doesn’t price shop at the beginning of the journey, because yes, there’s pretty much hard sold to the offer. Told to sit down like an naughty boy and girl and fill in their paperwork and pay an additional , membership fee on top.

They do so. But then aftera while you know, they do start to shop around because the value of that gym is not appealing anymore. Or the fact that they didn’t like the pressure, the price point, and the whole shady aspect of the model. And you can see that in social media and in data the churn rate is huge.

 And for those type of businesses where they’re sort of selling premium type of services, but actually delivering the value in a very shady manner. There’s some discrepancy in misalignment, and customers are onto it. On the point of subscription models, I think they’re actually quite interesting from a psychological perspective in that for gyms in particular, The fact that it comes out of customer’s bank accounts every month could, and research shows could be considered a good thing because it reminds people why they’re going to the gym.

And in fact, contrary to what you, you, you think even though it’s a lower amount of money coming out of the gym, people actually do notice it. And especially in times of inflation where. The first things to go are things like gym memberships because people are under pressure that they’re spending less and they’re thinking and evaluating consciously, what they’re going to spend.

So things like newspapers, things like gym memberships, things like software as a service models. They’re really gonna be hit. Streaming services, video streaming, music. That’s the sort of thing, expenditure that people start to evaluate. And so then when they see it, So the pro of this, the psychological pro is if you actually are committed to your fitness and you see that going out your bank account, you go, yeah, you’re reminded to go.

However, if you’re sort of lack a day or so about your fitness and you see it going out of your bank account, you probably think, Do you know what? I probably will give it a miss. And that’s also reflected by the churn rate. Most people fit into that latter segment. The non-committed to gyms except Aidan of course, is highly committed.

Which makes you think, Okay, are we charging enough for the, the value that we offer to the more premium segment, the people that do actually value the gym, people that do utilise the gym and get the money’s worth. And are we undercharging the other segment. So what I think needs to be , that price value, profit equation still needs to be ironed out, especially for the bigger gym networks.

On that point, like I think there is probably more willingness to pay, you know that value discovery. What do people really value in a gym, that aspect? I don’t think, you know, I think I’ve, a couple comments made before I forget them. The first one. I I actually, the payment, they nearly always take a direct debit is something I wanted to add.

It’s a very, it’s almost impossible or not available to pay on invoice in a gym. There’s almost an, an entire industry of payment facilitators who basically focus on gyms because a lot of gyms fall below, at least in Australia, fall below the level of where the big banks, the big four banks would allow direct debit facilities.

So there’s a whole echelon of companies who are in that space just cater for the gym industry. So it’s quite interesting that, you know, they’re smaller businesses sometimes, you know, mom and pop style and they are direct debiting. So that is interesting. I also believe the fear of direct debit obviously seems a lot in bad collection and It that aspect and improves their cash flow.

But I also think if an invoice was arriving every month, people would be much more aware of what they’re paying when it goes direct debit, it sometimes goes onto the radar. The thing about value discovery, what do people really value in a gym? Clearly, you know, the tangibles, the number of machines, you know, the weights.

Does the gym smell? You know, simple stuff. Is it clean? Is it hygienic? Is it nice? Then there’s other stuff. Is it aspirational? You know, is it in a good location? Is it open? What hours of the day? Is it open? Is it 24/7? Can you go in public holidays? Does it open early in the morning?

And then other stuff like the real, the value add capability that gyms have, you know, those sort additional, the luxury aspects of like swimming pools and, you know, is it more of a health club. Can you have play racketball like in a movie set in New York, like Wall Street, you know, where Gordon Geco goes to play racketball?

I think even the first time I became aware of gyms was, I suppose when we were a kid and you’d see Princess Diana in Britain and she’d be going to this fancy health clubs in Chelsea or wherever it was, or Kensington. And you know, and I’m assuming those gyms are charging top notch, you know, very high prices.

I’m assuming they’re capturing the value they offer, but are they, are the regular gyms really even digging into that value discovery? You’d have to argue not, but again, because of the lack of clarity on gym pricing, it’s hard to know, but what really drives people to, and these things, the drivers probably change.

You know, with working from home, there used to be big chains that would, you know, publicised. You can work out in our gym at your, in your suburb. Then you can work out in the gym at lunchtime in the cbd, you know, when you’re at home on holidays, you know, if go up to Queensland for sunshine, and winter, you can work out at our gyms there too. Like those drivers have probably decreased with working from home, I assume. And I wonder how that’s played around into the different value driver. One aspect I really like about gyms is, you know, we talk about ecosystems and building ecosystems and buyers to entry and ability to upsell.

Like in a gym, it’s almost like a perfect little enclosed, air conditioned hopefully air conditioned world. And they’re always trying to upsell you with personal training, with extra classes, you know, all different things added on, like from massage machines. To body dexa scans and everything else.

So it’s almost once they’ll capture you, they are trying to move you along that sales funnel into the next thing, which is a great opportunity for these businesses. It’s almost like being on a cruise ship to some extent. They have you where they want you to some extent, and they can, you know, they can sell you additional stuff.

I was just thinking about there, there’s actually a proliferation of new types of very niche gyms. Ones like, for instance, I’ve seen, like for those who really like pump to really into weight lifting, they’re appealing to a very target market. Everyone goes there or like into the same thing.

They lift way above the average weights, dead lifting and all that sort of stuff. And they choose those gyms very consciously. According to a lot of research out there, even though smaller niche players are using price and promotion, to drive traffic into their gyms because obviously they’re reacting to the pressure of, you know, having to pay the bills, mass inflation, churn, because it still happens in those gyms too.

So even though they understand the value, sometimes I feel that they’re not confident in the value that they offer and often resort to price. And like I say this, like it’s a surprise. We see this in every business from B2B to B2C, even when there’s a clear and delineated value proposition and people are willing to pay and people do go, there’s still that propensity to backtrack and default to price and promotion as a way to drive cash flow ’cause cash flow to smaller businesses, smaller gyms with a niche audience means a lot. And it also means a lot to those sort of big low budget, let’s call it sort of maybe more members that go to them, but low budget gyms who maybe we completely ignore.

Even looking at value drivers, it seems because they’re using price and promotion to drive traffic, they’ve understood their churn rate to some degree and know that the replacement of that customer is cheap. If they, if they drive more promotions. However, is it really cheap? Could they be nurturing customer lifetime value, their customer base. That would be more profitable, especially at a time like this, I  would argue it would. And also, you know, you would give them much better reviews and credibility online and a more sustainable business model. So are they looking for sustainability? Are they looking for, you know, cash, quick cash now and sell on the business? So I feel it’s probably the latter for a lot of the budget gyms, they’re here today, gone tomorrow, sort of thing and then customers have to find another alternative because they’re not truly committed to the gym memberships. And those that are, go to the, the more specialised premium gyms, niche gyms, and unfortunately, they are the people that we should really be thinking about because they’re committed. They’ve been going for a number of years and maybe business owners in that position. Should be really reaticulating reminding their customers, not just through price, but through their marketing and the people that sell their, their plans and offers, through their sales, their marketing, their operations, renewing the gyms and all that sort of thing. The value in use and the value at risk concept. So, I suspect that even with the lady Diana gym, they probably could be charging a lot, but they probably are not charging the full amount optimal price point or exploring that. But I’m hedging my bets there to think that based on what I’ve seen in gym pricing.

Cause I imagine Princess Diana really shopped around for pricing and she really went, she probably did invest quite a few, you know, days in just checking out pricing and could you see if a few pounds here and there? One thing I say about gyms, the ability to charge an upsell, Like there is a large amount there.

I know we should talk about the price, consciousness of people, you know, but clearly people care a lot about their fitness. Health is wealth is an old saying and clearly people will pay big money and you can just see that by, you know, these gym, you know, one on one coaching and you’ll see people paying, I dunno what it is, I think it’s like 60, $70 plus an hour in Sydney to get someone to tell you to do your press-ups.

You know, And obviously I’m underplaying what they’re really doing there. There’s obviously some really good ones and some probably not as great, but if it works, you know, people are willing to spend big money. The other, there’s been innovation in the sector in the last couple of years, which is probably.

Trying to address some of the, you know, the boredom, the monotony, that aspect that gyms have been criticised. , you know, and we’ve seen, is it CrossFit, which has been a, a big phenomenon. And then , this other one, um, is the name has just slipped my mind. It’s the one promoted by Marky Mark, Mark Wallberg.

And it’s huge. It’s more like individual classes they run. The name just slipped my mind, but you know, the one I’m talking about, it just being on the stock market. The share price has fallen recently, but those have been innovations that are sort of catered more to, I suppose, making it more competitive thing, making it more, you know, bit more camaraderie potentially in the gym to drive people on, you know, to counteract some of those criticisms people have had.

But look, it is, gyms are not going go away. You know, I think one of the, even during the Covid restrictions, which we’re all trying to forget, one of the things that people really looked forward to when they ended was for a certain percentage of people it was getting back to the gym. Some people wanted to go out for dinner, some people wanted the movies, and a lot of people just wanted to pump some iron.

And so that is, gyms will never go away. Clearly there’s, it’s like a spectrum. , clearly there’s a huge opportunity for optimising pricing by tailoring things and all that stuff, but I think it is a sector that we can learn a lot from. And, you know, even small businesses, et cetera, If you’re running a business, you know, one gym like that is by definition to small business.

But in reality, you’re facing a lot of the challenges that a big business has. Also, you know, hundreds, potentially thousands of customers collecting debts from them, offering, tailoring your service to them, competing with other gyms in the local neighborhood. So yeah, it’s a microcosm of, I suppose, pricing challenges that even, you know, mega corporations.

I suppose just a quick one. I, I was just thinking there that even between the plans that they offer, I find that the price, the pricing is, and the relativity between those, like the difference in pricing between the plans, good-better-best is often very like narrow. Also indicating that really they’re thinking about the features and benefits of their plans as opposed to really the full value of, each plan. So that’s something that I potentially would address, as a quick and very important fix because when you see that, really, what does that show? It shows a lack of understanding of the basic price and fundamental price model and structure and promotional structure, discount structures are just not there. It’s just ad hoc. That’s what that indicates. So, you know, that’s something potentially to fix. I suppose the last thing that I probably would want to mention here is that there is a clear difference between people that are committed to going to the gym and people that see fitness as part of improving their life, their health, and it’s like their medication, that they’re committed to a healthier life. Now, I’m not saying here that we overcharge the ones that are committed, but there is a point here of, you know, why, of the people that are not committed here. And what I’m thinking is you can make that market more profitable. Aidan mentioned right at the beginning of this podcast that they have removed sort of that ad hoc usage of gyms.

Why is it a highly profitable market if people want to go once or twice? Charge them for it, they’re probably willing to pay. And in that way, , they’re actually making money from a highly price sensitive and non-committal audience because they want to pay at that point. So what I can see, there’s really some really good pricing, quick wins, as well as long term wins that they’ll get from building a sustainable value base in customer focus pricing architecture, but a slight changes to the model that won’t, disrupt the flow of business and they can make money at the same time.

Almost like feel like here we’ve, even in a tough time, we’re still making money and it’s profitable. Okay, well I think that’s what I’m gonna, what I’ve got to say on that in the moment. 

Okay, Thanks. Have a great weekend everyone. Bye.

#PricingPodcast #PricingCollege #ChiefRevenueOfficer

In today's episode, we want to talk about probably a new addition to the C suite, which is called CRO which stands for Chief Revenue Officer. And this is probably a role that we're seeing more in SaaS companies, software as a service, more startups, more tech, probably more in America, I suppose. And it's someone whose focus is on all the revenue in the business, customers, profitability, revenue, selling, marketing, sales. It's a real catch all term. And I suppose we want to discuss today, is it really just a rebranding of an old fashioned pricing strategy director?

Yeah, well, I suppose you could argue it is, but then you'd have to say that the pricing manager role is set up properly. And often the problem with the pricing manager role and executive role is that it isn't set up correctly. And often it just looks at one or two tasks like price setting or price administration or pricing systems in a business. It doesn't look at pricing holistically. And to many degrees, I think this new Chief Revenue Officer role can learn a lot from the mistakes of the evolving pricing function and ensure that it doesn't fall into the same traps, because I do foresee that happening. But looking at the role in itself, it is a huge role. It looks after sales, which is a specialisation in itself. It looks after marketing. And if it is an SaaS business, there's huge amounts of work to do in marketing. You've got the website build, you've got the technical side of it, you've got the content creation, you've got the alignment with marketing to product. And also they oversee products, they oversee product innovation. They have to match product to market. They have to understand their customers.

They've got to utilise huge amounts of data to price, to develop products to market correctly. And these are just some of the aspects of revenue generation, as you can see. As I explain it, it's a huge remit. And yet I know in prior podcasts that we often argue that pricing has to consider all of these things to be able to price. However, there are some drawbacks. You've got such a huge remit if you can really oversee all of that. Are you doing it properly? And I think from what I've seen, based on a lot of the SaaS pricing, I think it exposes the business to risk principally because it spreads itself too thin. And I think a lot more, I think effort and resources have to be put into pricing. When you've got such a big remit, can you possibly do that all yourself? So I believe maybe that the remit is okay if it oversees big teams and specialist talent to do specific areas of the job well. However, I still think that the role is way too big and often doesn't change because often people in those sort of businesses startups still have that start up mentality and as they grow, don't change and morph the role. So I think there's some organisational design issues at the heart of this that need to be addressed now to make this role even better.

I'm actually surprised by Joanna's view there, being honest. I think it's a great thing. I think it's what we've been arguing for in this podcast since day one. Often when we look at companies and we look at people trying to recruit a pricing manager or a pricing analyst or implement a pricing function, and then you go, who will this person report to? And it gets lost and falls between the cracks and it becomes reporting to sales, reporting to marketing. Fundamentally, I think this is great because it basically means you're bringing commerciality,it chief commercial officer is another way you could describe it. And you're bringing them up to the top table where they get to say we often complain that businesses are run by finance, they're run by operations or marketing, and sales don't work together. And that often happens because there isn't a head honcho to push them together. That's why I think this is a really good step. Clearly, I depends on the size of the company. Even a small company, one person can't do all this, but with the team, they need to be flowing in the same direction and there needs to be someone at the top.

So I think it's a good thing overly backed up by the right teams and the right expertise. Clearly once a company gets a bit bigger, once it gets multiple revenue streams, once it becomes you're operating in different markets, clearly this becomes harder. But again I think that makes it even more reason to have this senior leader, whatever you want to call him, a CRO, chief commercial officer, pricing director, strategy director, blue-sky thinker whatever it is, I think it's a great thing. I think as long as they're being backed up by the expertise, obviously under those categories, clearly if this person is running sales, marketing, value pricing, clearly they want experts in all those areas under them. Imagine this is a company big enough to afford these roles. So this is the upper, the C suite and then you'll have to probably directors beneath. Clearly those are a lot of salaries but obviously marketing and sales are different functions, pricing is a different function and as long as they're backed up by those people but they're all flowing in the same direction, they're reporting to the same person on the board, I think it's a really good thing and I see a lot of potential for it. 

I'm going to argue a lot of companies aren't going to implement this purely because they don't think in this way. And again it's no surprise that it's coming from Silicon Valley, it's coming from those sort of startups where they're focused on revenue and venture capital funding backing them. So I'd love to see more of it, I'd love to see it heading into B2B industries and yeah, I think it's great.

Well I think you've misunderstood me though. I see it as a great opportunity and for all of those reasons, as I said, I think principally there could be issues with the role, if the organisational design and the role structure isn't aligned to a very quick and evolving business model and a changing market, you simply just can't have one person doing all of that work. It's an oversight, you should have one person overseeing it, hence it's an executive level recruit here. Obviously they're overseeing it. So the manpower, the choice of team mix and skills is vital to ensure that you're overseeing all that revenue safely. My point was that often things like organisational design, team structure, role design have not been considered well in pricing functions and I fear that could happen in SaaS businesses as well. And the reason I think that is a possibility is I think with the nature of the business, I think the startup mentality stays with a lot of sets businesses and the emphasis is always on customer acquisition, finding those new customers, finding that revenue, and often through that pure focus on just getting more customers, you forget what the real value of the business is.

It's almost a reactive type of mindset and then you don't put those strategic things in place and over time you start to expect one person to oversee and do all of those different things from marketing, sales, product, and not give them the recognition for it, and then end up blaming them when things go wrong. And really it's been set up incorrectly. I say this from experience. I see it happening. I see it happening everywhere in pricing. It happens all over the place. And I have so many pricing managers and executives saying, I want this to change its business model issue. They're not understanding the role of pricing and the business. So here I just want to say, if you're in a SaaS business, don't fall into the same traps. One of those things, if you think, how will I know if I'm in that sort of lap trap? Well, if you're thinking about that customer acquisition and you're not really thinking, and you've acquired lots of customers, and you're not thinking about customer lifetime value, that's an indication potentially that you're setting your revenue officer up for failure. Because really, it's not just about making money in the instance now, right now, what do you do when you've got all these customers that love what you're doing but potentially don't love the pricing or don't like the product anymore? How are you going to pivot and how you're going to respond to that? Because you want to lose all those customers. You spent a long time generating all the marketing, setting up your business, et cetera, et cetera, and then just lose them by not pricing correctly, by not marketing correctly, but not treating them correctly. So what I'm doing is, don't spread yourself too thin as my point here, and make sure you don't overlook things like planning, organisational design, thinking about your new value metrics and pricing metrics carefully, and potentially really thinking about how you're going to change your pricing and revenue model or potentially have you even thought that you may need to do it? Is a adhoc price rise strategy really enough to generate profitability? Maybe it is now but it may just churn through a whole lot of customers tomorrow. And these are the sort of strategic things I would like a Chief Revenue Officer to consider as they're starting a new job in a SaaS company because those things will come around and bite you if they're not addressed. And if you see in the business and culture that there's a lack of recognition and awareness of the customer, of the product market, fit and all of that sort of stuff, customer lifetime value is just a buzzword and not really part of the pricing culture, then you probably got to be aware that this role may not be set up correctly.

I think it's a good thing. I clearly think it's a very tough job in some way. You're actually cannibalising other people's jobs. Like if the Chief Revenue Officer is doing all this, what's the CEO doing is the CEO just speaking to investors, what are they really doing? Because in theory if we're looking at there's so much of that remit in the business, what the business does, it's pretty much the entire commercial focus. So I completely recognise it's a very tough job. Nobody can be hands on and know every detail. Like very few people are marketing experts, sales experts, pricing experts, customer onboarding experts, customer experience experts, especially when the company gets even small sized it'd be very difficult. But I still think it's a great step. I think it will help people align things going the right direction I would say. I think it is the right step. I think it's going to still know it will never get over. The other issues with, are we sort of saying that then finance and all other aspects are not working in the same sheet or are we just making one big silo and then the other silos are separate.

So our operations and finance sort of separate to this and we'll even become more siloed if we do that. Clearly for the business to really work well, everything needs to be working together. I assume that the CEO needs to be driving everything. At the end of the day, the CEO needs to be the person who you know and again when you get into a very big company it becomes very difficult. But at least they have to have a real understanding in at least broad terms on every area of the business and they need to prioritise and they need to make sure that the entire business is operating with a commercial focus, with a business with a value focus. And realistically, the CEO should be the chief revenue officer or at least have that, wear that hat at least most of the time as well. But I think it's getting one step closer. It's ensuring that someone who has pricing knowledge is at least getting a say on the top table. And I think that's one of the biggest problems that we often see when you see a pricing team set up to feel it's one reporting into this department or into finance or into something else.

It's when marketing and sales are running off doing their own thing without discussing stuff together. And it's when no one really seems to know what the company is actually doing. So I personally think it's a good thing. I would love to see more of it. Obviously it's going to be interesting. Clearly whoever takes these sort of jobs is signing up for an awful lot of work. So we wish them well. But yeah, I think pricing is certainly a string to their bow that they should have. And we'd love to have more discussions about this in the future. I'm sure we'll cover this in future podcasts.

I think it would be a great role, but it has to be set up properly. And you mention the point about the CEO. Is it sort of taking on the CEO kind of the same thing? I don't think so. I think it's an oversight role. It works like pricing across multiple functions. I suppose the chief revenue officer actually recognises that in a sense the pricing manager role still is going no, pricing people are just responsible for pricing and thereby siloing pricing people to just that when really surprised properly. You need to think about sales, marketing, products, customer service, the whole lot. But really revenue officer role doesn't take on anyone else's job and really it's an oversight role. It's actually not responsible for revenue generation. And this is why I feel it's another reason why it's set up incorrectly. There needs to be almost like this centralised mini structure of all people coming together. You've got your marketing director, you've got your sales director, you've got your CEO who oversees all of that, and you've got your revenue officer very much like the pricing officer sitting into the pricing committee. Just because the pricing manager and the revenue officer may be managed and have the expertise in pricing doesn't mean they own it.

This is very much a multidisciplinary decision. Making a pricing decision isn't just for the revenue officer. And sometimes when you haven't set up the role well, people assume that's what it is. And it's not like that. This is mine, this is your remit. It's very much a collaborative effort. But because of that, this is why organisational design and structure of the teams and how different teams work with each other are very important to actually generating profitable and sustainable revenue growth in a business. And that's the point I'm getting at here. So make sure you spend a lot of time thinking about the role in context to your offers, your plans, your business model, where you want to take your business strategy, your team structure. Now, the evolution of that team structure, your customer base, your segmentation, your price structure, your architecture, your marketing plan, how it feeds into that pricing strategy. These are key considerations into how you're going to set up and design a role and how you're going to set up a great role for success. Yeah, so I suppose that's my final thoughts on that.

Yeah, my final thoughts is really when I first heard about startups in Silicon Valley, the only job I wanted was one where you get to wear casual clothes, play a fuzz ball all day and get catered food. And this rule does not sound like that, so it's not for me. OK, we'll leave it there today. Have a great weekend. Bye.

In today's episode, we want to ask a question about some of the creative industries and the best way to charge for graphic design creativity, like designing logos. This is a question that somebody asked us recently, so we want to explore it today.

We asked this question essentially, a question that a lot of people ask us how do we charge for a particular service or our products? Often the debate goes “ Oh, should we use a cost plus, especially for all time and materials billings, especially for professional services?" for things like design, logos, websites, all that stuff. Or should we make the bold move and try and charge based on value-based principles? And often, we, being from a value-based pricing firm, would strongly advocate choosing that particular method or methodology. But listening to the feedback from designers and practitioners, we'd like to explore how sometimes value-based pricing may not be feasible, and how sometimes cost-plus pricing, if cut and sliced differently, can deliver profitability.

Do you think you want a new logo for your website? I think there are a few concepts and issues we need to discuss here. So say you want a new logo for your website and someone decides how are they going to charge you. Are they going to charge you based on time and effort? Or is it based on the value this logo will provide? It's very difficult to work out what value a logo would provide in advance, certainly, especially if you're a graphic designer, you probably don't know anything about the company you're dealing with. You don't know how big it is if it's a startup, so there's a real issue. And also, as a graphic designer, are you dealing directly with the person or are you going through a website? So if people have all the materials and that's how they bill it, you've got real issues there. Because in the new Internet era, you're competing against people. If you're based in a high-cost environment, like Manhattan or Central London etc. People in cheaper areas would have a much lower sale price potentially than you would. So are you dragging yourself down to that level? The other thing, of course, you're saying is, if you get quicker like how do you price the fact that you're getting better at your artwork you're getting more experience, your quality is for increasing. Even if you could do the artwork quicker, does that mean that you charge less for it? It really, logically doesn't make an awful lot of sense. The only way I think that would work is if you're using a fake method. So to some extent, you're just you're doing a fake medical notice, five hours on average, just as a justification methodology, but the reality of it is the person who's buying it from you. It's not like you're a lawyer in a big firm who can talk about their hours and how many hours they're working like the person buying the product has no concept or idea or realistically doesn't care how much time you spend spent on this or not.

It's funny, you should say that because even lawyers use time materials as the basis for their price calculations with customers and customers don't care. There is a little bit of scepticism about how time is calculated in that regard, hasn't been overinflated because both sides of the equation don't think that the price is justified. Maybe on one side, the lawyers are thinking we should have gotten a higher price for this. The problem is more complex than we scoped out, etc. And the customers refuse to sort of listen to that, and they just want the outcome. Regardless, the same things happen in design. And when I think about it and the feedback from designers, a lot of them, especially the new designers, are saying, "Ah, cost plus might be better for us because we are not really that familiar and comfortable." sort of justifying the value of our offer to customers. Maybe selling is not their skill set. They haven't thought about the value that they provide. And some even argue that we don't have a huge portfolio. We haven't got that track record to be able to showcase to our customers. Here we can see that there's sort of a lack of confidence in their ability. Potentially not in the skill set, but potentially in the business acumen. And also, there's a lack of confidence that may or may not be true being communicated to the customers. Again, since you are new, you may not be good at this. So why would I give you the money for that? But again, this is business. A little bit of like resilience training, you have to take that with a pinch of salt, because like really, what is the value of a logo? Well, if it's a good logo, you'll instantly know it's a good logo. It meets expectations that capture the essence of your business and your brand and that feeling that it is all in one visual glance and it attracts people that you want to be drawn to your business. So it has that segmented type of appeal to it. A designer can't show this before the actual engagement but during the sales process. I'm thinking of 99 designs here a customer can go, look, this is what we're thinking to designers and then they deliver the sort of an idea or a sketch just to outline how they think and capture what you've just communicated to them. And from that, you get a good strong sense. Whether they are seasoned professionals, designers or newbies, whether they can do what you want and a customer can get surprised and delighted and overwhelmed by other people's ideas. It supersedes their imagination, and that's what you're paying for. That's the real value of the transaction. And sometimes, if you limit that transaction to time and materials, you just end up commoditising the value that you offer pretty much because you're not confident in your ability or your business skills.

I think back to when I was one of our previous existences. I was an accountant and I worked at Deloitte and Touche. I got to what revenue would be globally, but it must be in the billions. Then they went through this process of rebranding and came up with a wonderful idea for Deloitte Green Dot. Deloitte full stop or a period of wherever you want to call it. Has a company brought in any extra revenue due to that new logo? I don't know, maybe they have, but it seems far-fetched. But I remember the time I think the story was that they'd spent over a million dollars or a million pounds sterling on that rebrand, clearly an attainment material basis. What are the required materials? Is it the research? Is it the analysis? Is it the learning? You're getting into the old story with Nikola Tesla and Henry Ford, where there was a rattling in the wall and Henry Ford brought Tesla in to try to fix it. And he walked down the lot of the wall, spent two minutes finding a hole in the wall and giving it a tarp, and the problem was solved. And then he charged $10,000 to Henry Ford. And Henry Ford says it only took you two minutes and he goes, "Yes, but it's the expertise, the knowledge, that's where the cost goes." I think, again, I gotta get into the idea of, like, also, if you think about the concept of another creative industry, which is architecture, People like Norman Foster, who is probably the most famous architect in the world, I assume, is one of them. Calatrava will be another one to win a lot of major prestige projects. They get paid more than other designers. Keeping in mind that they probably don't do any work on these projects at all. No, they probably have teams of young architects working on them. But clearly, they're winning these things based not always on design but often based on celebrity status and the value that we peripherally value, such as prestige status, confidence aside, that the company is moving in the right direction. Realistically, if you're a McDonald's or a major corporation who's looking at a rebrand or a new logo, they're not going to give it to someone just based on being cheap. I don't think cheapness is even going to come into it. You're looking at the segmentation of your market who you're catering to, you know, and if you're going on time, that cheapness, maybe that's the right approach mark to market at the lower end of the market. But if you're hoping to rebrand Qantas or British Airways or do the logo for something else, then you need to give the people confidence that it's the best in the world. That you're prestigious, that people will know where it's come from and have confidence in that and buy into the project. So it's almost like high quality or luxury product. There is a luxury product aspect to it. My view would be that if you want to have a sustainable career in this business, you have to build your career. It’s the thing you have to build your prestige, build your market knowledge, or boost your reviews on your website. So people come to you and they are coming to you for a reason. Not just because you're cheaper or you can do the job, but they're coming to you because they believe in interest in the product you're making.

I think it's a mistake to think that you need the experience to gain confidence to get more customers. I often think that experience in itself, like it's an indicator of potentially that you're able to potentially generate value for clients, but it's based on past precedent. Customers that look at CVS are looking at them to gain a little bit of confidence in you, but the confidence will happen when they see your ideas or SEE YOU THINKING and working through problems with them, and they'll see where you're going with it. I think there's confidence in your ability to be able to discuss that type of problem with your customers rather than thinking others are better than you. Are you the cheapest in the market? It is very commoditised. You're wasting your time with that type of thinking. You have to be focused on the customer's needs. And you'd have to be honest with yourself sometimes. Am I able to serve that customer because you may not have a clue about what they're getting? If you're just playing along with that, then you're wasting everybody's time. So yeah, there's an element of honesty and confidence in your ability to read the situation and know your target market. If you don't feel that you've got the skills to do it. Then you've got to think about where you can be best served and build up that competence and resume if that's where you want to go. If you're going to use cost-plus just be very, very careful. It's going to commoditise your offer and it's going to decide that the relationship with your customer is very transactional. What is value-based pricing? It's a conversation based on value. What value can you generate for your customer? Through your design, through your logos, and if you know that you can generate a lot of value, then charge that premium for it. If the customer is still not sure and or you're not sure that you can do the job. Maybe the scope or the brief is still quite confusing, then potentially think about a new revenue model as a way of charging. Not that you can charge using value-based pricing, but think about maybe a retainer model or a different type of subscription model just to lower the risk from both ends. That potentially would help, and then they could see you in action and you're contracted for some money. That way, you both gain experience with each other. You lower the risk and you can show what you can do for them. And then you can It's sort of motransparent, you can build a relationship and trust in the end product.

You have to consider again, in value-based pricing, what are you delivering? Sometimes people don't just want a logo. Maybe they want the marketing team who are working on this project that they want to feel special. I remember another time I was working at a company, a waste company, and they were developing a new website. And they had a whole team of creatives come in to talk about the colour scheme and all this stuff. I remember one guy was wearing a beret, and it was just preposterous that they were throwing people at something that one person could do. You have to fit the criteria that the people want, that they're looking to buy. Big companies potentially if there are a lot of people working on it. Think about this, if you're a big company and you have a big rebrand, if it goes wrong and then the chief executive finds out that the logo only cost 500 bucks. You can be pretty sure that the market executive is going to be in a lot of trouble with that or the branding person. So there'll be a high price hike, which will give some assurance also, those peripheral values. Given that, you think about what people want. They want the product and the logo. But the chance that the perfect logo will come up on the first go is very low. People may hit the first logo, they may want to slightly change it. So there'd be so many things like infinite reruns, turnarounds overnight, throwing them in different shades, being available at all times. Making sure that it's done in the way they wanted. Good people can be very demanding. And if that's demanding, are you able to provide that? If you can provide that, there's a higher price tag and ticket with that. I think that the ins and outs of the basics of actually doing the logo, and we're using the term "logo," but this can be used in different contexts, also in the fashion industry. Theoretically, you could buy an item from Chanel that might cost 100 or 1000 times the price of something cheaper and sharper like H & M or somewhere like that to the educated eye, and might even be identical, but it's those small nuances that provide infinite differences and the infinite different ability to sell. Admittedly, someone or Coco Chanel, they don't come along every day and that expertise that's what makes people real business leaders and successes. And just because you're the best local designer certainly does not indicate that you will be a great business and you need that marketing skill. You need that selling ability and you need everything

I suppose this is the difference between just designing the logo and creating a business. It's a different skill set. Often people start businesses without really identifying their core market and understanding sources of value in the market. They have no clear value proposition and then they build a business. Literally through panic and fear. Just go I'm going to sell anything to anybody at any price. Just because I sort of need the money and that is not a sustainable sort of way to run a business and customers don't like that. Using pricing methodology as a way to or if you're going to use cost-plus, by adding on hours to the overall project, just to get charged customers more, it's just not a great way of doing business because you side tracking away from the true value of your offer. And that's because you've brushed past your value proposition and you just shooting anything, you just want any work Business is tough, that's why confidence and hard work and learning business skills will come in handy just to de-risk the whole model and might give you confidence that you need to take to get better at that because have confidence in your delivery skills. You're a designer, you thought you could do it when you started when we started the business so just remind yourself of that and think carefully of what your core area and niches are and where you want to go with that. Often in design, It's where your passion lies. So think about that. What excites you about that? Why are you doing what you're doing? And that will help you and then you can see and then that sort of helps you in a way that segments the market because other people will be attracted to that attracted by that particular skill as well. And then over time you're going to niche and be known for that particular thing. 

I would also think stuff like payment terms you could offer. You don't stop until the customer is completely happy with the project. Those things are de-risking for the buyer like a lot of people buying a logo or brand name but they're coming to you because they're not creatives they want them to blow them away. You have to maybe guarantee to get from there in that sort of thing you want to you probably want to be working exclusively with people do you want to be putting in a huge amount of effort and not getting the sale. That's something you want to consider also, but I would suggest you find some method of de-risking it for the buyer. Once you build your portfolio at the beginning, you have to have a portfolio, you probably don't have cheaper you're probably broke for lower quality customers. And then you're moving up into the big leagues. If you're successful, bigger companies and hopefully at the end of the day, you're doing AmEx and you're doing United Airlines and all this sort of stuff. So, but you got to start somewhere and you can't know value. The peripheral value is built up over years. But you got to start somewhere. unclearly building a portfolio having logos and brands out there. That's very important, but it's step by step.

In today's episode, we want to look at a news article that appeared today, 8 September 2022. I think it almost suggests that more people should listen to price in college because I suppose fundamentally it looks at some of the most very basic pricing thoughts or strategies that I think that anyone in business or even the media should know. So, I think I'll just give a brief intro to it. On a radio station, 2GB in Sydney, the presenter Jim Wilson grilled the pub entrepreneur Justin Haimes on the new Allianz stadiums beer prices and said that they're too expensive because they were more expensive than in the largest bar and discount off license store or bottleshop as they call them in Australia. So I think we just want to look at that and discuss what we can draw from it.

It was an interesting one because I suppose the radio host, Jim Wilson was trying to act as the voice of the customer. In some way was trying to sort of accuse Justin Haimes sort of, like, overpricing the beer at the stadium. In a way overcharging because he knew we had a captive audience that couldn't go anywhere else. And often, in pricing, you hear that sort of that fear, that sort of allegation being cast upon the pricing manager and also the reason for discounting. Oh, we think we're overcharging our customers and therefore, its price overrides in the system and discounts occur and go down, more and more until one asked, “ what is the right price as we undersell offers?” So interesting in that way. They thought it was representing the voice of the customer giving examples that the customers thought the beer and the hot dog were way too expensive. Why was it $9 I think the base price of $9.50 and he was charging $10.20? And how extortionate that was for his beer. In Australia is supposed to be in every man's type of beer. It's the standard drink and he was weighing that is way too much for that the average punter to pay. Especially I suppose in a way that they're paying for the football prices that what they're going to see it's not a cheap night. You can hear the justifications and they're fair. I suppose in response Justin Haimes was like saying “well, the cost of operations for my business to be able to supply the stadium, the production, the staff involved, is not similar to that of Dan Murphy”. It's a different business model. Dan Murphy's is the like a supermarket for sort of fairly standard drinks, very different business model. But what I thought was interesting is that they both resorted to justifying the prices by looking at the cost. Justin Haimes was like applauded for his response there, but I thought it was quite limited.  Who cares what his cost of operations is? Should customer care? Surely he should have been justifying the higher prices by the value it brings to the customer, and neither of them went there. I think though, that Jim Wilson, the radio presenter was trying to get, that you shouldn't charge based on willingness to pay. But I don't think he had a thorough understanding of the principles of pricing to be able to say that quite clearly to Justin Haimes. But I just thought it was really interesting how they just both devolved into the age-old oak cost, or different business models a bit limited. So I didn't think it was a great response.

I suppose it highlights a lot of the very low-grade journalism that I suppose Australia has and, and other countries. I think if people are asking dumb questions, you're gonna get dumb answers. I think we've seen that certainly through COVID and over the last number of years. I think society is yeah, it's almost like people are just scoring points with ridiculous questions and you won't get a good answer. There's certainly not going to be any intellectual rigour with these debates. Look, I think clearly, anybody in the right mindset will understand that if you go to a fancy restaurant, if you go to the Ritz Hotel or the fancy hotels like Carlton or fancy hotel names, clearly you're gonna pay more for a drink, a gin and tonic etc than you would in a dive bar. There's cater to different establishments. There's a different value being provided. This new football stadium is being built. I think it's the one in Moorpark that replaced the old city football stadium. And I think clearly like a billion dollars or more spent on this facility. It's to be the best and the brightest and to attract international acts, and international sporting events. To create an atmosphere of the real off-market, a real great night out international standard. I don't know if I agree with the bulldozing of a perfectly fine stadium and rebuilding another one on the same site. But  I think they're competing. They're not just competing now with Satan in Sydney or Australia. They're competing with facilities in North America.  People to talk about some of these big American football stadiums or the Tottenham Hotspur Stadium in London, where they're trying to attract international events, international concerts. Justin Haimes doesn't run dive bars. He runs the Maryville Chain and they own those upmarket and fancy establishments in Sydney. They're not selling fancy drinks. Is it drinks they're selling or is it an experience? Is it exclusivity? What is the value they're selling? And those are the questions that I suppose you want to look at. The question I suppose you could ask is, Is that the right person to be? Is that the right style and value to be selling drinks? What is a football stadium in theory, whereby traditionally at least football, different versions of football were the everyman sport? That everyone could go bring their kids and have a beer whatever it was a social sizzle you noticed cheap and accessible. Is there an incongruence there that Copiah valid point, but like at the end of the day, once you bring in a fancy of market business, such as that don't expect to get Hungry Jacks or it's not just selling a hotdog at the back of a truck. So, what is the value we're selling? What is the value people are buying? There's a whole number of questions that aren't even being acknowledged that they exist, let alone discussed.

So the stadium itself could have more of a premium pricing strategy. Life in Sydney is good, it's sort of trying to increase it's in a nice area of town. It's very exclusive and they're just trying to align with the city and where it's going in the future. Then you've got the customer, the fans who maybe travel quite a few miles out from suburbs into the city. May have a completely different lifestyle. Don't have that type of spend, but they frequently go to like football, and they're surprised. So there's a dissonance there between his business strategy, their market, and the customer. Have they looked into that segmentation? Or, are they just trying to hope and migrate people into that sort of more premium pricing strategy by just dazzling them with a great shiny new stadium or a large ray of drinks and food that potentially they don't want? They just want the standard. They don't care as much maybe for the more premium lagers and ales. You're right, it could be the choice of vendors, and the business strategy potentially is misaligned with the market. The people that are going are average families. They're thinking it's hard enough to pay for the tickets because those ticket prices are going up, as we've discussed before as well up and down using dynamic pricing. And now on top of this, we've been given this premium pricing strategy for an offer that we don't want. Now, this could be all signs that trying to educate the customer about this new business strategy, or it could be dragging them into it. It's kind of a difficult one to discuss now. Because families are under huge amounts of pressure with interest rates, increasing inflation, food prices increasing and now even leisure prices or just doing something, with your family, everything's just going up. So it might be the wrong timing. But in terms of this particular article, I would have liked to hear the justification for a higher price point is about the value it delivers to customers. The convenience of having a nice beer at the stadium has the option to have a beer and a lovely burger as you sit to see your favourite team play. I mean, for some people, they're willing to pay for it, for others they're not. They'll just bring their flask bottle of water and the sandwiches, I suppose. I mean, that's a segmentation of sorts, but a total disregard for if, let's say, Jim Wilson was speaking on behalf of the customer. Whether it aligned with your business strategy or not or whether you agree with it as a business leader, it doesn't matter. There's an element of truth and untruth in everything that we hear. And it should be recognised that potentially, willingness to pay isn't as high as they thought. So what are they going to do to change that? That'd be an interesting transition plan. Maybe change their assortment, change their range, maybe change the menu, who knows? But hopefully, a radio presenter will ask better questions and maybe speak on behalf of the customer in a more educated fashion.

I'm going to disagree on this I think he answered it in the best way for him. The 2GB is not a shock jock station but as a talkback tends to be a little bit right-wing, tends to be popular, and tends to know at all journalists want to who have a certain core audience who likes to complain about the world. Again, that's a little bit that's just my personal views. There's some good stuff on it too, from time to time. But realistically, if you're trying to hold yourself up, Jim Wilson, as the populace, the everyman that champions of the people, like I don't know if Haimes coming on and talking about the value. The listeners on that show probably aren't his audience. They're probably not the people who will be buying drinks on Saturday night at the nightclub or one of these other bars. And so I suppose it's a political protect yourself. Maybe writers to defend themselves. He's not there to educate because clearly, that's not something he can do. He clearly understands value, he is doing very well and understands the value of hospitality. You know, is that the argument of the discussion that this show wants to have? I think you're probably better off arguing along these lines. You're not going to sell any more products, so I think it's better to get out of that ambush by playing the game that they want you to play. Fair enough he is completely legitimate costs would be infinitely different. They're not even chalk and cheese. It's just a completely different life form from running quite a bit of supermarket for alcohol versus a fancy place that sells drinks for football games and concerts. So his point is completely valid. I think he clearly understands the value of stuff. I think he clearly understands segmenting his market. I think those are sort of my views on it. I don't think just sort of highlights a little bit of like some of the common in some certainly in businesses that people think everyone thinks they have a pricing view, and this is what happens, people think they know everything about pricing, when in some ways that don't even know the first thing. You have to get that lightbulb moment where you can move this person from. They want is very uneducated communication to something that's starting to move them along the line to be educated on the topic that is an expert environment. But again, I say who's running the multimillion-dollar business as Jim Wilson or is it Justin hammers?

I suppose it can be a bit typical sort of response that we hear in boardrooms all the time. Like, if you're going to talk to customers, you're going to appeal to them and make them think differently, especially if you've got a different business strategy than using the old my cost structure versus your cost structure leads to that.  I'm just thinking about procurement here. It's like,  “oh we think your prices are too high or show me your costs”. Okay, my business model is completely different. So I've got a different cost structure so I will show you. Even that was the devolution of the conversation. He was going to show the radio presenter what it was like to run a business in a stadium. I mean, there's like opened up costings. Again, it's a bit tedious. I mean, I actually would like to change the conversation, and break it up a bit. Tell us what is the value here. What are the benefits we're gonna get? Re-educate me on something positive, like, yeah, I want to know why. It's great to go out and have that extra good experience. You tell me you're gonna give me an even better experience. Well, great justify that but that's not only justification is a good marketing opportunity. It just removes the stale sort of conversation around costs. And going back to that it just makes the experience the same old. So actually, we're talking about experience in the stadium. It's all so the price is based on your experience as a business owner, implementing and delivering this service to me I don't care I want this to be about me. I'm willing to pay a higher price if you're telling me that it's going to be exceptional. Is it exceptional? So I think I disagree with you on this one. I think any opportunity is a great opportunity to market and especially based on value because it's always positive. If it's not positive, then you've got something to worry about. And if you're not going to talk about it, the fans will find out and the customers will find out soon enough.

In today's episode, we want to cover I suppose it's a concept, but it's also a new story that we saw recently this week, whereby Disney plus up-and-coming young whippersnapper on the streaming market that's eating Netflix's. I suppose they haven't announced it, but they're suggesting that they will introduce two-tiered pricing whereby you pay less, maybe about $8 US a month, but you might have to watch advertisements, or you can pay more and avoid advertisements. And I suppose this is a little bit like I think it's called "Red" on YouTube, where you can subscribe, you pay a fee per month, and you get to avoid those annoying ads that pop up during your videos. So yeah, what do we think of this?

We thought it was an unusual article for a news story. Firstly, it just seems kind of a confusing sort of pricing strategy. Is it a pricing strategy to introduce new price tiers based on things that customers don't like? So you increase the price to avoid something you don't want to see like ads. So obviously they've done their research.  I just think it's kind of on customers and found out that they don't like seeing ads. They must not like seeing ads, but it seems counterintuitive in a way to price based on that. It sort of sidesteps the value of the Disney plus proposition. I mean, are they suggesting through that that there is very limited value in their offer compared to Netflix and are resorting to going to paying for not seeing the ads? This seems strange because there's value in that Disney plus the selection of movies. Are they suggesting that that is not enough to maintain customers? But if you backtrack a little bit on that, well, it must have been enough because that's what drove customers to the platform. And that's what customers thought, “ oh Disney plus movies are worth migrating from something like Netflix or a Stan or one of those platforms”. So I just think it's kind of an odd price structure to create and really what I'm thinking is, Is it a price strategy? Or, are they thinking about it,  Is it more like a covert price increase price rise strategy? And if you're going to do that's more of a tactical sort of pricing move. And it's something that you really shouldn't integrate into your fundamental price architecture, which is that price structure. So to me, those are my thoughts what do you think?

I suppose I have a couple of thoughts. Generally when we're talking about value-based pricing and charging for value, usually we're discussing giving additional value, and charging for that additional value we're giving. It's more of a carat than a stick this more seems to be a stick. This almost seems to be pay or we will self-sabotage what we're giving you.  Pay or we will make this product we're providing to you worse, which seems a bit odd to me. Admittedly, they haven't said they're going to do this yet but I've seen and imagined it in a couple of different places. What would that do? Would it drag these services back down to being television? Not very different to actual regular TV, which I suppose was what drove people to stream in the first place. Theoretically, what difference does it make if you're showing adverts on whether it's a streaming service versus whether it's a pair TV system? So I think that was a bit confusing, and I'm not sure that I can see it clearly on YouTube.  I would watch a fair amount of YouTube but I can see that the adverts are annoying. The people who tend to advertise on YouTube also tend to be larger corporates; banks, and building societies. These are even term issues anymore. Insurance companies stuff like that big supermarket chains. The adverts tend to be mind-numbing and they're a little bit too long. I think even television adverts some people used to enjoy them, some of them used to be entertaining. There'll be comical aspects to them. I think maybe that's decreased in recent times, potentially with the costs of TV advertising increasing. But I would argue that YouTube ads are more boring unless you also have the ability to counsel them or go straight to the video after a couple of seconds, which is a bit old. It's an old system. It's an interactive system that goes against what TV is. So I don't know if it's well thought through. I don't know if it's a good idea. The other thought about it was it sort of insinuated cost plus mechanism in Disney or whoever will implement this. Are we saying we want to make this much profit from this show over an hour's viewing per person, and we'll either get that money from the paying public or the advertisers?  It may be that may not be what they're doing but it sort of suggest that and it also remains with the old saying that, “ if you're not paying for something theoretically you are the product”. If you're not paying theoretically, Disney or whoever it is will be just showing advertisements to you and the paying advertisers will see you as the product and that's how it works. So it's a weird one on it, it leads to something on the one platform, if it stays neat, it would lead to a mixed message I would say from a premium movie enjoyable system to do that. What are the questions I would ask is it clear how the implementation of adverts will make a big difference? Is it going to be adverts during the movie, which will be exceedingly annoying? Or is it going to be an advert before you watch a movie, that is less annoying?

The adverts gonna be customised. So having it customised to what you like as a viewer, are they on to that? Yeah, I mean, Are they using data to customise their ads and all that sort of thing? But I do agree with you. I don't think the pricing strategy is particularly value-based. I don't know it just smacks of a very reactive price increase price hike strategy. And somebody just thought okay, if we introduced this new price to migrate customers, existing customers over to this ad-supported version, even though they were on a no ad version, then essentially get a price increase and increase our profitability there quickly. But my thought here,  well.. Is that very customer focus? How do customers feel about that? Well, it'd be highly annoying if you've signed up for something with no ads and it was a good service and you're quite enjoying it to then having an inferior service. So I don't think just easily migrating on on on a spreadsheet. It looks kind of attractive, but in real life, I am assuming there's going to be some kind of churn from that kind of dissatisfaction from customers. Not necessarily to Netflix, but maybe somewhere else or who knows.  But I also think, here that, as I was saying it's a reactive strategy, looking at the economics of platform-based businesses where it was very egalitarian in their pricing, meaning it was artificially low price, to begin with. And there was always that mission statement around bringing entertainment to the masses. All that broken model such high costs cinemas, and all that sort of thing, bringing the entertainment to your home, having the access to huge amounts of movies and entertainment law at a low, low cost. Now, as we see, Netflix has been challenged by new entrants to the market. This egalitarian pricing model is also being challenged and different platform businesses are competing, we're now seeing price wars, and it's unsustainable. But now we're hearing like, every other business is those slow, dumb, moving, slow-moving corporations that we often talk about that are in that commoditisation, price war trap, the same things now happening with the smart agile entrepreneurial platform businesses. So is this the end of the sort of platform revolution? And is this the beginning of massive increases in price and mass entertainment through platforms? Maybe it's the rise and fall, a very quick rise and fall of Disney plus that that we're seeing in Netflix and I suppose an indication to customers that we're not going to get those nice low prices anymore. Things are going to go up considerably. Looking at the Disney plus price increase in this particular instance, prices for no ads have gone up 37% if they're going to take this new model and new price structure into the market. So that's a quite considerable price hike for something you don't want to see. So let's see how that pans out for Disney plus.

I suppose a lot of this comes down to these platforms, I’m calling them platforms not sure that the right term is streaming services, they try to segment their market. I think they've been quite a purge segmentation up to now.  I think the only real segmentation that I noticed is how many users can be watching the show at one time, which to me is a bit strange. Like is this saying that four people watching Netflix on the same thing in the same house at one point in time is a bit odd as a big house or maybe people should watch movies together more? It almost suggests isolation is a good thing for these people whose company's market share and share price. So that's odd. I suppose they haven't been very good at segmentation. You know, even if you look back at the old Foxtel,  Sky Television, HBO, the sort of companies satellite TV, cable TV, they were quite good at segmentation. You could select the package you wanted, sports, all that sort of stuff. I think with these platforms, to some extent, they haven't moved to that yet. Look even at Disney there are cartoons there are movies, and there are TV shows. How many people watch even a small percentage of them? So I'd argue there's room for segmentation a bit more in that category. Disney's catalogue is so big that they control production a lot better than Netflix does, which is generally redistributed for the vast majority of their product, whether it's the content. So I would argue that segmentation certainly will be increasing because these companies don't want to lose people at the lower end of the pay of eight or nine bucks. They want to keep them but push up their profitability on the higher end. I would forecast that go somewhere in the line. I say Google Play, I used to rent quite a few movies. If there was a movie I wanted to watch, and I only watched one or two a month but I pay $5, $6, or $7 to watch that movie on Google Play. And maybe our forecast that that that would be something that will come back a bit more that we'll move away from the view everything at a certain fixed price to more of you view fewer stuff and you pay a bit more per movie. But potentially it ends up with the same money in the pocket of Disney and whoever else. So I think my forecasts are more segmentation will happen. There's going to be more churned. I can't see Netflix surviving in its current form for more than a couple of years. I think the distributor and the actual production house are Paramount, Disney etc whoever the other ones are, I don't know if MGM is still a big one or not, but they will be producing more they will be growing and it'll be more direct to the viewers with segmentation taking away certain aspects that don't require potentially more pay per view movies. I guess that's my forecast.

Sounds like sky and Foxtel to me. So it seems like they're going down the business Yeah, back to the future that's right Foxtel and Sky. I've been through the rocky road and I've recovered through segmentation. But it's funny like with someone like Disney plus there's an element of segmentation in Disney plus in terms of product segmentation because it's all their movies. So as Aodhan was saying Netflix is a distributor of many different types of movies and producers and directors and all of that, but Disney has only got their movies. So there's a bit of segmentation. How niche can they go with their product segmentation?  So really what I think they need to work on is customer segmentation. Looking at their pricing model, this new pricing model, they haven't done it except for ads. I like ads. I don't like ads. It is a bit simplistic and dangerous for customer segmentation to go out down because it's highly emotive. It's destroying the very experience they're supposed to be producing well. What does that do that ruins the reputation? So yeah, I'd be interested to see how that goes. And the irony is quite clear. Again, another instance of the egalitarian pricing models through platforms and online comes to piece under pressure when there are more entrants and more competition. So yeah, interesting. We’ll be tracking that one.

Just my final point is that there could be an element of bait and switch to this old, these disruptors came in, you had a Foxtel and speaking in Australia here, you had a Foxtel subscription. Maybe in the US, it's showtime or HBO and Sky TV in Britain. You have that subscription. Some people were paying 100 bucks a month. And then you had Netflix come in and promised the world 15 bucks a month. But now those prices are ramping up. People now find themselves having four or five six subscriptions plus sports subscriptions. In Australia, you've got several Foxtel subscriptions, and cable subscriptions so many that it's almost hard to keep track of them. So in some regard, we're back at the start. We're back where we began. And is it a part of the delivery system and more of a watch on demand? Is it that different to the old-fashioned Sky TV or Foxtel subscription it is a bit back to the future? And maybe this system needs a disruption. Who knows? Maybe we should just go back to the cinema again once or twice a week. Okay, I think that's it for me today. I'm not sure if Joanna has some more.

I'm just thinking, where's the value in all of this and what I'm seeing through this is faster destruction of value than I've seen in the traditional brick-and-mortar entertainment model business models. So yeah, I suppose that's my last thing so I appreciate you listening.

I also don't know if Disney's catalogue was very valuable. Clearly, those movies are shown on videos and in cinemas. Reruns clearly they will show the video shops, Blockbuster Video, etc. I wonder are they making more money now? Is this improving their perception of their brand? Who knows? But I guess it’s enough for the day. So yeah, have a great weekend.

In today's episode, we want to talk about the pricing story that has made the news I guess, the mainstream news media, which is not that common in the world of pricing, and that is related to dynamic pricing for concert tickets. More specifically Bruce Springsteen tickets on a US national tour and the concept that pricing for those tickets has a dynamic element.

Dynamic pricing has some controversy around it because people don't like that there is a range of prices and they don't like that the price is not fixed. People feel a lack of transparency when there's more than one price and more than one price in one segment and more than one price for one product. So we thought this particular story is quite interesting not only because of the controversy around dynamic pricing as a methodology in pricing but also that how it's being introduced formally within the music industry. When there's a lot of people out there that that go, they're thinking of the music, the art form, they think about their favourite artists and they think that there's gonna be some kind of transparency reflected in the price point because they go in there for the love of the music, and now they're finding the artist has very little say around it. It's very commercialised. It's a business enterprise. There's no sort of you don't get rewarded for being a fan. Now you're getting penalised by paying higher prices for being a fan. 

I think music and certainly pop stars and rock stars and the staff like that there is a fan surely the fan element that's how they get to where they are. Bruce Springsteen in the beginning started probably touring small halls. I'm again assuming this, he built up a fan base and those are loyal followers, etc. Admittedly they probably got in there and bought their tickets early, I'm guessing. But some of the points we'd like to make on this dynamic pricing, it's not as if dynamic pricing has not always applied to tickets. The second-hand market, ticket tote, and scalpers fundamentally have operated the infinite, ultimate dynamic pricing model with a standard try that concert hall and try to shift tickets, leftover tickets, or to anybody willing to pay and they will fundamentally charge that price. So that has probably what Ticketmaster here is doing, who is the agency selling the tickets? He's internalising that and giving them to use that willingness to pay. I suppose the old flat pricing model left all that extra profit on the table, the coracoid, the artist and the promoters who are putting cash behind the enterprise, and it was going to ticket tote basically who were who are filling that gap. There are people the day before or the week before who will pay significantly more for these tickets. Whether rich people, whether their superfans, whether even the sort of people in casinos when Elvis used to play in Vegas and you'd have high rollers would get free tickets to those big events and big sports games, etc. So it's nothing new under the sun. Probably to some extent, it's a smart move. I think you're internalising it, as long as you're segmenting it, it's not all tickets. And I think some of the stats we saw or at least because Ticketmaster was forced into defending themselves to some extent. And some of the stats that they did give were that 88% of tickets were sold at set prices below $400 before taxes and fees. So let's be honest, like that still is a hell of a lot of money. 400 American dollars, with the average price paid for the tickets of $200. So that left roughly 12% of tickets the in the market for dynamic pricing.

I think the controversy is more around how there are almost holding seats and tickets for profitability simply for profit. It's not just a little bit of profit quite a huge amount. If you go from a fixed price of say $200 per ticket to something like $5000 that's that's a huge leap in the price relativity price point. So that's number one and that's all being pocketed through the ticket agencies and the artists. I think fans have a right to ask, where is that money going? Is that fair? I think this interests me because generally dynamic pricing is explained by businesses as something to utilise and balance, supply and stock. But here we can see quite simply that stock and the seats are being kept back to push huge amounts of profits for the artists and the industry. So I find that that's an interesting point. Generally speaking, businesses don't really discuss willingness to pay again. And another interesting point that's been introduced with the concept of dynamic pricing, as I said before, you generally it's capacity utilisation that's pushed, not willing to pay. So here we're seeing how you're putting two concepts, pricing concepts together, dynamic pricing and willingness to pay now you can't get confused. They are very different concepts. And you got to be careful how you use them. Because if you start putting them together, you start thinking “okay, dynamic pricing is going to exploit our willingness to pay”. And, why are we willing to pay for our tickets?  Because we highly value the artists, we risk, fear of not seeing them if we can't get to see them. So we're being exploited here and to some degree through loss aversion theory, and that's pushing up the ticket prices and our willingness to pay. Then on top of that, we're hearing that the businesses are making huge amounts of profit consciously doing so. So this is why it is in the media, and it really should be explained because if you see a price point of $200, and then $5,000, you kind of know want to know where your money's going.

 I think the music industry is the demographic certainly the United States and most of the world are changing. When a lot of these acts started, it was a concert where kids would go to concerts. Fundamentally, it was teenagers or young adults will go to concerts, and then they use that to buy records and the records were where the money came from. Obviously, with the complete change in the industry. It's almost like music has given us a premium through Spotify or streaming or whatever it is, and very few people buy records. And then the real money comes from the concert. And to a large extent, these acts that we're talking about are to some extent the baby boom act to have very wealthy older people following them. I don't know, again, this could be just pre-judging or whatever, but I assume a large amount of the population going to Bruce Springsteen will be older. I think Joanna touched on the concept of gouging, is this gouging? It's a grey area. Some of the articles we read suggested that Springsteen's getting old, and the band The E Street band or getting old. And so some people think this could be the last hurrah. This could be the last opportunity to see this band. Maybe some people have it on their bucket list or a dream to see Bruce Springsteen. The last two, three years have been very, you know, people feel also they've been excluded or kept away from entertainment and stuff like that. So there's probably pent-up demand also for people. So it can't be gouging because nobody needs to see a concert. Let's be honest about this. It's not like selling, a bottle of water or something to someone in a famine or food to somebody on a farm and it's not to that extent. But it is a grey area whereby to some extent is pushing into the area of, will people have a bad taste in their mouths? At the end of this, they look back and go Why would your view on that? And realistically, the view will not be on Ticketmaster the view will be on Bruce Springsteen. I would argue and maybe a concert even in general, there could be a negative, which I always think the definition of gouging is when after the experience you're committed never to deal with that seller ever again. And I would argue in pop music and rock music where there is you need affinity you need loyalty you need. It's not something in some cases, it is love, but you need a real affinity towards the act. It's not just about the music, it's about the lifestyle, the culture, the movement, and almost what it represents to you. If you're an artist and you're selling, you need to make sure you're segmenting that market because if you burn your base, if you burn your core, you know, your career is not gonna last too long.

I think another interesting point here is how pricing is being used to influence and direct behaviours here you've got quite a clear price cycle. They've kept the tickets low at the beginning of this price cycle to entice people to go to the concert to drive traffic to the concert. Fairly, you know, as I said, it's not a low price point. It's still $400 but it's a manageable price point. So that supposes the fans can go. So [A]  you learn all right at the beginning of the price cycle for ticket pricing, get your tickets early, because you really will be paying so much more towards the end, maybe two weeks after the first launch of the first price tickets. And then obviously, they're sort of they're almost training people to do that like by quickly and also they're training people to accept extremely high prices for being late in the cycle. So you didn't get your tickets early. So it's your accountability for that. So, therefore, you have to pay more, and not just two times more, three, four or five times more for the price and I'm we can change that and you can't ask questions is kind of the conversation that's going on here. So the onus is completely on us. And what is interesting is how a price point can influence huge amounts of people all at once to do so just one or two things, and how the industry in itself can change by a price point. The music industry is changing pretty much because Spotify has changed the dynamics of that industry. But now it's all going Yeah, through two gigs, live music, but it's that price point that is changing how people buy which I find interesting and ticket tech is experimenting has been like for quite a few years now. Some interesting approaches, and now I do see them bringing that dynamic pricing and willingness to pay to the forefront before it was behind the scenes and now they're trying to push that one.

I suppose the final point I'll make on this, I could be completely wrong, but I think some of it reflects on changes in this society. I think entertainment a lot of things used to be much more egalitarian. Certainly, after World War Two, the whole world was to work towards at least the Western world went to much more of an egalitarian system welfare state. Football was the everyman sport. Pop concerts were affordable, and affordable luxuries were certainly affordable for kids and that sort of thing. They didn't break the bank sort of things. I think we're going back to more of a golden age almost, within the Siak less sort of concept where they're super rich are it's fine, no to discriminate. It's fine. This is for the rich, I'm not making a value judgment I'm just pointing out what I see. And I'm seeing this happening more and more whereby price has been used as a method to discriminate against and exclude people from you can't afford it. When the luxuries are there for the rich, and I think you'll see it and I think conspicuous wealth has been pushed probably more now than then. Certainly, maybe the 80s is famous for conspicuous wealth and you know, the yuppies and the Reagan Thatcher years of course. But I think if you go back to the youth movements, the 60s, the 70s. Like I tell you, if you try to put on a dynamic pricing model at Woodstock, I'm not sure what would happen. So I think a lot of it is the market and the time and the age that we're in accounts for a lot of things. It's not a one-way movement. It goes both ways. And I just think this is we are known this is a discriminatory basis, and it's discrimination on money and wealth and, you know, sophistication or whatever else you want to talk about, but this is I would argue this as a sign of it.

It's an interesting point in itself. I mean, you can see that from the channels to market you've got TikTok, you've got Netflix, YouTube, and Spotify, which are all for the masses. It's cheap, it's accessible. Yeah, you got all the options that you want. However, it's not real life. And really, that's where the low price point is. You're not joining real life, you're watching it vicariously through a screen and all that sort of stuff. However, if you want to experience the real thing, the real deal, then you're in that very small segment now and you have to pay and it's not just it's maybe 800 times the normal exit the price more just to be a part of the real world now. So this is quite a virtual reality versus real-world scenario and the price points that reflect that is a really interesting and mind-bending thought, and it fills you sort of with a mixture of feelings. And I suppose there's quite a lot to up to unpack in and of itself, but I think this particular article, it's brought about new price leadership in a way. It's psychological pricing, and it's the division between business and customers but almost through an alignment of value drivers. Yes as an understanding of value drivers but also how you use that information when you set prices, how you use different channels and how you price those channels. Because if you hit see hear clearly if you see music as through Spotify, and in real life in an arena, then you can see the price point is hugely different. Now, in any other business, if it's done in retail, you'd say is that fair? But hear clearly people are saying it's completely fair. How come it's not fair in other industries?

My final point on this one, I think it is fair. It's just you have to be aware of when you're selling, what it says and what it creates and the atmosphere in the mix. I give the example of Wimbledon, the tennis contest. And look it's probably one of the most segmented markets I'd assume. You've got the royal family you've got the Tom Cruises of his world, etc. in the Royal box. But then you also have the I think it's a queueing system. They operate every day where people queue up and buy tickets because clearly when you could access demand for a product, you either discriminate based on price or you use the Soviet queueing system. But this queueing system gives people the impression that everyone can afford it. That everyone can be part of it that it's not completely outside your realm of you getting it and so you have to consider not just the money but what it means to your base and the longer-term impacts of stuff. But I think that's more psychological and for the later podcast, so I'll leave it there today.

I think my last point on this is that ticket Tech has done this over several years. It's not something we're just bringing upon their customer base there. As I say they're training their customers and I think if you're listening to this podcast from different industries, think about that, how you can understand what your customers value? And then think about your brisk business strategy and see how you can align it because that alignment doesn't occur overnight and even today, we've got 90% return ticket tech, in this instance, 90% of the tickets were at a fixed price and they've only introduced about you know, 9% are being dynamic pricing. So I wouldn't say it's 100% Holy accepted even within the music industry, but let's have a look, is that percentage going to grow in terms of dynamic prices versus fixed pricing in the music industry? I would say it probably is but there'll be a balance. And what we can say is ticket tech is trying to find that balance.

Like I try to keep the spirit of the 60s alive. So I'm just gonna jump dance. I'm not paying anything. Okay, we'll leave it there today. 

Today we're going to speak about Rolex watches. Rolex watches are a key topic. I suppose in pricing because they really do show the opposite of cost-plus pricing. They don't use cost-plus pricing,  very much value base. Because if they did use cost-plus pricing, they would actually make much less profit than they're making today. 

But what brought this topic to mind was a recent newspaper article on Rolex watches, in particular secondhand Rolex watches. The bubble for secondhand Rolex watches has collapsed. It got us thinking about the whole pricing methodology, branding, and marketing strategy behind Rolex. And really, we're thinking about how they are still masters of value-based pricing. So we're just going to talk you through some examples today.

I think it will be touched on some of the concepts that I'm sure most people listening are not in the watch industry or the luxury goods industry, but just some concepts that I think we can highlight from Rolex. Look, I think the first thing we point out is when the Japanese quartz watch revolution, which is a battery and a watch, really came on in the 50s and 60s. I think everybody expected this Swiss Watch Industry to literally disappear. It looked like what Netflix did with Blockbuster Video. The weird thing is that that didn't happen. And even though, in theory, mechanical watches, whereby the inside of the watch is something that Rolex focuses on, don't have to weigh them; they're all automatic; they move when you move your arm with tiny little gears, etc. inside.

 In theory, technology is obsolete. You can get a better watch that tells the time quicker and faster. Sorry, more accurately. You don't want them to tell you if they move faster, obviously more accurate timekeeping, for probably just a Casio watch that might cost you $10. But the reality of it is that the demand for luxury watches is probably higher than ever. And I suppose that is, what are we talking about here? We're talking about, what are the themes that really highlight this: It's branding, its brand management, its status symbol, and it's really I think it's Rolex dug into and really looked at the value drivers that the people are using to look into their watch. So yeah, I think the first one we probably talked about is branding.

I suppose it's just looking back at what you were saying about the mechanical watch, and that's a brand in itself that even though there is a better time-keeping alternative like the digital watch, people like the novelty aspect of the mechanical watch. They're like looking at the cogs and gears moving in the watch, and then they can sort of show their friends and people go, “Oh, yeah, that's something different." And the difference is part of the branding appeal. It started off, I suppose, in terms of branding, looking at the use of the mechanical aspects of a watch to differentiate the brand. But now Rolex has moved into a very micro branding through very niche aspects based on functionality. For instance, they've got the diver's watch. They've got all sorts of different types of watches for other purposes and for people's hobbies. So it's kind of moved away from that more tangible branding through the mechanical watch. And what it's made of could be the gold trimming based on how people use the watch. So that's a very interesting and new development.

When we think of Rolex, we think of a status symbol. You're a captain of industry. You're the president.  I believe the presence of America is giving a separate watch, which is called a Rolex Presidential, I believe, and only presidents of the US are given them. But yes, they assemble, and I think this is what has led to the bubble. There are other mechanical or other luxury watches, even in Switzerland, even owned by the same company, like Rolex makes Tudor watches, which are slightly cheaper price points. Some of the Japanese brands are Grand Seiko, obviously, Omega, these sorts of companies, but none of them holds the same status symbol. It's almost like a reserve currency or like gold that Rolex does. 

Why is there a bubble in secondhand Rolex watches? It was through history. I believe the price of Rolexes does not decrease when you are in the secondhand market, as long as they are reasonably well maintained with the original box and the original papers. Obviously, in the secondhand market, there will be counterfeit issues. But for example, in China, a lot of people were buying Rolexes as status symbols, but I would also argue, potentially, it's a store of value to the same extent that a lot of people in India traditionally would buy gold and have a lot of jewellery and invest a lot of their funds into gold, the bet is a store of value and protection against inflation. And so that is maybe something that happened due to, you know, the COVID crisis and people's almost running to safe havens that might have been, they might have seen Rolex watches as a safe haven. 

But clearly, Rolex has to really manage that brand, and that's what they are doing. They're limiting the number of watches released in any given year. I think our research says it's probably less than a million units a year, somewhere between 700,000 and a million people roughly estimated, which has increased in previous years, but obviously, the global population has also increased. So clearly, they could sell a lot more watches if they wanted to, but that would probably decrease the brand, so they're doing their own price and profitability analysis. 

I guess they're obviously restricting significantly how you can buy the watches. Not everybody can sell them. You have to be a registered dealer. And quite often, you have to be a registered buyer, which really restricts your ability to buy a new Rolex. Certainly, in the last couple of years, you'd almost have to be on a waiting list. So there are restrictions that create exclusivity; it makes people cheer for something, whether it's the scarcity or not, and I think they are really masters at that. 

I think we also touched on the second-hand or this or counterfeit market for these watches. In theory, they are everything that they do, and I think I'm talking more because I actually have an interest in watches. But one of the things that would separate the mechanical aspect is something that I do find strange. If you go back to the 60s and say, "Why would we have a mechanical watch?” People have kept I think there's an interest in it, but I think it's the only area I can think of where technology has moved on. But this area's almost kept it going. It's not as if there's a market for luxury cars with obsolete engines. That doesn't really happen. People want better engines. I can't think of any other device, fundamentally a watch that's designed to tell time. It's a very simple thing. But I can't think of anywhere else where we are using obsolete technologies and means or putting them up on giving them a higher status. It's almost like math or an intellectual hobby or pursuit trying to make these more and more reliable but obsolete machines. So I find that strange and I find the fact that we're still able to market it as a plus. If you go into a shop, many brands will sell mechanical and no mechanical watches. The non-mechanical will be more accurate, but it actually costs less. So what I used to really think of the value drivers, like at the end of the day, you ask, “Why do you have a watch?” to tell the time, but apparently, that's not actually the reason at all.

Maybe there's some kind of psychology behind this and people like actually seeing time move and that mechanical watch does give people that element of control and seeing time move that the digital watch just really doesn't, but I really did find that that interesting. When you were talking, it reminded me of how watches really do have those psychological value drivers. You mentioned status, which I think is one of the number one psychological value drivers with Rolex. Would you put that Rolex on? You know, you're number one and Rolex has done a really good job of protecting their brand, their brand story and their price point. And they're actually really good at using price as a psychological signal, or cue for value and status. They always have the top price, but they've actually organised their range to give people enough choice to get a Rolex at the lower end without cannibalising the rest of their range and keeping themselves exclusive and prestigious, which is a great piece of pricing work. And there's a lot of work that they've done with their pricing and product hierarchy to do that. 

So obviously, they've got some great pricing people, but I've also got some great product managers that know exactly what their range is. Where does it fit in the market? And they work very closely with their pricing manager to really tease out the right price points, not just for individual attributes of that watch, but all those psychological value drivers that we talked about, putting a price on that without turning people away from the brand. So there are a number of things that the team are obviously thinking about. It's difficult stuff, it never stops, and they've always got to like time itself. They've always got to think about their price points because they constantly need to adjust those in relation to the customer on the market and everything that we've just discussed. So yeah, that was a really fascinating topic, Aodhan. 

Thank you. I detect sarcasm in the voice getting praise. Okay, so one thing I would say that I do find interesting is Rolex. To some extent, they're very expensive, but they're not the most expensive watches. And they're also probably achievable if somebody really wanted them. Like, there's a very large percentage of what we'd probably call high net worth individuals in developed nations and globally who could, in theory, afford a Rolex if they really wanted one. Some of them probably start from the 10,000 US dollar market, that sort of thing. So people, in theory, could afford them. At that price point, it's out of the reach of the vast, vast majority. It's a huge investment, but people know how much they cost, so it's still achievable. That is almost that sweet spot, and I'm sure they've thought about that to a great extent.

 The other thing I would say is quite interesting is the brand I mentioned earlier, called Tudor, which traditionally was lower at the end of the day. These watches started back 100 years ago as actual functional watches. They weren't really luxury items. And the Tudor brand was more of an everyday person's watch. You couldn't afford a Tudor or a Rolex but still wanted a high-quality watch. But what's interesting is that they really relaunched that brand separately 10 years ago, and when they relaunched it, the prices increased, so they pushed the prices up, and when the prices increased, the sales increased also, to pump more money into the brand. It's still an inferior brand to Rolex, but it's more of an everyday brand, and as you know, prices have increased, and the perception people have of it has improved. And sales have increased also. I don't know if profitability has, but I assume it has to. 

So again, that's probably a good study on how you can almost build a brand, or reimagine a brand that is in an obsolete technology industry. It's not leading, it's got no real technological differences from other companies that haven't invented a new way of telling the time, but they've just reinvigorated that brand. And really, with marketing, branding, positioning, those sorts of aspects, which are maybe some things that people sometimes ignore, given the focus on technology. The pros are the features and benefits. I think it's the term that pricers like to use. But that's not what they did here. They pushed the hidden cash. Just one final point is, I think Joanna mentioned how there are watches for divers and racers. And it's almost a bit silly that all these very wealthy people are going to buy watches that are waterproof to 200 to 300 metres, and you know what percentage of them will even go two or three metres down, but it's hard to believe. Maybe the watch makes you think that you are an active man or James Bond. So again, what are the real drivers? I think that I will leave it there today.

When you were speaking, though, it just really reminded me how important the concept of price anchoring is within the watch industry. As a potential person that wants to buy into Rolex but can't afford the top range, What they would do to entice those sorts of people is use price anchoring by showing them almost the top range first and then showing them the other option, which is still pretty good. And then, psychologically, you think, “Oh, actually, it's so much cheaper. Maybe I could afford that." I couldn't get the top version, because it's too expensive, but I could afford this and then, gradually, you're thinking “oh, I can work my way up to the better brand." But that's what price anchoring does. It changes your behaviour to buy something that you wouldn't have thought of buying before. I'm thinking, actually, I've got a bargain at the same time. But really, if you take the old cost-plus perspective, at that point, you're saying, "I'm buying something that's way more expensive than it's actually costing," so I'm paying huge amounts for something that's literally all in my mind. It's all based on psychological value drivers and the status of being in this exclusive club. And even though you've just got the starter version, the cheaper starter version in the range, you're part of that member's club and they've got you buying that, changing your behaviour, changing your mindset, utilising a price point. So price anchoring is a very, very strong mechanism to change behaviours, and also change mindsets and emotions towards a purchase. So think about that the next time or with prices and product managers out there, maybe think about how you could use price anchoring, like Rolex has, to change your customer's viewpoint on your products, anyway. Well, I think you just got one more point that you'd like to share.

If this is just a bit of a weird one, I don't know how true this is, but talking about psychology, apparently, all traditional watches come with a fury in hand. Whether shown in pictures or not, they're always shown. with a time of 10 minutes to two. And if you look in shops, it allows you to check. Do you think that is always the case? Apparently, they're showing 10 minutes to two because, psychologically, it looks a bit like a smile. I don't know if that's the real reason. I've heard other arguments, but one of the reasons is that it looks a little bit like the watch is smiling at you. And psychologically, you like it more bizarre if it's true, but yeah, it's worth consideration. So let's leave it there today. Yeah, have a great weekend.

In today’s episode, we want to talk about brands. Are brands still as important in 2022 as they were maybe back in the 20th century? 

Notes on the time-stamped show:

[00:00] Introduction

[02:05] Building a brand is associated with your value management system, and it is a continuous process.

[04:28] How is your brand connected to your pricing, value management system, and customers?

[08:34] Market preferences change. And you must be willing to adapt and make your brand always relevant. How?

[15:13] Your brand should always be aligned with your customers if you want to remain attractive. To accomplish this, avoid having arrogant beliefs about oneself and be open to feedback.

_____________________________

How Can You Increase the Value of Your Brands in an Evolving Market?

I think there’s not a clear-cut answer about it. A lot of these brands used to have a lot of loyalty. People will just buy brands, snacks and beverages. People would buy without question. But over the years, could be due to changing consumer preferences, people buying from different channels, stores vs. online. These brands are less powerful in a way. But what’s happening in retail, I’m sort of seeing the reverse. Like big sports brands moving away from distributor type stores, just expanding their brands. Focusing on themselves, rather than putting themselves in contact with other brands. “We’re strong enough on our own to have our own store. We’re confident enough that people would come.” Maybe that is due to provenance heritage. They’ve got a reputation for being the best. Which may be the retail don’t. 

I think maybe a brand is, it is your value management.

It takes a lifetime to build a brand, they say, and you can destroy it in an afternoon. I think you’re building your value management system. What is the company that you’re doing? What do you sell? And as we’ve said many times in this podcast, that’s a work in progress. It’s never set and forgotten. You never reach value-based pricing. It’s always a constant journey. It’s the same thing with a brand. Clearly, you build a brand this year. Ten years later, the wind may be changing. You look at the oil. You need to reinvest and posh into electric cars. It’s a constant evolution.

The minute you feel that customer value changes, the minute you do your value exploration. You find what your customers value this year, next year, the world has changed. What’s happened in the last six months? Inflation’s bad. There’s a war. We’ve got Covid residing. We’ve got many things happening that people wouldn’t have forecasted. Things change and move.

You see, in a short period of time, a new entrance becomes an old hut.

What seems fresh and new, maybe it’s not gonna last the test of time. You look at Netflix… I even saw in the papers this week, Underarmour. You know, a clothing brand that was usurping Reebok and Nike. They’re probably getting profit downgrades this year when they’re losing popularity. It’s a constant evolution. Will brands last forever? I think the answer there in nearly all cases is no. 

I think the interesting point of saying, you know, you’ve got a brand. What is a brand? What is a value management system if it’s not attached to customers? An understanding of the value chain? I don’t think you can think of a value management system in any other regard because that would become as abstract as a brand, if not associated with the person that’s buying.

I think this is where a lot of companies have gone astray with branding.

And a brand is associated with pricing and pricing power through branding. They’ve forgotten the source, the reference point which is the customer. Often what the customer values are very different from what the company values, or thinks what’s the most valuable about the business. Aidan, you mentioned oil there.

For many years, the value management in oils and fuels was based on their supply chain. How smart the supply chain, the engineering, and the procurement was? Not necessarily about why people bought the fuel in the first place. This goes right from the B2B to the B2C perspective. It was always based on the fuel company’s perspective of value. And how really clever they were in engineering the oil. But over the years, you see these massive changes in how people buy and what they value.

Fossil fuels, they don’t want anymore. It’s considered unsustainable, for humanity, for the earth. Now they’re moving to electric cars. And we see petrol brands trying to associate their brand with more electric cars, and cleaner energy over time. I’ve read that they’re putting battery recharging in every petrol station. So, some connotations with a brand, and some are trying to make their brand more sustainable.

But I think, that’s my point on the value management system. It’s very important to connect it and the brands with customers.

And the customer changes, how they buy. We can see from the new generation, that they’re very addicted to TikTok. They go through brands by the day, depending on what the influencer says is a powerful brand. A brand emerges, becomes very successful, and is gone overnight. So maybe there are different, you have to think about brands, depending on different ages, groups, as well as value drivers, and behaviours. Segmentation, my point here, is very key with a brand. 

You know, I think brands, what people associate it with. It comes with values.

Oftentimes, the people that run the company might want it to be something different than what customers see and what they do value. You look at McDonald’s, probably the most famous brand in the world. What does that brand really mean? Means you know what you’re gonna get. You know it’s gonna be fast. You know they have a clean toilet. Is that what the company wants to promote?

I think we’re all aware now, of what they’re saying, “Go woke,” or “Get woke or broke.” Where these major brands, Gillette’s an example, have gone for, almost chasing the new, even though they’ve been around for a hundred years or more. They’re known globally. But they go chasing these new hip and fresh. And some people rebel against that and push back.

There is the old concept of, when you build this brand and cater to a certain audience, that audience may not seem to be the vanguard but to be a vanguard, you have to be smaller. Maybe you’re gonna burn your existing customer base. And if you’ve got something in a life cycle, it’s tricky. But people try to be something to everyone. I don’t know if that’s always possible without sub-brands and different stuff. You get into very complex areas.

Just another point I’ll make, you could build the best business in the world and with just a period of a couple of years, the market could change.

The example, I’d give is cosmetics and those sorts of personal products. I’d argue, that 50 or 60 years ago, most people use soap and water. And maybe perfume of you have more wealth. Then it moved into the post-war era, the wonders of chemistry, the better living through science… people started using mass-produced products. All these sorts of stuff. And now what we’ve seen is the best thing in the world. The whole trend is moving in the opposite direction. Back to freshness, cleanliness, simplicity.

Lack of chemical compounds, you’re almost back with soap and water. And that’s what we’ve seen as the most progressive and advanced things. You know, you build a brand, and you think of all these Palmolive, these sort of companies whose brands and portfolios were worth billions. But now, are they worth billions? Will they be worth billions ten years down the line? It’s debatable. 

I’ve seen some big companies who almost create more brands because they know that the younger generations love brands. So even in B2B, they think, “Okay, my answer to decreasing sales is to create more brands because we will attract more people.” But having brands and them being good brands, and very different people, they want the product to perform. As we go, we’ve said before that based on the value management system, which has to be in itself, in some way, associated with a performance history, reliability, all that sorts of risks, in a way proven to actually solve customer’s problems. And it can do it well.

That is the heritage. The problems behind the brands.

I’ve also seen the opposite happen where you have companies that don’t want to create any new brands that could really drive the market and appeal to changing consumer taste and stay with the traditional brand because simply that was a cash cow. They thought, “You know what, this sugary drink, is the best thing and we didn’t really have to move quickly with the market. As a consequence, they lost huge amounts of market share to up and coming entrance that are into more healthy beverages. Simply because of the thought that the brand was strong enough on its own and they didn’t need to move.

But those powerhouse brands are also suffering at the moment.

So either end of that spectrum, you really can’t just rest or take an easy option here. You can’t just create brands because you know, we’re a brand-driven world now. Create brands that are real, based on values, and service history. You can’t have an arrogant opinion about who you are. You can’t just leave brands. You’ve got to actually know when to kill them off quickly and when to change. Sometimes just because you want to lead the market with a traditional or a new brand, doesn’t mean it’s going to happen. You’ve got to almost take the feedback response and do something with it.

You can’t just set and forget if the market doesn’t respond how you wanted them to, what do you do with them?

You don’t always necessarily kill it off but you have to make a decision. You’ve got to start tracking and monitoring your brands, just as close as you would do with your sales or your prices. 

You know, Joanna mentioned soft drinks there. One thing I think is interesting is Coca-Cola and also Pepsi. They’ve invented new products, you know, Coke Zero, which I think is branded as Coke without sugar. Slightly different colouring, but it’s still called Coke. I think it’s smart because it’s transitioning to a new sector. Just one thing I’d also add, Dr Marten’s boots have been basically, the exact the same product, I don’t know how long, but it seems 50 or 60 years… those black boots with a yellow sort of trim on the edge.

But they’re seen as edgy, counterculture, up and coming, and youthful. They seem to have that aspect as if they’re permanently growing on the outside. It is really unbelievable for a company to be doing that when you consider that our parents wore, our grandparents probably wore them also. I think when the kids are wearing them, they’re probably feeling the same way that people did 30 years ago, which is very impressive branding. Never really going fully mainstream but always been slightly on the way out. On the outside looking in. I suppose what a lot of brands want to accomplish while still being profitable. I don’t know if it had so much to do with what we’re discussing but I find it interesting. 

Yeah, I think it does. It’s brand alignment.

Alignment to your customers, knowing the context. Not just putting a brand out there and just either innocently or arrogantly assuming, it’s going to be a winner. Sometimes it’s not always a winner. Sometimes you’ve got to objectively observe your brands and the market just to see if you’ve got that alignment. Those that do it authentically, not afraid to take the negative feedback from the market, are going to be the winners. You just have to adapt quickly and then over time, you’ll get there. You’ve also had to have a performance history.

And Dr Martens, they haven’t let generations down. People felt cool and parents probably handed on Dr Martens which seems to last forever. They’ve got reliability there as well. But beyond the actual product itself, it’s got that counterculture feel and it does it very well. Anyway, thanks for listening. I hope you enjoyed that podcast and feel free to get in touch with us with any questions you have. Thank you.

Thanks. Have a great weekend. Bye.

Notes on the time-stamped show:

[00:00] Introduction

[01:24] How pricing can be utilised to build new and stickier business models that customers find difficult to leave.

[04:53] Business models, such as espresso and Apple, emphasising how they created an ecosystem wherein everything the customers need is offered, boosting profitability.

[08:18] How different it is to build ecosystems in B2B settings, and how can they do it.

[12:20] How to build an ecosystem and create barriers against competitors without your customers realising it.

[15:44] Joanna highlights the need of striking a balance between customer value, manufacturing, and product innovation, for a successful business transformation.

Hello and welcome to another edition of Pricing College, with your hosts, Aodhan Campbell and Joanna Wells

Someone told me last week that I'm known as the cool teacher of Pricing College, so thank you very much for that. I actually made that up. So in today's episode, we want to talk about, the concept of building an ecosystem, thinking about how it can benefit your business, and if you can sell it that way. So what is an ecosystem? In theory, it's building a system that basically increases the chances that you will sell things to people. Whether that is the classic selling of a printing machine, and then printing, you know cartridges or an espresso machine. Then locking in, that you have to sell them on espresso pods. So that's a concept that we will discuss today. 

When I think about this concept, I describe it as a sale system, something we can sell more of to customers. But actually, beneath that, an ecosystem is a whole business model change. But before we get on to that, what I'm particularly interested in was how pricing can be used to make a new business model and sales model stickier, not more difficult for customers to get out of but also more valuable to customers so they wouldn't want to get out of this new system that you've built. And thinking about that, you've mentioned espresso... these people love espresso. It's a great business model and it's a new one. When you think about where espresso came from, so Nescafe and all that was built on the dry roasted coffee empire. But obviously, the business model was declining for years. People wanted fresher coffee, but they also wanted the convenience of that coffee at home but they didn't want to compromise on taste. So, espresso was launched. It really did disrupt the market in a good way and gave customers what they wanted. The key about the pricing: the actual machine itself was priced considerably below the alternative. Now the alternative was those, remember all those fancy, we have to grind down coffee beans, etcetera. 

Now, they were priced considerably higher on a per unit basis compared to the espresso. But the thing that really locked customers into espresso wasn't the machine. This was the genius behind the idea of the time. It was the pods that at a unit level were priced comparatively high. So as a customer, "Wow what a great business model. It's new, it's great. Attractive pods, interesting. Actually, the machine is pretty cheap. Yeah, get that." Not really thinking of the total cost of getting that machine when you think of all those pods that you use over a year. Some people in Australia drink two or three mega coffees, double or triple espressos a day. And you know, that's a highly profitable part of the business. So, the less profitable part of the business was the machine. They disrupted that market. They thought that compromised on profit on that. Because people will buy more of the pod. And obviously, they have to provide the value with the taste. Anyway, that's a concept where you can reinforce a new business model change with pricing, and use pricing as a way to make that business model sticky so customers will find it difficult to leave.

What I really like about it, you’ll also see it another example, which is Apple. In espresso, it doesn't integrate with other pods or other systems. In reality, it's quite limited which can be seen as a problem. In reality, that problem is the real design genius whereby, in your kitchen, you got one system, you're probably unlikely to change, and you're probably unlike to invest in a second system. It's some sort of aspect whereby you're designing it, you're thinking about the long-term. 

The only thing I like about the ecosystem of espresso, and this could be applied to all the businesses, Apple's another example is that it really tries to build this higher value community, versus other coffees. They have this sort of image of George Clooney, the actor, this glamorous individual that promotes espresso and gives it an aspirational aspect. You have them in espresso stores, and shopping centres, whereby you can only buy this one brand, which is very unusual when you think about it. We're used to supermarkets where you can buy everything. So it's an unusual approach but it builds the atmosphere. 

The other example I'll give is Apple, whereby they almost built a system that prevents other things from getting into it; whereby even the plugs are different, their operating systems are different. It builds a real community feeling. It builds a really close system that massively boosted the profits over time because they sell everything to you. Once you get on the door, once you got your MacBook, iMac or whatever you call it, they own you. And even small things, when they share a text message with an apple phone, it comes in a different way, and you can see when it's read, and stuff like that. And the people who have Apple phones didn't like receiving texts from Samsung or Android users. So it's almost strange peripheral things that reinforced that ecosystem. 

I just want to go back to that point you made. It's really a good point about this particular model. The union of systems seems like an instant hit. But obviously, you're taking smaller chunks or you have to transform your business model to become that new model. Because espresso... you know why they had to use a brand to sort of make some noise in a busy market, and it worked well for them... but I'm thinking for B2B, it quite a difficult play. It doesn't happen overnight. I think a lot of B2B businesses are making the sale now to hit the target because there are so many margin pressures at the moment, especially with inflation, and supply issues. 

This sort of conversation is nice to have. "Do we have time to change our business?" But that's short-time thinking. Too many CEOs have thought that in the past leading to the problems that we have now. I think mining, manufacturing, and a lot of industrial companies have a lot of untapped profit potential and aftermarket and afterparts servicing that they didn't explore. Because it didn't look, it didn't have the most revenue. It wasn't analysed in terms of growth rate, so it didn't seem the most profitable. But it's always been there as something that should have been nurtured over time. Some companies have grasped that and invested in it to make the wholesale business model transformation to this type of market. 

Even in B2B, I'm thinking of Kaeser who does like air compressor engines. They were, "We can sell engines because that's what our customers are used to or we can try to sell them in an ecosystem, the after-service parts, the ongoing services, the machine learning and data so we can optimise the machine." It worked very well for them. But it didn't happen overnight because obviously customers were used to buying the whole engine themselves. They had to disrupt the buying process as well and that took time, took marketing effort, new pricing model. In terms of pricing, they had to show their customers what the total cost of buying that engine was, not just the unit cost which was very expensive. But over time, if they buy the whole engine, they'd have to service it themselves, the maintenance, the downtime, etcetera. The biggest cost is energy to the customer. 300-400% more expensive than the maintenance cost, 5-10 years after the purchase, that's the average a compressor engine lasted. Here we've got two difficult challenges. 

How do you change your business model? And how do you change your market, your customer's perception about your products and make them buy differently, so it becomes more profitable? It requires investment and people to think strategically. People consider this the long play. Often it's the thing that's gonna save your business now. Thinking about profitable opportunities and how you can balance them with your BAU processes, which could be on the decline. 

I think there's probably a bigger topic that we'll come back to and dig into more specific examples. But I suppose in any business, the first thing to think is, "What are you really selling? What is the best way of charging for it? Are you selling the printer or are you selling the cartridges?" It's that sort of mentality. And then you start looking at potential buyers from the competition and trying to increase those really—trying to make sure that those barriers are as high as possible potentially without the customer knowing. That could be getting something into their hand, getting a capital asset bot. It could be a cost leader, it could be selling below cost, or it could be providing a capital asset to them. Once you have one, you get it there. It could be providing an app to them, an example is Uber. Once get that app, get used to using it, and you're probably gonna stay on that app. You're probably not going to go back to booking a taxi. I think it's really trying to work out how you can increase those barriers to a third party, to someone shopping and using other stuff without them being aware. I think warranties and guarantees are very useful. 

The classic car manufacturing is, you get the car, it's got warranty, as long as it uses official Toyota, or whoever it is, parts. Which really locks you into that ecosystem. It locks you to go back to the dealership. Once you're back, you're more likely to buy a car, I assume when you've seen new models. If you can get your hands on those barriers without them [customers] being aware of it... this could be as simple as free delivery. No set-up costs, no onboarding costs. Make those aspects as easy as possible. Get your foot on the door and potentially, it's hard to get you out of the door. I think this topic is very large. We can dig into it business by business in the future if people are interested. 

I know our clients are talking more about this, we need to cash flows now in light of the considerable margin pressures, and inflation that we're facing but at the same time we know we need to be different. But how? What are the steps to take in terms of business strategy? How do I think differently about customers? Cause remember, a lot of B2B, and naturally, operations on manufacturing focused, it's very hard to get out of that mindset if your whole legacy has been built around day to day operations making a product. As opposed to generating value for your customers, it's a very different mindset. And often the very people that are in those positions are struggling. The good ones recognise that and want to change. But that's not disregarding the manufacturing, absolutely not. But there's a balance between customer value, manufacturing, and product innovation. They should always be that competing force. From there, that's how you gradually transform your business—weighing up those three competing pressures in line with your business. As Aodhan said, it's a huge topic, something a lot of our clients are talking about. It's on their mind but making money is also on their mind. To cover the bills, to keep going. So feel free to get in touch with us if any of these has struck a chord, very happy to speak with you more about it. Thanks for listening.

In today’s episode, we discussed what are the pitfalls of seeking a pricing tool to run B2B pricing.

Notes on the time-stamped show:

[00:00] Introduction

[01:06] Joanna argues that without a great pricing framework and architecture, businesses cannot expect optimal outcomes from automation.

[03:31] The field of pricing have two approaches to technology. The first is revenue management systems, and the second is optimisation systems.

[07:13] What processes do you need to set up in order to make the most out of these tools?

[12:03] Aodhan talks about how important building a good value management system is before businesses can employ the appropriate computer systems.

[13:58] Category management and pricing teams should work together to properly quantify value.

At Taylor Wells, one question we get asked quite frequently, I suppose because we focus on the B2B and the B2C sectors, is what computer system, which IT system, which new fangled new technological approach will do the job for us, will really encapsulate our pricing strategy, and what should we implement. To some extent, the answer is not often what people want to hear. People, I think noticed in 2022, believe that machines can and should do most things for us, we're used to typing and google and then coming up with the answer. But, I think, when it comes to B2B, B2C pricing, tools have a real role but they will not replace the human touch. 

Yeah. To put it simply, I think a lot of pricing systems they're great, if you got a great framework and architecture in place already, then you can automate that. But often, what they do is automate what you've got so if you look at it in the negative, you've got broken poor systems, you've got no price structure, you're discount levels are incorrect or you don't have any, you've got discretionary pricing, there are no price controls. Then really what's the point of getting a high powered pricing system to automate that, what you're just going to get is raw automated junk in the machine calculating incorrect and often cost-plus pricing very quickly. So, in a way, what happens next, what people do often is well they stood by that there is a system, a silver bullet to correct what is fundamentally a broken architecture. And often if you got a broken architecture, it's misaligned with a business module and operations. This and in a way indicates that there are some business strategy changes and operational changes that need to occur as well. But regardless, what happens is that maybe a senior executive, the CEO buys this new pricing system hoping that it is the silver bullet to correct everything, may misunderstand the initial sales pitch from the vendor of that machine. What happens then is the vendor comes in, plugs it together, they call it integration with your other systems, like your ERP. And they find that, yes, lo and behold the pricing architecture is broken too. So they work with the business strategy trying to correct that. But often, that leads to a very long drawn up process and very costly process for the business as these vendors are very expensive and end up staying there for many years and not really fixing the actual problem, and just automating it, fundamentally. Aodhan, what do you think?

I love the trends. I read an article once that humanity has not really moved on since the 1950s, nearly all the technologies that we have were existing in some format at that point. You know, jet airlines, motor cars, all that sort of stuff, antibiotics to a large extent. And all we've had really is computers and electronics in the last 20/30 years which have grown infinitely more powerful than they were even in the mid-80s. But the negative of this is that we've become so focused on big data, data analytics, statistical analysis, and the big data that the internet has given rise to. So if we look at the pricing world, we have two real approaches to technology in that aspect--in computer programs, we have really the revenue managements systems which are implemented in airlines and capacity-constrained businesses, such as hotels, tourism, cars. We've seen them try to be implemented in tool hiring less successfully. And then on the other end, you have what I would regard as growth from A/B testing, almost like a website optimisation system based on pricing such as Price Intelligently. There are two things both of these have in common. They have the ability to measure people coming to something and then the historical results of what happens. So you can show them a different pricing presentation, everything else is equal. Statistically then, you can draw conclusions as to prices that will optimise sales, decrease sales, etcetera. That's in the Price Intelligently on that aspect and then on the revenue management side, you know you're selling x number of seats, historically know on a Monday, x number of people, statistically will look at this category and then you can optimise the sales with statistical variants with the risk weighting, etcetera. You can be quite confident in that. What I would say, is that some big numbers when you have statistically valid samples. But when you're in a B2B environment, you're quoting, you're doing rendering, you're probably aren't into statistically valid numbers of things. The example I'd give is, you look at an auction business, you know you're selling a painting but you're not using a revenue management system to sell it and the reason is there are no statistically valid numbers behind that. And so in B2B and B2C pricing, when there's not so long line, it becomes more difficult. You will probably see it in a civil market where there's large footfall, where people are using cards, etcetera to come into the shop. You know what they're buying, you could measure aspects in that regard. There's that grey area where there is room for these optimisation techniques certainly. But when we're looking at more, for traditional B2B, you might be only working with 5 or 6 customers, you don't really know how many people are looking at you, you're not capturing the data as to how many people have asked about your pricing. In that instance, it's extremely difficult and you just aren't capturing the information to feed it into a system to be able to really use those for there to be authorisation approach or the revenue management optimisation either.

That's true and that's what I was referring to in terms of often that's a broken pricing architecture just because it doesn't happen in B2B very often doesn't mean it shouldn't happen. I agree with you in a sense, to make the most out of these tools, you have to set up these processes, measurements, and tracking prior to buying the actual to all make it worthwhile. But often, that particular piece of work is left because businesses in B2B believe that if they just buy the system then that will correct everything else. But it doesn't. So again, I agree with you in the sense that, the pricing system is very effective at doing good pricing analysis. It calculates accurately. However, what it doesn't do and what you need to do before buying this system is set up the business rules and parameters, the conditions and the scenarios that you want to test. And then use those analytics, so set up the ratios, the measurements, the tracking tools. This is all, I call a price architecture. And this really does take two years to do. Get that piece of work done before you buy the system. And if there's one thing that you should take away from this, is that don't go to the system first because it doesn't build your architecture. It doesn't give you the learning that you think it will right away. What they will say is, you need that all set up in the first place, you need the tracking tools, you need your ratios, you need your quote to book, how much of your revenue is contracted versus uncontracted, how many of your products are specific to customers--there's one to one pricing, how much of your revenue is uncontracted, so you have many price points in customers. Because then you'll have different ratios, and different trackings, so you'll know how to optimise different types of revenue groups. If you've got those answers and those things set up, yes automate but don't do it before because you really won't get the answers, just gobbled nonsense.

"If you can't measure you can't approve it." It's a famous mantra from some management gurus. But what I'd say is the closer your business is to commoditisation, the more likely you can capture statistically valid information, measurements, quotes to book, all those metrics that we discussed. You know when you're setting large numbers of products, this is just my viewpoint but when you get into more bespoke stuff, when you're probably dealing with fewer customers, potentially you have fewer competitors in the market, you're value adds or maybe less more to your business, whatever they could be. I personally think that the opportunity for the value of a good sales team in that instance, a good marketing team, a good pricing team, and the human element is more important. Even if you capture all that information, you go through that process, the information you capture in the past, if you're business is constantly evolving, constantly delivering new stuff, the product you give this year different to what you give last year. If the market has changed, and your product has improved, is the information from last year statistically valid? If we're talking about revenue management and the airline, you know flight into Chicago, from New York, for 9 o'clock on a Monday, excluding Covid of course, clearly, there are historical precedences that make sense. But if your product is different, if it has really changed, if it's new, in those instances, the statistical aspects offered decrease. I think a lot of it will come down to your valued management system, how you articulate that to your customers, and your ability to build a sort of network of facts. You'll get it into real complexity, and the more complex things get, it's much harder to put them into a cookie-cutter style system. So you need to be careful. What I would almost say, if you're focusing on being very driven by a system, you should build your value management to suit the system, rather than, which is what Joanna talked about, building your computer system to suit your value management system and strategy. Because the more complex and better your value management strategy is, potentially, the less likely an all-consuming computer system will suit you. Tools are really useful in small aspects from mechanising and automating stuff that humans are probably not best suited to do, to boring, monotonous work that could be done quickly. You know quoting, emailing, CRM systems. But sometimes we can lose track of what really important here.

Yeah, it reminds me of the client I'm working on at the moment. I'm working very closely with the category team to understand at the skew level the value of their product failure, and that really for the pricing people, they are looking pretty much at the attributes of the product. That's the first step, the second step looking at the value of those attributes in the eyes of the customers. That's a different type of cognition that a computer can never really capture and when you look at pricing systems, they just stop at that statistical analysis. They don't go into this cognition that I'm talking about. That real value-based perception and willingness to pay because it just simply can't. AI learns but it doesn't learn like and I have not to date seen a system that thinks in that way. So this is the value of having a great category management team working alongside pricing cause only together can you really unlock and quantify what value is. First, you've got to define it and then the pricing manager works then quantify that. And quantifying is a testing process. You start with your hypothesis, once you've unlocked the value and you've laid it out. But then you've gotta test it in a market and you have to look at price response and actual feedback from the customer. Again, different types of feedback, not just price response sensitivity, and elasticities, we're looking at the why as well as the what. So this is why a lot of AI just, can't do that sort of stuff for B2B businesses. But there are parts of B2B businesses, you know in terms of automating quoting tools but again, a quoting tool for B2B needs to be thought through first by people to make sure that it fits in with the business strategy. Okay, I think that's all I have to say but if you have any questions for either of us please feel free to reach out. I'm more happy to talk to you about that.

Yeah, listening to this podcast today, makes me feel like a lot from the industrial revolution so this weekend I'll be heading out with a baseball bat to smash up computers and machines. Join me if you feel free. Have a great weekend.

In today's episode, we want to do, I suppose a little bit of value discovery, which is a topic we discuss when we get into value-based pricing and what you can charge more for. What is the value-added to your business? Often you hear we are Australian owned, we are Australian based Australian owned and managed. And the question is, is being Australian owned, is being an Australian company of value. And of course, this can be different for whichever country you're listening to. What is being a domestic manufacturer or company is seen as a plus by your customers? Why would a potentially be seen as such? And how can you maximize the value you get from that?

TIME-STAMPED SHOW NOTES:

[00:00] Introduction

[01:10]Customer psychological impact on buying local products

[03:27] Global Supply Chain

[06:13] Customer patriotism

[09:17]  D globalization era

I think over the years we've heard a lot more about Australian owned,  Australian made and you can even see in clothes labels when we all know quite rightly that a lot of things are now produced offshore like in China. But now people are saying you know even designed in Australia, designed in the US because there is still some kind of pull in the customers' mind. There's some psychological impact of going buying from your own country. Now, there's one reason there, some emotional attachment makes sense. But in terms of more modern-day recent changes economically predominantly pushed by COVID. We've seen you know that Australian-made becoming more predominant as a result of supply chain shortages. So for instance, in b2b manufacturing, customers have been more willing to pay for locally produced products based on the supply chain because they could get what they needed quicker. Not having to wait. That was at the beginning of COVID. But as COVID went on, you know two years later, what we've seen now is there's been a dramatic shortage in supplies. So even though things are made locally, if you can't get the raw ingredients to make things so there's been and also labour shortages. So even though you are or have an Australian made base, manufacturing base, so you've got things set up here. Things can't be produced. So now people thinking actually do you know what? Maybe the Australian made isn't good the local isn't a good factor. We're not getting what we need right now. So probably more willing to pay for overseas goods because they're coming quicker to us. So I think you know, there are trends and flows with Australia made there's an emotional connection which I mentioned before, and then there's that more technical supply chain need, you know, there's a risk. I need that stuff now. And I'm willing to pay for it, but it's just not there. 

I suppose on that point. It is a global supply chain. Now, I guess and we've really seen the pros of that in recent years with prices dropping, and China coming on stream as a major manufacturing powerhouse, really, in the last 30 years. Obviously then with COVID With all these different things we've seen, you know, the shortcomings of that as well. Are we ever going to be able to unwind that and purely domestic focus manufacturing without importation? I don't think so. I think we can always be pretty sure that there will be these issues, you know, in my mind it comes down. I suppose this conversation is a little bit focused on manufacturing. You know, obviously, services are slightly different but in manufacturing my view is there are two questions. Do you think there's a patriotism aspect, you know, do you value buying it from that country because there are ancillary benefits such as employment such as, you know, helping your own country develop your own city, seeing people employed seeing the spillover effects, such as you know, in Australia, we saw when the car companies shut down, Toyota, Ford and Holden, when they left even in recent years, it wasn't just the manufacturing jobs were to spill over into parts into you know, all that stuff. That also went so there's this huge ancillary benefits of negatives that have to be considered. So I suppose that's question one is, is patriotism, really a value? But I also think the second thing certainly in manufacturing is the country that's making it is that seen as a plus? You know, if you look at chocolates, often you'll see chocolates, advertises, Belgian chocolates are Swiss chocolates. If you go into any shop to buy electric appliances, and we covered this in a recent podcast, electrical appliances, you know, Japanese stuff or German manufacturing is really sold as a plus. German manufactured is seen as high tech reliable, all this stuff. You buy a car, certainly, Japanese cars are seen traditionally as being very reliable, and a real plus. You know, I asked the question are all countries have seen in the same way and what the United States manufacture car to be seen in the same way and we've driven us made cars in the past, to be honest, some of them were not the most reliable. There's also an argument that the British car industry failed significantly in the 70s due to unreliability to the point where paying for a foreign car was seen as more reliable. So it's, you know, as far as the equation is it actually a plus and does your country is your Do you excel in that area? Or do you need to do a bit more advertising and push it? And if you're just relying on patriotism, you might be in for a bit of trouble?

On the point of patriotism, I was actually reading some research on that and according to a leading consultancy group, there was quite overwhelming evidence that younger generations are much more we are willing to pay more for goods based on patriotism and the predominant driver there was you know, bringing prosperity and jobs back to the local community. So that seemed to hold true in certain segments of generation age-based, not for the older generations, but more for the younger. What so on the second point, I suppose it's kind of a depressing point. When when you think about the great manufacturing, based that, you know, you mentioned, the UK, it once had the industrial revolutions and then over the centuries, we've seen just a massive decline in production they literally don't produce very much anymore turned into a services-led business. Apparently, a research-led country is equally thinking about Australia. The manufacturing here is very minimal indeed. So does it have a reputation globally for being the best at manufacturing? Anything? No. But what we hear is it's got a reputation for research. Again, look, I suppose if we think about it in that way. It's almost like the elephant in the room. We all know that a lot of art. We've outsourced a lot of manufacturing overseas. And, you know, now we're paying the price and politically we're seeing Scott Morrison trying to reinvest in manufacturing. Infrastructure and industry in Australia, but to a certain degree, it takes a lot of investment and a lot of time to build that infrastructure and get the labour and the assets set up. The business model is set up with new ways of buying new consumer preferences, things are changing. And hopefully, it's not going to be too little too late. But yeah, look, it's ultimately it's a simple question. Are people willing to pay for it? But as you can see underneath, there's quite a few serious, you know, economic, political, and business model challenges that you've got to think through. When you're determining what people are willing to pay for that, you know, Australia made us made. It's not easy.

Yeah, look, I suppose from Ireland, and when we are kids, guaranteed Irish was a brand that was a logo that was put on very large, a huge number of manufactured products, certainly in the 1880s when the Irish economy was in the doldrums, and that was, did people prefer buying Irish items? I think they probably did prefer them. I think they probably did. The more is that as appropriate in somewhere like Australia today? Will people actually pay more? I don't know if they'll pay more, to be honest. I'm not sure if they would. But it's again, it just depends on the customer but depends on the business you have. But I think it's really worth exploring. And certainly, I think at the beginning of the conversation Joanna mentioned, designed in Australia, to me I see that as a classically that's a negative. It sort of annoys me you know, because you're almost just announcing that you're outsourcing to a cheaper manufacturer and outsourcing the jobs to some extent I don't think that's really positive in my mind. Yeah, that's personal for me, and you know, that just annoys me. But I think, I think as time goes on, I think are we going into an era of D globalization are moving away from globalization. People are saying and the press potentially we are potentially people are more focused on jobs on the domestic manufacturing base, probably also in countries like China, and Australia that had a booming economy for a very long time. I think people have forgotten about the importance of domestic stuff. I think they've lost sight of it. I think that we thought that we were always in this upward tide, that would never stop and we just get wealthier and wealthier. And you know what, maybe with the whole, you know, Ukraine war and COVID and all these things. Maybe that's not the case. Also, obviously, you know, domestic manufacturing is better for the environment, which is debatable, obviously, because, you know, you have to factor in carbon emissions and transport and stuff like that. But oftentimes, there are pros and cons and I think we maybe need to go back and re-examine some of these and some of the value drivers that five years ago may have changed. Yeah, I

was thinking the same. I was thinking, you know, maybe globalization and globalized supply chain were based on the premise of harmony where, you know, countries were all harmonious and all agreed on and then alignment together. But then, what really challenged that, you know, the underlying assumption of harmony, I suppose, was that was COVID. Firstly, and then, you know, it just showed put a massive spotlight on how chaotic the supply chain actually is. What we thought was all systematic and aligned a global supply chain optimized with absolutely just quite a shambles, just ad hoc systems undocumented processes. It was literally held together by a few good people just pulling stuff together outside their roles in businesses like from the warehouse, floor distribution warehouses right through to head office, and that's just on a business level. But this was happening globally. So it really just showed that you know, the gaps in this idea of globalized and optimized supply chain and then and then obviously, with the wall, you know, that we actually can't all live in harmony. Even though we want to, maybe other countries have had a different idea, and I have a different vision for what the world may look like, and I think that's really brought to the home and potentially in a good way through this risk of you know, war and chaotic supply and demand. That actually we've got to think we've got to be independent to some degree and we've got to balance our supply locally and internationally to ensure you know, the safety and the well being of the people that are living in those countries. That doesn't say that you don't trade with other countries. Absolutely not. But there has to be more balance. There has to be a balanced I think we went pushed it a little bit too far on the global side. And now and now we're rethinking things in a realistic way. I just as I said before, I just hope it's not too little too late.

Yeah, I think that's, that's it for me. Really, I've not much more to add to it. So yeah, have a great weekend.

Thanks a lot. Bye.