All right. Well, hello and thank you all
again for tuning into another episode of the Professional
Pricing Society podcast. My name is Terrence and we have
a great conversation today. We have a duo tag teaming today,
G Mukherjee, VP and Head of Pricing for Holding Advisors and
Kevin Mitchell, President of PPS.
Today, they're going to be speaking with us about pricing
power and we're very excited for this discussion.
Gentlemen, how are we doing today?
Doing great. How are you doing?
Good. Doing good.
Doing just fine, Terrence. Thank you so much.
Gee, always good to talk with you.
Great. So looking forward to a
discussion here. Yeah, absolutely.
Good. Good.
Now, now, Gee, I just wanna start this conversation off by
asking you about your recent interviews with some Cxo's this
year, if you don't mind expounding on that.
And then of course kind of you know going into the topic of
pricing power. Yeah, yeah, yeah, it was.
It's interesting. It's my second year doing these
interviews. And typically we just talk about
you know what these companies are going through, what are the
challenges that they're facing. So last year obviously you can
imagine inflation and the the turmoil in the industry was sort
of a top of mind for all of these folks.
This year is kind of mixed bag, a lot of confusion what's going
to happen, interest rates, things like that, normal stuff,
you know, little little bit of a continuation from last year, but
one of the things I asked because I was curious.
I asked him about pricing power. I said, you know, is pricing
power important to you? It's one of the questions I had
and it was one of the few times where that question was answered
the same way by all participants, which is yes, it's
important and it's something we want.
And I said, oh, that's great. You know, usually you don't get
like a full 100% saying yes on anything.
And so I said Okay. Defined pricing power was sort
of the second follow up question and I got 40 different answers
for what that definition was. Some of it I understood because
it's really industry specific and and specific to their
company. So I get it and they jump right
into why they don't have it, some of the issues they have
within the organization. So that's understandable.
But the definition just wasn't there.
So that was the big trigger for me to kind of dive a little bit
into it and see if we can find some common language.
If we can find a way to measure it, to identify with it and then
to talk about the two big questions, which is if you don't
have it, how do you go get it? And if you do have it, how do
you maintain it? So that's kind of the genesis
for this conversation and some of the writing that we're doing.
That's very interesting sheet and also as part of the
Professional Pricing Society's surveys.
For the past four or five years, we've asked people to rate their
company's pricing power on a one to 10 scale and for our most
recent survey, which started in December 2022, so about 8 months
ago as we are recording this. We got an average score of 6.47
on a scale of 1 to 10 when we asked people to rate their
company's pricing power, which was down slightly from a year
ago from December of 2021. Obviously there are a lot of
external things that we're all facing now, but we did see a
slight decrease in the PPS index talking about pricing power
there and of course for a lot of this and probably why your CXO
members. All answered positively and
immediately when talking about pricing power is I know in our
conferences and in our workshops, a lot of us have seen
the quote from Warren Buffett that says, you know, he
evaluates business based on their pricing power.
And basically if you're in a business where you have the
ability to alter prices to meet your company's goals, then
that's a good thing in his eyes. And if you do not have that
ability, then that is not a good thing in his eyes.
And the consensus is he's a pretty smart investor.
So there is a lot of attention around pricing power.
And of course, with macro economically, everything that's
going on, Gee, right now, it may be a little bit more nebulous
than it's been in the past because in this hybrid inflation
area where some input costs are going way up, like labor is
still increasing. Some are flat, some are down,
and some are a roller coaster. It really can depend on your
short term goals, your medium term goals and your long term
goals and your company strategies on what pricing power
may be. So I think it's a very
interesting topic. Yeah, you know the it's a great
jumping off point is a warm buffet quote You did actually.
I know you're doing it on the top of your head.
You did a good job of, you know, saying that quote that there's
an ending part that was missing, which is.
He he looks at your ability to raise prices without losing
customers and and that's that's a critical piece of that
definition. And I kind of pulled up the same
definition Kevin because it's like a Business School thing
that everybody kind of goes through because it's a really
interesting way of stating it. And given sort of my value based
history and and my knowledge, I kept reading that definition and
I just felt like it was incomplete.
And the reason I think it's incomplete is because.
It there is a theory that's behind it that says hey if
you're above your differential value and you're still raising
prices you're not going to lose customers.
And which I think is wrong and and and because I think of let's
say Apple. Apple is like you know one of
these great companies that we know they have pricing power
they go do whatever they want to do it seems like and they're
never losing you know their their customers it seems like
and people are still waiting in line to get certain features and
the latest gadgets and all that sort of stuff.
But if if Apple said hey, my iPhones are going to be 10.
$1000 while Samsung and others are offering similar features at
1000. I would probably guess that they
will lose some market ship may not be all.
They're still going to be segments that are going to be
like Nope, Apple or die. I get that and they have the
they have the buying power to pay the $10,000 but I have a
feeling they're going to lose some customers on that.
So I love the Buffett quote quote and I think the way he
said it in the context in which he said it is accurate, but I
think it's a little incomplete where I would add that notion of
being able to. To create differential value and
being able to capture more relative to your competitors
based on that differential value and not lose customers, then I
think the definition becomes a little bit more complete from
our world. Absolutely.
And Apple's a great example of that.
You know, obviously is a consumer goods company that we
all know and that many of us love.
Perhaps not all of us, but many of us do.
And I remember in Wall Street Journal, I believe a couple of
years ago, came out with some interesting statistics about
Apple. And I have asked people this in
our workshops and elsewhere. And basically if you ask people
how much of the global smartphone market does Apple
have? And they'll say up 50% or
something like that, when in reality it's somewhere in the
upper teens, it might be 20% at most.
But of course, the corollary to that is how much of the global
profits do Apple does Apple take from the smartphone market?
And there. Seventy 8090%.
So it's an interesting case. And Gee, one thing I was
wondering about with you is I know that I talked with a lot of
our member companies that say we are not the largest in our
market, we are not first or second in market share.
How can we determine if we have pricing power, How can we get
it? And the questions that you
raised earlier, how can we use it effectively and efficiently
as well? Yeah, I think the definition
part and, and I'll be totally honest with you, we haven't
done. That the measurement part of it,
we haven't quite finished the entire process of how we're
going to measure it, the pricing power piece, but we have created
categories to understand it. And I'm the way I kind of think
through it is I tested with different sort of B to C
companies. So one of the things I did was
say, let's look at automakers, right?
And I said automakers is a great one to look at.
There's data everywhere. So I can just kind of play
around with it a little bit to see where people stand.
And what I noticed was that first of all, the segmentation
piece becomes really important, which is are you measuring
yourself against the right competitors?
Are you measuring yourself against the right vertical that
you're focused on? Because when I put all car
manufacturers together, I noticed that, you know, one of
the things that we're looking at on one of the axes for
measurement is obviously margin. You know if you have high margin
relative to your competitors, you the assumption is you have
some level of differential value whether that's in the product
itself or the execution of the product, delivery of the
product. There's some differentiation
somewhere that you're capturing through that margin.
So margin has to be a component of your of your pricing power
obviously. So if I look at automakers, you
know, you can't compare a Ferrari.
With a Toyota as an example, right?
Because then your scale isn't accurate because the vertical,
even though it's auto manufacturers, is completely
different and the segmentation piece becomes so important here.
And what I keep coming back to is how you measure yourself with
the competitors. A Ferrari would never use Toyota
as a next best competing alternative to measure their
differentiation. They're gonna use a Lamborghini.
They're gonna use whatever. I don't know the names of all
these fancy cars, but you know, whatever it might be, but that
creates that segmentation to really know relative to that
market where are you. But to answer your question
directly, I think there are companies out there that can
have niche segments and niche. Portions of the market that they
go after with really high margins and they're able to take
margins up based on the differential value that they're
creating for that very specific segment relative to how
competitors are behaving in there.
So I think there is an opportunity to have smaller
market share relatively to the larger industry and still have
prices. Very interesting.
And I like the concept where your company might have niches
or special business units or product groups that might not be
reflective of the overall company standings in some of
those areas where you can wield pricing power, can be more of a
leader and can also kind of set the place for that individual
marketplace or for that niche. And as we know, pricing leaders
can be beneficial, but they're also probably a lot of examples
where they have been suboptimal, let's say, to put it politely,
where certain people have had pricing power and have used that
to have a big price war battle for market share or something
like that and have led entire industries down for quite some
time. So it's something where, just
like with everything else, if you have power, you have to use
it efficiently. Effectively and make sure that
you're thinking about the right things you're keeping to your
company business strategies and make sure that you are wielding
that pricing power effectively as well.
So that's very interesting. Yeah, and I won't mention names
here cuz it gets a little tricky, but yeah.
Let's not mention that, yeah. So imagine Apple.
Apple's a great one. They're not gonna do this, but
imagine if they stop differentiating.
But they kept increasing their price, right?
One of the things we do have see happening all the time is when
people do get that pricing power and they realize they have that
there are some industries, there are some players that decide to
continue to raise price relative to their competitors because
they have that differential value, but they don't invest in
that differential value long term.
So the nature of the market and nature of competitors is it's
dynamic. So we can't think of ourselves
as being a moment in time. We have to think of ourselves
two years from now, four years from now, five years from now,
whatever that horizon is based on your industry to really
understand how we're going to create value over time.
And what I'm seeing is there are some companies that aren't
differentiating. They're trying to capture more
and more profits today at the cost to the customers.
And what happens is the customers price sensitivity goes
up. And it goes up on a, it's almost
like exponentially. It goes up when they feel like
they can't trust the company anymore.
That trust piece is broken and the customers then all of a
sudden are willing to go to a less differentiated solution and
grow them. And we're seeing that where it's
almost like there's a new market life cycle that gets started
with smaller companies more nimble, more technology forward
where these these almost like these giant big companies that
are just raising prices, customers are upset and they're
jumping the curve, the S curve to the next curve and they are
just creating the competitor's success and it's going really
well and these larger companies go, Oh my God, what just
happened and they just get blindsided because they truly to
your. Point Kevin, they did not use
their pricing power in the correct manner to continue on
that journey. They kind of had a one and done
type of scenario from raising prices.
Yeah, definitely. And we know that our customers
are very smart in almost all cases have good memories as
well. And Gee, just how you mentioned
that defining pricing power is difficult for executives, for
leaders and so on and so forth. There also we all know that if
your prices are not fair, then in the long term it will
definitely come back to bite you and defining fair can be a
little bit tricky as well. We all have the goal of having
fair prices, having prices that allow us to grow profitably,
which is great for our marketplace because that lets us
reinvest in R&D and our people and our communities and our
product groups and so on and so forth.
And that's how you can make that kind of win, win with your
customer bases by having prices that are fair, particularly when
you can wield pricing power and thinking about mediumterm and
longterm and not just shortterm. Let's get everything.
That we can. And it's also interesting, I've
heard from a lot of our members who recently kind of near post
pandemic, we hope, knock on wood, that a lot of the
discussions now are about reining people in and saying
yes, with our supply chain having issues or with input
costs going up, with inflation going up, we really, really.
Might be in a position where we could really raise prices a lot,
but that might not be the best thing for our company in the
medium term and the long term because you want that fairness,
you want to be a partner to your customers and you want to have
an ongoing type of of a relationship with them where
it's not as you said, just one and done and moving on that way.
So really, yeah, it's about a good long term.
Profitable growth strategy and making sure that you have the
ability to reinvest in that engine to keep things going for
you, for your marketplace, for your customers, for your
employees, for your communities and so on and so forth there.
So I think that's a very key point.
Yeah, It's what we're finding and seeing is obviously the more
power you have, the higher the threshold for what's a fair
price, right, because you're able to push it more than your
competitors because you've got something extra.
And what I'm also seeing is these companies have this notion
that, you know, they don't look at differential value as a
constant for today. These customers that are buying,
they're looking at your ability to create differentiation in the
future. And that gets baked into the
idea of how much they're willing to pay.
So if when you look at Apple and apologize for using the same
person over the same example over and over again, but it just
makes perfect sense, which is because everybody can relate to
it, We know that Apple's going to come up, and even Samsung,
you know, just to change up the company.
We know that Samsung's going to come up with a great product
next year, the year after that. So my ability to pay a little
bit extra is not just for what I'm getting today, but it's also
investing in the fact that I'm gonna be getting on a continuum
more differentiation over time and I trust this company to
create that differentiation. So my.
My willingness to pay for what's fair goes up just a little bit
because I'm thinking about differentiation on a continuum
rather than thinking about differentiation just now for
this moment in time. So that piece becomes really
important to bake into our calculations as well.
Definitely. And it's also interesting that
there's so many variables and so many inputs.
Obviously, there's a good bit of behavioral economics and
psychology. And this is, well, not only on B
to C for consumers, but for businesses as well, because
sometimes we all act as consumers, as consumers and
sometimes consumers act as businesses now with our wealth
of information. So there's a bit of a blurring
there. I'm, I'm feeling and I'm seeing.
From the marketplace as a whole. But really, it is important
again to just remember your strategies.
Remember that it is not getting everything that we can today if
that's going to hurt what we can get tomorrow and next week.
As well. And it's just a situation where
if you have the power, then definitely you have to wield
that correctly. You have to think about the
marketplace as a whole thing from your customer's standpoint.
Think about competitive actions and reactions, and use your game
theory. Use your behavioral economics,
use your analytical skills, your qualitative skills, and kind of
all of the above. And it's a case where you have
data, but things have changed so much.
You have to take data, analyze it, use a grain of salt and
really think about what's next. So it's part data and part
crystal ball about what's going to happen next and what your
competitors are going to do as well.
It's a very interesting topic. Yeah, the the next step is
probably the one Kevin that we are spending a little bit of
time on is, is the notion because as we do value based
pricing, we're very sort of in tune to.
Features, functionality, services that create that
differentiation relative to competitors.
What we don't look at sometimes is what's going to affect
purchase decisions long term that may not be quantifiable
today. Then how do you bake that into
your price? And that's the piece if you look
at ESG, which is the perfect example of it, you look at
sustainability where there's something, some markets
quantifiable, right, carbon credits, things like that.
It's quantifiable. You quantify it, you put into
your pricing and you move on, moving on.
But then in some industries, you can't quantify sustainability,
you can't quantify the differentiation it creates or
anything. But you know it's going to
affect purchase decision decisions, behavior at some
point. Maybe it's 2% now next year,
maybe by 5%, maybe it'll go down.
Will go up, but you know it's going to be there and people are
investing in that because they think there's going to be an
effect and purchase decision at some point in the future.
And they're kind of positioning themselves to be able to capture
the market when it does become a bigger portion of that decision
making because that's when it converts from long term value
driver to an actual value driver that you need to quantify for
your price. And understanding that now
instead of understanding it when they're actually making a
decision off of it obviously is a very important piece.
So long term value drivers that's unquantifiable right now
I think is going to be an important piece of this topic
and how we bake that into our pricing is going to be really,
really important. Yeah, that's a very good point.
And hey, what interesting times that we're in where we have
things that are changing like this and new things that are
coming about. And I was lucky enough to be a
part of the pricing for the Planet Symposium that was in
Paris a few months ago and would encourage everyone to check out
pricing for the planet for some insights about that.
But we talked about ESG, about sustainability, about what it
means to our marketplaces. Are they separate products?
Are they cases where we let people self select and decide,
hey, if this product is more sustainable?
Is it a different product? Is it an addon, is it a
replacement? And it is a case now where we
have a lot of variables that are going into the thinking about
that and thinking about other things that are new frontiers as
well. And so really it's very
interesting that it is difficult to be so forward-looking for
something that is rather new right now, but it's also
necessary to do that and to make plans for it.
And hey, that's why pricing people, that's why we get all of
the accolades and all of the big bucks because of the decisions
that we make and because of the inputs that we have and the
effectiveness that we can wield for our organizations in
discussing things like that. So, yeah, another great topic,
something else that's brand new, something that will become part
of some organization pricing power, some organizations
differentiation and other topics there to come as well.
So, yeah, very good point there. That's great.
I think so too. One thing that we haven't talked
about is the ability to go get pricing power and that's the
piece that is very industry specific as you know Kevin and.
And it's interesting to me how some of these companies are
behaving and acting because this is where sort of branding
becomes, it's becoming a topic. So a lot of the Cxos that we
chatted with, they felt like branding and execution power and
how you execute in the marketplace are two things that
creates that. Pricing power long term that
just your pricing by itself is not helping you create or the
differentiation is not just helping you create.
So that's the last area I'll talk about which is you know the
ability for a company to actually go out and execute all
the things they do through the sales organization, marketing,
product development, everything put together from an execution
perspective becomes important for us to measure and track.
So that has to go into the measurement of pricing power and
how it affects the different industries that are out of it
definitely. And one question that you
mentioned there and that we've touched on a little bit is you
know how can you determine if you have it and how can you get
it? Have you talked with Cxl's or
other leaders who have basically tried trials with particular
product units or geographies in order to test what would happen
when they try to wield power? There, there have been and
there's mixed results from it because I have a feeling in
talking to some of these folks, they weren't looking at pricing
power as a comprehensive sort of go to market strategy almost
because we use. You know, it's almost like a
disservice to call it pricing power.
You're actually looking at the company holistically because
then you know, like I was saying, if you talk about sales
organization, you talk about marketing and product
development, you're branding overall, all of those things are
incorporated into pricing power. So if you are too monolithic in
how you're looking at your pricing and you're doing a test
in a region, it's just price based and competitive price
based. You're missing all the other
elements, which is did you look at your customer service?
Did you look at how you're presenting yourself in the
market? Did you look at all of those
other things? Because those also kind of add
to it. And some of these companies talk
to me about how, hey, it wasn't working that great because you
know we could not execute on the some of the things we promised
we were going to execute on. So they missed on some of those
things. So it became sort of a.
A lot of false positives that were out there and also a lot of
things that were out there that they they felt it was incomplete
or inconclusive out of those tests.
Interesting. So you have to think of it from
your customer's perspective as a total cost of ownership from a
holistic perspective where it's just not one lever that you're
changing, it's one as part of a huge machine.
It's just one cog in that machine and you have to make
sure that everything is working as it should there as well.
So yeah, that's very interesting.
That's right. Gentlemen want to jump in here
and more so Serve Allow this podcast to serve as a teaser for
Jeets upcoming Keno presentation in Atlanta.
He is going to be speaking with us about how companies can build
and sustain pricing power. So I want to thank you all for
this discussion today. I hate to be the the bad guy to
pop the bubble, but I do want to let this to be the allow us to
be the teaser for this discussion we could go on and on
about. About this topic.
Especially with these two, with these two fine gentlemen.
So I want to thank you all so much for being in this
conversation today. Gee, where can listeners go to
learn more about you or pricing power or or holding advisors?
I think holding advisors.com is the perfect place to get
started. OK, sounds good.
And then Kevin, everybody knows you are already Mr. Popular, so
you can probably just go to linkedin.com type in Kevin
Mitchell Pricing Society or you can go to pricesociety.com to
learn more about you and the upcoming conference.
Also if you are interested in the conference, you can go to
priceandsociety.com to register or just to learn more
information in general. Kevin, do you have any departing
thoughts or or or you know, anything you want to leave the
listeners today? Yeah.
Mr. Egglesson, thanks for keeping us on time.
Appreciate that. Obviously, Jeep Mukherjee and I
could talk for a long, long time on this issue.
So thanks for keeping us on time and keeping us on task there,
Jeep, Sincerest congratulations to you and your team on the 2nd
edition of your book. And I am really looking forward
to you joining us in Atlanta in October for the PBS 34th Annual
Fall Conference. And also your town Hall will
have a lot of great opportunities to sit down and to
discuss pricing, power negotiation strategies, sales
pricing and a lot more. But always good to talk with
you. So thank you very much, Jeep.
Thank you, Terrence and enjoy the discussion today.
Thank you very much. Really appreciate it.
Looking forward to October.