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Episode: 69 |
Ian Tidswell:
Pricing Excellence:
Episode
69

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Ian Tidswell

Pricing Excellence

Show Notes

Our guest today is Umbrex member Ian Tidswell.

Ian has a PhD in physics from Harvard. He did science for a few years but missed the human element and ended up as a management consultant at McKinsey.

After McKinsey he worked at Vendavo, a software firm, and that is where he fell in love with pricing, which for Ian is the perfect mixture of the analytical and the human element.

In this episode, Ian shares his perspective on pricing, including

  • Why pricing is so important
  • signs that a company has an opportunity to optimize pricing
  • what good pricing looks like
  • how to organize the pricing function
  • and we walk through an example of pricing for a crop protection company.

I enjoyed my conversation with Ian and I hope you find it helpful.  You can follow up with Ian at Ian@eenconsulting.com

One weekly email with bonus materials and summaries of each new episode:

Will Bachman: Hello, Ian. It is great to have you on the show.
Ian Tidswell: Yeah, thanks, Will, great to be here.
Will Bachman: Ian, I’ve been really looking forward to finding a time for us to talk, because you are one of the top pricing experts I know, and it’s a topic that I’m excited to learn more about. But, before we dive into that, just set the scene for me. I think you’re on a little bit of a vacation, staying at your parents. Tell me about the scene outside the window there.
Ian Tidswell: Yeah, so I’m at my parents for a long weekend, and I’m in the north of England, and I’m staring over this bucolic scene of a dam with a church in the backside. Spring is starting to happen. It’s the north of England so there’s gray skies rolling across as you would expect. It’s very pleasant at the moment.
Will Bachman: Sounds like something out of Thomas Hardy or Wuthering Heights. Let’s talk-
Ian Tidswell: Except for the major road, yes I would agree.
Will Bachman: All right. Let’s talk a little bit about pricing. Maybe you could start just by giving us a little bit of your background, and telling us how you came to be focused on pricing.
Ian Tidswell: Yeah. So, originally, I trained as a scientist and got a little … While I enjoyed figuring things out, that’s one of the passions of my life, I missed the human element of that. So, got the chance to go to McKinsey, and I really enjoyed the problem solving in areas where it made a difference. And then, did general strategy and operational stuff for a while.
Then, about 15 years ago fell across pricing by accident when I did a contract with [Lenovo 00:01:42], which is one of the pricing software vendors. I remember in my six years there, I really fell in love with pricing, and saw it in lots of different industries, and just loved the complexity of the challenge. The fact that it’s a mixture of analytical and the human element, and in some ways I think I should have been an economist, because I think that’s the closest field.
So, I really fell in love with the challenge of pricing, and the fact that there are some levers where you can make a big difference on things, and yet it’s not obvious and intuitive. So, it’s a fascinating problem, explored that at lots of different types of companies with Lenovo. Then, spent some time with a couple of different companies doing pricing. Most recently as the head of pricing for Syngenta, an ag company, a crop protection and seeds company. Then, in the last couple of years, I’ve been doing independent pricing consulting to a variety of different companies. Mostly in the B to B space, mostly selling to other companies.
Will Bachman: Great. You mentioned it’s important, why is pricing so important?
Ian Tidswell: Yeah, so pricing is where the value that a company creates with its products and services, price is the only way you capture that value. It’s vitally important that, you can have a great product, but if you don’t know how to price it right, then you’re going to end up not capturing a fair share of that return.
The other element of pricing is the fact that it’s very high-leverage. If you can figure out where and how you can raise your prices, all of the extra money that that brings in drops straight to the bottom line, because you don’t have to make anything and it covers all of your revenues, potentially. So it’s not divided, you change your cost in manufacturing. That only hits a portion of your costs. If you change your overhead, it only hits a portion of your costs. If you sell more, you increase volumes. You’ve got to actually provide something, so there’s a cost associated with that.
In most industries, in all industries it’s the top price lever, and in many cases, especially in manufacturing stuff, then it’s the most powerful lever out there by quite some margin. That’s why it’s important.
Will Bachman: So, if you could increase your prices by 1%, you might increase your profitability and value of your company by 10%?
Ian Tidswell: That’s the typical number, yeah. I mean, it varies on the company, but typically it’s, the leverage of a 1% price increase, is a 10% to 15% profit increase. And, typically, projects can get, or opportunity size, not projects, but the opportunity size is in the one to five percentage points, if you take over the medium run. That, you’re looking there at 10% to 50% increase in profits, and that’s a lot.
Will Bachman: So, if you’re a manager of a company or maybe a consultant inside of a company helping out on something, what would some signs be that the company has some opportunities to optimize their pricing?
Ian Tidswell: A lot of the time it’s just ask them how prices … I mean, one of the things I will do is just ask, “How is pricing done?” If pricing is done, it’s amazing how for such an important activity in many cases it’s done with gut feel and ad hoc processes. So it’s done by reacting to how the client, in negotiations, if it’s a negotiated sale it’s done to reacting and to what they say. So, the squeaky wheel gets the oil, and they’re the ones that get the discounts. There’s a lack of tools that have been done, there’s a lack of data. Pricing systems are often set up. Sorry, not pricing systems, but financial reporting systems are set up to support finance, not set up to support pricing. So, people just don’t have the data available, they don’t have an understanding of where the value is.
They don’t have an understanding or they haven’t done the structured thinking of how the channel adds value. And then, at the end of the day it becomes a siloed activity. So, marketing may be stronger or sales may be stronger, but whichever one is stronger is the one that’s really dictating how the pricing works. It’s a little tricky to say from the outside how well a company’s doing with pricing, although there’s obviously, you get big fails occasionally where you read about these in the paper, but it’s easy to … Everyone knows when a company’s priced too high, because they don’t sell anything, but when the price is too low, that’s often not as easy to understand, not easy to see.
Will Bachman: So, what would the opposite answer be? What would an answer be to your question of, how do you do pricing where you’d say, “All right, you guys clearly do not need my help, because you’re awesome.” What would that answer sound like?
Ian Tidswell: They have insights into pricing in the market, so they understand what the customer values for their product. They have a very sophisticated customer and perhaps product segmentation, which is full pricing, now just for sales, but for pricing that is based on the value that their products and services have in different environments based on the pricing power. So, how much value you deliver, how differentiated they are from the competition, how intense is the competition? There’s good processes where marketing, typically, marketing is figuring out what the value of the products is, and the owner of the value, and then sales is working within that, taking their counseling advice, pushing back. There’s a good to and fro between sales and marketing in terms of the back and forth about what the price should be, and then there’s a good feedback loop.
Companies that are always carefully executing, so they’re monitoring what’s going on, and then there’s a good feedback loop in terms of how things turned out. So, ideally, you’re starting looking at win/loss, and being sensitive to when things change, because the markets don’t stay the same. Some of them are faster than others, but oftentimes, markets move around, and you need to be aware of when things are changing underneath you, and you react to that.
Will Bachman: So, that’s a bit about what a good pricing looks like. Tell me, how is it typically structured? You mentioned a couple of things like pricing function and sales and marketing. In a really well-run organization, is there someone separate whose job is to set prices from sales and marketing? Talk to me about how you recommend or typically see a really well-run organization will be doing pricing in terms of who.
Ian Tidswell: Yeah. That’s a great question, where does pricing fit in an organization? I’ve seen it in finance marketing and sales, and very occasionally at the CXO level, so it reports directly to the CEO, but that’s often not unrealistic, because it’s a very skinny function. We just don’t have that many participants. Typically, marketing I think is the most natural fit, because marketing should be owning the value of the products in the portfolio, and that’s what they should be worrying about, and profitability. Then, really, the type of the team and the activities depends a bit on where a company is. At an operational level, pricing people should be guiding and helping with the pricing challenges and problems, being a little bit of social worker in a sense of an expert counselor helping solve pricing challenges for people who own the real prices.
Because, I’m a big believer that pricing teams should not own the prices, they should be owned by the business owners and the people who own the products and the markets, but they need help or they can’t be expected to be experts on pricing techniques. I think people should be helping to understand what techniques are, to understand the value, and how to set a new price, and if something’s changed, what should be done differently. Then, own some of the processes. Own things like if there’s an annual price change process. They own making that. Making sure that’s done in a high-quality way. The keeper of the tools, the keeper of the process, and then the tracking and raising the red flag if something seems to be going off the wires, which is one of the challenges I think for people who are in pricing is to make sure that they can have those influencing skills, because it’s almost internal consulting.
That’s one of the things that’s interesting about it. You get a great overview of a business if you’re in pricing, because you do need to work across the business. In other cases where it’s more of a transformation effort, then it’s a bit more like, it’s again, internal consulting, but, and it’s about change management. So, it’s about influencing to build the lead. We can do better in this space, therefore what do we need to do, what are the needs, and that kind of activity. I think you had a recent speaker about software that really resonated for me when you were trying to drive through change and tools to support it. That, I thought, was an excellent podcast, but, yeah, in summary, I think that explains it.
Will Bachman: I imagine that the way the function works might vary a little bit depending on the type of B to B company, whether the company is manufacturing a commodity or they’re manufacturing a standardized manufactured part where they say, “Well, we just have these 20 skews and that’s it.” Or whether each project is very much a one-off and very customized. Maybe you could pick an example, it could be a sanitized example of a company you’ve worked with at some point in your career, and then walk us through a typical price improvement journey. So, really understand what is that pricing function doing, how does it work and how would a company go through a journey to improve that function.
Ian Tidswell: Yeah. I can give a couple of examples from the crop protection market, for example. Think of this as pharma for plants. I’m simplifying it, but you have two types of products. You have those that are new and protected and have a very differentiated, and then you have more generic products, where they’re off-patent and there are several products that fundamentally do the same kind of thing. The pricing challenge in those two different cases is a bit different. So, in the first case, it’s all about understanding the extra value that is significant, in some cases significant extra value that comes from a new product, and this might be something, if we’re in an industry where the company is always innovating, then they should get good at this notion of understanding where the value comes from, and there’s various tools for this.
Like key buying factors, and then using discrete choice modeling to understand what the value match would look like. From that, and if you do this right, you can get very, very precise information about what price would be acceptable, and then obviously try it.
Will Bachman: Let me just pause and just ask a couple questions, Ian. First, I want to make sure I understand. When we say crop protection market, that would be basically in layperson’s terms-
Ian Tidswell: Pesticides.
Will Bachman: Insecticides?
Ian Tidswell: Pesticides.
Will Bachman: Pesticides. Okay.
Ian Tidswell: Yeah. Insecticides, herbicides, fungicides.
Will Bachman: Okay. So, basically, stuff that kills weeds and stuff that kills bugs, basically?
Ian Tidswell: Yeah. Yeah.
Will Bachman: Okay. So, for a company that’s manufacturing these products, are they really selling to distributors or selling directly to farmers? So, who is their actual customer that they’re pricing it to?
Ian Tidswell: Yeah. In most cases, you’re selling to distributors who then sell to the farmer.
Will Bachman: Okay.
Ian Tidswell: So, there’s a retail aspect to this, but you still need to, it’s the responsibility of the manufacturer to know what the value is of their products to the end users.
Will Bachman: To the end user? Right.
Ian Tidswell: Yeah, the farmer in this case, because they’re much better positioned to do that than anybody else is.
Will Bachman: I suppose just a basic task of the pricing function or marketing function in this case or both would be, before you even think about optimizing it, they’re probably going to want to understand, “Okay, what are all the other insecticides and pesticides out there on the market for this particular crop? Who’s making them? What’s the status of their patent? What’s the prices that the distributors pay, and what’s typically the prices that the farmers pay? And also how effective are all these products?” There’s probably this big information gathering piece that would happen, right?
Ian Tidswell: Yeah. Key buying factors is the way to say that. So, if you’re a farmer what problem, the trick is to do this from the perspective of the end customer. So, in this case, what problem is the farmer trying to solve? Maybe it’s a fungicide, and that is not well controlled by enlisting products.
Then you might go to an exercise where you do a key buying factor analysis, where you’re basically trying to tease out two things. Is this potential future of the product important, and is it well served? Because you get lots of cases where you may have, it may be that you have a blue package, and that’s differentiated, but not important.
Or, you can have cases where, yes, it’s important that it kills a particular mildew, but all of them, several products on the market already do that, in which case, that’s important, but not differentiated.
So, looking for those areas where you have an important and differentiated capability, and in this case, it’s mechanical compound, that’s where the true role is, and that’s what you get, the opportunity to really do some interesting things in pricing.
It’s just amazing, though, how many, just to get away from agriculture for a second, but it’s amazing how many companies develop products without thinking about what the value is to the end customer.
I can think of an example in the healthcare space where this company developed a medical device used by people who suffer from a certain condition, and it was eco friendly, so you could recycle the particular cartridges. The problem is that in this case the, while that’s a nice thing, it’s not clear that the payers, the insurance and the like are going to value this, so you just invented a differentiation that’s not important.
Then it speaks to trying to get, think about pricing early in the process, even if it’s just at a high level, and get their perspective of the end customer, it’s still very important.
Will Bachman: So, what would be the set of questions that we should understand about the market? It sounds like, we want to understand, trying to quantify the value to the end customer, what are they buying? Considerations, what are all the other products that are out there that are available? Because, we might add 100 units of value, but if there’s a product out there that also adds 100 units of value and sells for three units, then, we can’t say, “Well, our product cost 50 units, but it gives you 100 units value.”
So, it’s both how much value are you adding, and also, what are the other products out there that do the same thing.
Ian Tidswell: Yeah, and so, that’s exactly right. When it’s something like a hard value. So, in crop protection, if you can prove the case that our new product will reduce, wipe out this particular mildew, say, and increase crop yield by 10%, then you can do a very hard economic angle to the positioning with the customer, the distributor, but with the end farmer in this case, and it’s relatively straightforward.
The challenge is, and I think this is particularly the case in B to C, but actually, applies a lot in B to B, as well, is that a lot of the value comes from softer and harder to define things. There’s a lot of value in farming, for example, in it being simpler.
So, can I apply this particular fungicide, it doesn’t need to have been dried for five days, it only needs to have been dried for one day, and it doesn’t need to be dried for the three days after, and the temperature range is broad, and I can use it again on a variety of different crops, so I don’t have to have it just specialized for one of my crops.
Very difficult to do an economic argument around that type of case. So, what you do is, that’s where the key buying factor analysis helps you identify that broad usage across different crops might be a value thing, and then when you do the discrete choice modeling, which is like a convert analysis, basically. People get trade offs between the two different areas, and then, from those trade offs, if you do it with a big enough sample, you can actually get a sense, and do it with a price.
You can get a sense of how much they value those particular features. Then, action can be taken as hard and fast, but it can be very powerful to understand, which of the levers are the most important, and point you in the right direction. If that makes sense.
Will Bachman: Okay. So, we’ve collected all this information, which in itself is non trivial.
Ian Tidswell: Yeah.
Will Bachman: Like, for example, in a B to B world, where you can’t just go and observe prices, because there might be, most prices might have been a negotiated kind of deal, how do you typically, in a very practical way, yourself as a pricing consultant, how do companies find out even, discover what prices are being paid? How would they find what those distributors are paying for the other insecticides?
Ian Tidswell: Well, this depends a lot on the market you’re in. In some cases, it’s quite straightforward, the more commodity the product, it’s quite easy. When it’s fragmented or a configured product, then it gets a lot harder.
The main point I try to drive across is, you need to have an opinion about what the value of your product is, and what the end price should be when you talk to distribution, even if you’re not really sure. Then, you really have to triangulate on what makes sense.
So, in some markets, you’re sticking with the crop protection market. In some markets, surveys are done. Sometimes they’re done monthly, and it’s mystery buying. Other times, it’s been once a year with a panel. Or, other times it’s a simple, if it’s a more portfolio case, you can just do something as simple as, in an annual customer survey, you ask “Do our products offer good value for money?” And you track how that changes over time.
It depends on the market, but it’s sometimes a challenge to get good end market prices. That doesn’t mean, just because it’s a challenge, doesn’t mean you’re not going to have to do the pricing. You still need to have an opinion, and try and guide the pricing, and guide the messaging, so you’re focusing on the price communication or the value communication in ways that make sense to the end market.
Will Bachman: Cool. Let’s talk a bit about this discrete choice modeling that you mentioned. So, if I were an associate joining one of your teams, and you were going to put me on the discrete choice modeling work stream, and I had no clue, explain to me what I’m going to have to do, very practically, and let’s keep it in this crop protection market.
Ian Tidswell: Yeah.
Will Bachman: What is that work stream going to look like? How do we do that?
Ian Tidswell: Yeah, and I should point out, that’s just one of the techniques, right? That alone, discrete choice modeling works for a, it’s reasonably expensive, you’re in the, let’s say, $100k to do it really well, at the end of this game, in this scheme, n it’s the gold standard.
So, it makes sense for big products where you really need to get the price right. But, in those cases, you would start off by doing a key buying factor analysis to understand what are the important factors, and then you build up a library of maybe the top 10 factors that are important and potentially differentiated, and then you put together packages of different choices, and ask the person who you’re surveying, what is the, which one they prefer.
So, you might say that it’s a fungicide from a particular brand, with a particular brand on it that is effective for 60 days, and is applied before the crop is planted. You only need to spray it once, versus another one, which is from a different brand, 30 days effective, you have to spray it twice, but it’s a price that’s a third less than the other one.
You come up with a range of these options, and people get multiple of these options across, facing them, and then when this is, the specialist firms take the space, they put it into their model, and out pops the particular value of each of the different features.
That’s a fantastic tool to say, “Okay, well, the brand, you can’t do much about.” But you sort of understand the value of your brand, but then you understand the messages, and you understand, and then you can map that to the different products that are out there, and say, “This product should have this price, and this product should have this price.”
That can then feed into a value map, which is basically having one axis, it’s a two by two, but having one axis that has the perceived value of the product, and then the perceived price of the product.
So, in the bottom left, you have products that are low value and low price, top right, high value and high price, and if things are off the axis, that in fact suggests that they are off the fair value line.
So, you can get a sense of where the products are, and then that’s a great tool for understanding, how do I want to position my products? So, in some cases you might have a very crowded part of the market, and you want to position your product higher or lower than that group, or in a particular niche, because that’s where you’re going to have less competition, and you can really expand your market share.
Will Bachman: So, with this discrete choice, two questions in that, like, how many people typically would you need to take the survey to be somewhat valid, and how many of these choices are they doing?
Ian Tidswell: Yeah, so you typically want an order of 100, and you’re normally measuring, I think it’s like six to ten different parameters with three or four different levels for each one.
That’s why it’s so important to figure out, which is the important factors that you want to do the assessment for, because if you try to do it for 20 products across five different levels, then the number of questions goes up exponentially.
So, doing your stuff right, this is gold standard, right? But, doing this right, it’s hugely valuable, but six months and some effort, but they’ve frankly, not done enough. I mean, now, the money gets spent on R&D, compared to the amount of money that gets spent on market researches, it’s kind of stunning.
Will Bachman: And is this something that someone like yourself, would you do this or is this such a specialty task that there’re specialist firms that would do this discrete choice modeling, that you would outsource it to?
Ian Tidswell: Yeah, I would outsource this. The hard and fast modeling, I would outsource. I would get involved in the upfront, making sure we’re thinking about the potential drivers of value the right way, structuring those the right way, and then guiding through the process.
Will Bachman: Okay, because the way they structure the different choices requires so much science behind it, that it’s really a very specialist thing?
Ian Tidswell: That’s right. That’s right. So, if you have smaller products then, that’s in a case where you’ve got a new product in differentiation. In other cases, the problem you’re trying to solve is that, I have a product that’s been out there for a while, and I want to change my pricing. So, how much should I change my pricing?
Will Bachman: Got it.
Ian Tidswell: And there, you might take, and if you’ve got a broad portfolio of products, then you’re clearly not going to do this type of analysis, it’s just overkill.
Will Bachman: Yeah. I’m sorry, one question I had was, you mentioned the perceived values, so I got, and you do this discrete choice, and people say, “I like A versus B, B versus C.” But, so that gives you the perceived value, talk a little bit about perceived price, because at least, for some products, you can just observe the price, so you wouldn’t need to perceive it, but is it something around some products, the price is confusing enough, because they’re structured in different ways that you’d say, “This is kind of a high priced product, but it’s hard to compare apples to apples.” Tell me about how you would measure that perceived price axis.
Ian Tidswell: The reality is that a lot of times, people don’t know price they’re actually paying for things. The example I like to use is that a lot of people have a good idea about what the price of milk is, a pint or a liter of milk, but they’ve got a very poor idea about what a jar of pickled onions should cost, because they don’t buy pickled onions very often.
When you ask people what the price of something is, oftentimes they have a very poor understanding of what it is. They only pay attention when they’re actually in the decision point, and oftentimes, they don’t even pay attention, right?
If you’re in the supermarket buying pickled onions, it’s just not an important purchase, so you just pick it up, and you throw it in the shopping cart, and that’s it. The same applies in B to B space, and that’s where, if you have a very broad portfolio of products, then oftentimes a product A, B, C, D segmentation of which products are purchased frequently or have a very high price, and which products are not purchased very often.
Typically, you’ll have a lot more leeway on pricing for those second tier products and those tertiary products than you will fro the primary products. So, that type of approach is used a lot in spare parts pricing.
So, you’re trying to understand, which are the main run products that everyone’s paying attention to, which ones are not so much, and which ones do we have competition on, then you might build a logic tree to go classify the products, and from that you can figure out what the price should be. What the price change should be.
That’s marketing driven, and then the value is sort of a second tier thing. The value of a jar of pickled onions is not something you’re going to do a lot of analysis on, because it’s soft value, it’s not hard value.
Will Bachman: So, if you’re selling input or some kind of B to B product, that is a very small price compared to the overall value of what it goes into, you might have more flexibility in your price, because people almost are not paying that much attention to it?
Ian Tidswell: Yeah, in cases like that, what people … People do not want to spend very long on those price decisions, and they’re not thinking about it very hard, and it’s often very risk averse. So, you just want it to happen, you want it to be simple, no risk, just reliable.
I think this is, credit cards get away with charging a fairly high fee, right? They’re very profitable, to have a credit card, because it’s just a small fraction of the fee for the merchant, and it works well, and they don’t want any fuss when somebody shows their credit card, they just want it to work.
So, it’s a classic case where people will pay a lot relative to the cost of providing a service for that risk aversion and that simplicity. Amazon, as well, I think is doing very well making things convenient, reliable, simple. I certainly, I shouldn’t give this away, but I certainly am not a price buyer when I’m on Amazon, right? I just know that the Amazon Prime is going to show up. The fact that I might be paying an extra five or ten bucks for something is okay, I just don’t care.
Will Bachman: Yeah.
Ian Tidswell: That’s where we move away from the science piece, the value, and get more into the intangible value. Often, those intangible value features can be very, very valuable, and then again, it’s the B to C examples can be a bit easier than B to B, but the iPhone is the classic example, right?
The cost of making an iPhone, I’m guessing, is about the same as making the equivalent Samsung, but they get to charge you a nice hefty premium and have a huge market share, because the value of all of these intangibles around the network and easy to use, and all that stuff, it’s very hard to value those in a scientific way, but they’re very, very important.
Will Bachman: So, I got us off track a little bit with the digression. We were talking about the pricing journey. So, we talked about, there’s a phase of just gathering data and understanding the market, and then there’s a phase or piece around understanding how people might have perceived value of new innovative products, whether you use the discrete choice modeling or some other method. What would the next several phases be in that price improvement journey?
Ian Tidswell: Yeah. To back up a second, a bit, I think of it as three pieces to getting pricing right. One of them is understanding the value of your product to the end user, and then we’ve talked about some of the techniques to do that, and differentiated value, the pricing power, is really the key thing, and that’s got to be done for different customer segments, because they can vary, and that can make a big difference depending on the market.
The second piece is, how much value does the channel bring, and how can I incentivize my distributors, my channel partners to do the things I want them to do. So, that’s an interesting exercise in, first off, understanding what you really do want to do, and secondly, trying to incentivize the right behaviors with discounts and rebates and other incentives.
Then, the third part, and especially for large companies, is how do you execute on this consistently in day-to-day operations? I think for multi billion dollar corporations, this actually in many ways the hardest. You can have failures in all three of these, bit this third one can be the place which is hardest to fix, because you need to have this targeting, understanding the target price space on the customer segment and the value figured out, and then communicate that to sales people, especially, particularly a negotiated sale in such a way that they pick up that information, and use it, and it helps to, gets used in their actual sales cycles for getting to a price that’s different for one segment than it is for another, and you know when to walk away from the price. When you really should stand firm, and when you don’t actually have a stronger case.
So, it’s really putting together that, knowing what you’re trying to get to in individual cases, with it being able to execute it in a consistent way, and efficient and effective pricing.
So, oftentimes a project will start with the first pieces we did, with this conversation about where is the value and how much is the value, and then you lead into, how do we set up a process and an approach where we can do this consistently, so we can get to a fair price every time.
Will Bachman: Yeah, talk to me a little bit about the tools that you see that help companies execute this. I guess, I first encountered an example of a pricing tool, I was serving a government contractor, that each big project would be negotiated one-off, and they had a pricing team of 10 or 15 people, and using this Excel tool that they would build up the price based on all the people that were going to have to work on it, different margins and so forth, and it was this incredibly Rube Goldberg, complex operation where sales would fill out parts of the pricing tool, and email it, and then the pricing team would, it would take them a day to something with it, I’m not sure why. They would send the price back.
They were emailing these Excel files, and trying to keep track of the latest version of it, and it was just a mess, frankly. Nobody to blame, and they developed something to try to create the standard. It was an illustration of your point about, you can understand the market, you can understand how you want to price, but then, actually, figuring out a way to execute that with a big distributed sales force, what are some of the tools that you see out there that you like, and maybe are good for one situation or another, and organizational processes, talk about that piece a bit.
Ian Tidswell: Yeah, so when you’re talking about what is a configured product and/or a negotiated sale, then as much as anything, it’s a process problem. It’s trying to make sure that the activity is executed efficiently and effectively as they said. Efficiently, effectively, every time reliably.
The challenge there, often, the biggest challenge is often the complexity. In the crop protection market, for example, every country has very different regulations, and the markets can be quite different, and the value can be quite different, and the channel structure can be quite different.
Certainly, for companies I’ve worked for, they tend to have allowed the countries to go off and do their own thing. If you’re going to have a tool in those cases, they just don’t scale unless you can somehow harmonize and standardize on some core processes. So, there’s a set of tools that do this kind of thing. Some that come to mind are [Vendabv 00:37:06] and Prose and Price Effects, there’s other ones out there, as well.
They do these two things, figure out what price should be delivered, what is a good target price and a price corridor for a particular deal, and then they help the sales, and then they capture that price and it gets put together, and of course, the pricing includes discounts and rebates, and they can get quite complicated.
The trick with these types of tools is to use them standardized. What’s the 80% of deals that we have that we can put into a standard box? Because, frankly, the customer doesn’t care about lots of the twiddle factors around the edges for how a deal can become structured.
It is probably the hardest challenge to management is, how do you wean a company off no standards, everyone does it their own way, to a core set of standards, and then exceptions that apply on the top of it that, most cases expect to have exceptions, and manage them as exceptions and don’t try to alternate them, because those are the things that make these systems too heavy and fall over.
But, figuring out a standard process with standard discounts and rebates that works most of the time, and then driving as much of the business as you can to those standards, and, basically, having these tools that allow marketing to communicate the price target to sales, and then sales to construction, the whole price-to-price waterfall going, and then you can track the loop. That’s the key to doing sustainable pricing in these large companies. If that makes sense?
Will Bachman: It does. Are there any particular software tools that you recommend or, I mean, is it Excel and emailing files back and forth or is there some sort of industry standard set of various different software products that you like?
Ian Tidswell: I mentioned earlier is that the likes of Vindavo and Prose and Price Effects, and these sit on top of the ERP or CRM system. They integrate with ERP or CRM or, in some cases, are embedded in the CRM system. Then, they’re designed for pricing.
So, yeah, CRM tools are designed for customer relationship management and ASP is more about financial reporting. I can at least put a front end on them, and then help, they’re decision support systems.
Right, now, those are important. The trick is to use the right tools in the right cases. So, if you have a large number of products and a large number of sales reps and these tools, and you’re selling them to lots of different customers, then these tools make a whole lot of sense.
If you are Boeing selling jet airliners, and you’re selling a few hundred a year, then you’re probably in a very, I haven’t worked with Boeing, but you’re in a very customized space then, and then, I wouldn’t invest in that type of tool, because, frankly, the requirements will be too complex, and you’re better off doing something in Excel. I mean, probably Excel, more than Excel, but less than a standardized tool.
Will Bachman: Yeah.
Ian Tidswell: In some cases, it’s very important to get the price setting right. Spare parts is a classic one, where there’s a fairly standard way of doing that and that, and then you can be dealing with hundreds and thousands of parts, you do a classification, you figure out what the list, price for the parts should be, and then off you go.
In other cases, it all depends, it’s super important to understand what you’re trying to do with your pricing, and then design the system to do that, and not just tape the cow pats, as we say.
So, take the existing pricing, and then go build it out as per your software speaker, a few weeks ago, that’s just, you end up designing something that won’t work and is too complex for the users, even though they say they need all these different features.
Will Bachman: How does pricing differ between products and services?
Ian Tidswell: Yeah, that’s a great question. So, I think pricing, you can think of hard and soft value for pricing, for value, sorry. Hard and soft value of items. Hard value has has economically been calculated, and soft is then thing like the more intangible values, the risk reduction and simplicity and the brand, and knowing it enhances my reputation type stuff.
Then, the second piece is between, the second dimension might be standard products and configured products. So, service are generally configured, although, and certainly the type of consulting I think we do is to configure product. You’re designing the offer for each individual case.
Then, the value, depending on what the project’s on, may have a clear value or may not. So, what that points to, I think, is that services pricing tends to be more fuzzy and less well defined. It’s less easy to have a really solid value argument. That’s why in many ways, services pricing is still done on a time and material basis and a lot of risk, and I think that’s changing, but it’s fundamentally the configured nature, and then the lack of really well defined value proposition, that makes it harder.
It’s why even all of the, I think, pricing services are done in a fairly rudimentary fashion, is because we don’t always get past that. So, I would recommend, as much as possible, having modules that you start from, you’re making V8 from, and then having a standard offer, whenever it’s feasible, and maybe having different layers of it.
Then, the discussion with the customer gets more onto, if you need more, then you need to lead up to this different package, rather than how much to add that, how much to add that. Then, you can obviously pivot around those points, but they set nice anchors for what things should cost. If that makes sense?
Will Bachman: Yeah. What tips do you have on pricing for independent consultants?
Ian Tidswell: Yeah, so understand your value is the first one, right? So, you don’t need to do all of this analysis that we spent the first part of the conversation talking about to have a sense of your value, but be really clear on what’s differentiated and where your value comes from.
Then, secondly is, structure the pricing thinking about the price and the risk sharing. So, David Fields, I think, had some really clear ideas on this. I attended a web session from him a few weeks ago that was excellent. Talking about, basically, do you just do time and material where the ESP is all on the client, or do you try and do it in a risk sharing way?
The challenge in services pricing is always to figure out how do you do that risk sharing. In the pricing project, it’s not really practical to say we’ll share in a percentage of the profit uplift you get, because that can come much later, and be significantly affected by other factors that are outside your control, but if you can do it in terms of, if you follow our approach, then you’ll get, there will be a premium, and if you don’t, then there’s a discount from what time and material would be, I think that’s the right way to go, and I would encourage people to do more of that.
Avoid the time and material with a cap, because that’s really just pushing all the risk onto the consultant.
Will Bachman: Okay.
Ian Tidswell: But, try and have standard modules with a price tag associated with them, as using those as anchors, having choices between those different modules for people, much like you might have if you go buy a cellphone package rather than a subscription, and then explicitly think about the risk sharing, and finally, always have a walk away price, because, from my own personal insight.
If you don’t have a walk away price, you don’t have a pricing strategy.
Will Bachman: Yeah, I’m a big fan of David A. Fields, and people want to check that out. He’s written quite a bit on his blog. If you just Google David A. Fields, get his website.
What have you done, Ian, to raise your visibility? Do you do any kind of writing or speaking, or do any conferences or events? Or, is it mostly for you person-to-person, relationship building? Curious what you’ve done, because you’ve really done a very nice job of picking a niche and becoming expert at it. What have you done to build your visibility in that area?
Ian Tidswell: Yeah, I’m not sure whether I’ve done the perfect job on this, and I can critique myself, but I started off with a moderate network, I would say, on LinkedIn. It was something I had tended lightly, not heavily.
So, I took the approach of trying to get my name out there. So, I did that in two primary ways in a general sense. One was to start writing a blog, and you can find that on my website, eenconsulting.com, which I find, I enjoy writing the blogs. They seem to get a good reception, and they really help hone my thinking, and that’s definitely led to a few projects, and I think is helpful from a general reputation.
The second thing was, talking at conferences and then building networks up that way, and then trying to be helpful and networking with different people. So, my work comes through a combination of conferences. A couple of times, people reach out to me. Although, I think the blogging and the LinkedIn presence helps more as a reducing risk for people who have decided they might want to work with me or getting me in the door than it is for getting a whole new contract.
Then, through the, I don’t know what to call them, but the A-Connects and the BPGs of the world, I got a few projects that way. I think being a specialist with a strong niche, they’re quite good, because when there is a B to B pricing project, then I’m one of the people they call. So, they don’t call me every day, but they do call me when there is a particular project that makes sense.
Then, finally, networking with other independent consultants. So, I’ve done a couple of projects with people who are in a similar position as me, and they need some help. That I find very rewarding, because we all bring our different perspectives and strengths, and working with great people, and I really enjoy that work. I those are the three primary approaches.
Will Bachman: Fantastic.
Ian Tidswell: That work for me, anyway, but I love listening to your podcasts and attending and the like, and David A. Fields, because it helps me do better in areas where I wish, I’d really like to do more. I struggle to get on the phone and bore people as much as I should.
Will Bachman: It’s tough to make the outbound calls. What, I didn’t catch the website, could you spell out the website, so listeners can make sure we got that?
Ian Tidswell: So, it’s eenconsulting.com. The blogs on the resources tab, and that’s where, basically, I explore topics that are of interest to me. Right now, I’m writing about psychology and pricing, and a lot of the work from Jonathan [Hayes 00:48:52] in that area, which is fascinating. Has a lot to say about how we should do pricing.
Will Bachman: Talk to me about how you got invited to speak at conferences, and is that something where you proactively approach the conference organizer, and say, “Hey, I can give a talk on this.” Or, is there pull, they’re finding you? Maybe talk about the first time you got invited to speak, and how that has developed.
Ian Tidswell: Yeah, this is an avalanche type thing. The trick is to get invited to the first one or two, and then do a good job, and then you get invited back. If you think about it from, if you’re a conference organizer, their revenue stream all comes from having people pay to attend the conference.
They need to entertain them and give them value for those two or three days. So, they’re always on the lookout for interesting speakers that will attract attention, and then, obviously, they have sponsors, as well. Oftentimes then, sponsors get speaker slots. One way is to pay to attend.
I’ve done nicely. I think leveraging my background when I was working for one of the big companies they want to attend. So, that got me in the door, and then, frankly, it was, I think, speaking at one conference gets you invited to another conference. Yeah.
Will Bachman: And, do they seek you out, or do you proactively reach out to other conferences, and say, “Hey, I spoke at conference XYZ, would you like me to speak at yours?” What’s your advice for people who want to get into that?
Ian Tidswell: Combination of the two. Combination of the two. Yeah, and it’s relatively quick to, those are not time consuming conversations. You very quickly turn out the lay of the land.
Some of the less organized conferences also get, they realize they’ve got some gaps in their schedule, and it gets to be six weeks out, and then you’ve got a little bit of leverage to fill one of those slots.
In my case, particularly, the slots are not paid, but they pay for the conference, and sometimes they pay for the travel.
Will Bachman: That’s cool.
Ian Tidswell: It’s definitely an investment, but it’s an investment that … It depends what’s going on, right? When I’m busy, I do less, and when I’m less busy, I do more.
Will Bachman: And, what do you do, if anything, to try to follow up with the people that attend your talk? Is there any way that you try to hoover up their contact info, so you can put them on a mailing list or reach it back out to them?
Ian Tidswell: Yes. So, I connect to them on LinkedIn. I try to get the business cards, connect with them on LinkedIn, and then use the blogs and posts that I might have on LinkedIn as a rationale to get back in touch again.
Then, what I need to do more of is, following up with people when there’s a specific topic of interest, then get in touch with them to say, “Hey, I’m not sure if you saw this, but it’s interesting.” And then, I really need to do more of the cold calling.
You know, follow, “It’s been six months, how’s things going? Can I help with anything?”
Will Bachman: Yeah, those are tough. Why do people hand in their business cards? Some people will maybe offer, “I’ll send you a free summary. I’ll send you the slides.” Or, “I’ll send you some reports or something.” How do you get people to give you their contact info?
Ian Tidswell: Yeah, it’s [inaudible 00:52:25] a presentation.
Will Bachman: Got it.
Ian Tidswell: Yeah.
Will Bachman: Cool.
Ian Tidswell: Or, yeah, “Let’s have a follow up conversation.” And people are quite willing to. I try to be very generous with my help for people, in the sense of, a phone call is free. I work on the basis of, I want to be the person they think of when they have a pricing challenge. I want to be the person they think of that can maybe help them. So, they’ll give me a call, and if it turns into a bigger piece of work, that’s great, and if not, that’s okay, too.
Will Bachman: What are any resources that you’d recommend to people who want to learn more about pricing? Are there any particular articles or books beyond your own blog, are there any other resources out there that you think that’s really, your most commonly recommended go-to things to read or learn about?
Ian Tidswell: Yeah, so there’s a few. There’s some LinkedIn groups on pricing that can be quite helpful. I think if you just look up pricing, and then look for the ones that have more members on them. Those can be, there’s some good discussions in those.
There’s some classic books. There’s the McKinsey book, whose name is escaping me right now, but we can put that in the notes, I guess. There’s the classic that was written 20, 30 years ago, but it covers many of the basics, and that’s a great resource, as well.
Yeah, those are, I think, the main ones. The challenge is, today, there’s not a lot of pick it up and just use it type pricing advice out there, and that’s something we’re going to be exploring is to try and, it gives us an opportunity to fill that niche. There’s more, you don’t have to be a pricing expert to use some of these tools, and off you go, because I think there’s nothing for a small companies, to help them these days.
Will Bachman: Fantastic. Well, Ian, I think you mentioned your website, beyond that, is there any other contact info? You mentioned that you are generous, and I found that out myself, speaking to you in the past, what are the best ways for anyone who wanted to contact you to follow up?
Ian Tidswell: Yeah, so I think my email’s probably the easiest. So, Ian@eenconsulting.com. At work I have the advantage of a somewhat unusual last name, so you can also find me fairly easily on LinkedIn, Ian Tidswell. Yeah, those are probably the best ways.
Will Bachman: Fantastic. Ian, thank you so much for the discussion, this has been great. I know a lot more about pricing than I did an hour ago, and I thank you for your time.
Ian Tidswell: Oh, it’s a pleasure, Will. Thank you, and thanks for the great work you do with these podcasts, I really enjoy them.
Will Bachman: Thank you.

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