Well, all right. Hello and thank you all for
tuning into yet another episode of the Professional Pricing
Society podcast. Once again, my name is Terrance,
and we have a great friend of PPS joining us today.
His name is Barrett Thompson. Barrett actually leads the
business Solutions consultant team at Zillion and has built
and delivered optimization and pricing solutions for Fortune
500 businesses in diverse vertical industries.
He also was a speaker and an author of a number of books.
Barrett, how are we doing today? Terrance, I'm doing great.
Thank you for having me on the podcast again.
Good, good. Absolutely.
It's a pleasure to have you as as always.
Now, your upcoming talk at PPS is about a topic that most price
professionals and BDB companies wish they never had to address
and that is the topic of price decreases.
Why did you choose to discuss this topic with me today?
Well, you're right, Terrance, that you know most of the time
if the world can be up and to the right.
Over time that's where we want to be and in fact I think for
most pricing folks that's been the case probably in in a lot of
their professional career. But you know a season of price
decreases is a very real possibility out there if you
listen to some of the economic forecasts and and the last thing
you want is to get caught flatfooted if that hits your
business. So I thought that it might be
timely, especially if the people listening and in the roles today
have not been through. Sustained and broad and
industrywide or even planetwide economic downturn, they might
have no personal experience from which to draw.
I think it was the, you know, the last big global recession
was around 2008, 2009 sort of kicked off then it took a few
years, so that's 15 years ago. We've got a lot of a lot of
great professionals in the business that have come in since
that time. And so they've probably been
focused on year over year price increases keeping up with
inflation and that may really be the thing that they're strong
at. So you know, I'm a, I'm a Boy
Scout and work with the scouts still Terrence and you know our
motto is, is as be prepared and when you say be prepared for
what you know for anything really for whatever happens in
business. So that is my motivation to
bring this topic around systemic intelligent price decreases.
That's good, that's good. It is a very timely matter.
Price decreases always can be a timely discussion.
So I'm glad that you are addressing this with us today.
Now let's talk about this. What's the difference, What's
really the difference between price decreases and increases?
Isn't that kind of the two sides of the same coin?
Yeah. It's a great question and at
some level. Increases and decreases have a
lot of similarity. I say it in the sense that the
core skills that a pricing professional uses to manage
those increases are going to be extremely valuable when they get
into a season of pervasive decrease.
An example of this I I see many businesses talking about and
taking steps toward price automation.
As one idea using technology for example or making data-driven
approaches, getting out of sort of a gut driven instinct level
price setting or getting away from peanut butter spread price
changes and doing segmented and smart and and surgical price
changes. So those same ideas and concepts
are going to apply in the decrease world, the price
decrease world, but the details how do you apply those can?
Very dramatically in some cases when prices are dropping.
So that's where it gets really interesting.
That is interesting. Okay, that's very interesting.
Now, is there any examples that you may have of a familiar
concept that takes on a different form when it is
applied to price decreases versus price increases?
Yes, yeah. I'll tell you one that I think,
I think most people are familiar with.
And you know every price professional that I speak with,
they, they have a way to measure their year on year price change.
And often they they do that to show the improvement if you
will, that the pricing team and the pricing program is bringing
to the business. Now the general form of that is
to show the change in the key metric, like average selling
price or gross margins. But here's the expectation in a
typical inflationary period. Probably everybody at the
company has some rule of thumb that says, well, during
inflationary times, you know, if you took the gross margins up by
50 basis points, maybe that's good.
If you took it up by 100, it's great.
If you did it by 200, you know it's outstanding, right?
You're a hero and you get the you get the parade, the confetti
parade, but and coupled with that.
In that same inflationary period where we expect the number to go
up, if you had to report that your overall number was
negative, maybe -40 BPS on that gross margin year on year, that
would be a shocker. It would be clearly a sign of
failure, right? Positive numbers good, negative
numbers bad. So if that's how you're thinking
about measuring your price performance, what's going to
happen when you flip into that recessionary world and the
assumption? Is already set that prices are
going to decrease. So right away like you're not
going to be reporting a positive number.
So that may be obvious, but it's sort of very different.
So you like when I wait a minute, I'm going to be
reporting a negative year on year change in margin due to
pressure. And so if you report that same
-40 bits, that would have been bad under the inflationary
world, but now we're in the deflationary world, you report
-40. OK, here's the quiz.
Are you a hero or a zero at that moment?
Right. And honestly, I think nobody
knows or they might not know inside that business.
They might have no instinct about what good looks like in
that kind of economic condition where prices are going down.
So, you know, let me offer how I've seen some people address
that, for example, if they might have had an industry report.
Showing that in their industry, their competitors experienced an
average margin loss of 100 bips in the downturn.
So hey, in that case, you've done far better than your peers.
So even though you're negative, you're good, right?
I would think so. I mean, that's perfectly legit.
Or it might be the case that your financial planning team at
the beginning of the year, they had a forecast of this margin
pressure. And they might have for actually
built in a loss in margin rate into the financial plan just
being realistic. So what if they planned however
to take only a 20 basis point loss on margin that's what they
built into the finance plan and you delivered twice that.
I mean you you you lost twice as much as they expected.
So they might say, well, hang on a minute, you missed the plan,
right? So these ideas and these
examples show that you're going to need to think carefully about
how you plan with other stakeholders.
How will you judge price effectiveness of your price
program over time in a recessionary environment since
we cannot just say if the. Margin rates or the average
selling prices go up. I must be good and if they go
down, I must be bad. That logic isn't going to fly
anymore. And so you have to think a
little differently. Plan ahead, decide what your
anchor points are going to be so you can measure yourself against
it. Because in the deflationary
world, the assumption is those key metrics are going to go
down. So that's a little that that's a
different that's one example of how you're used to measuring.
But the way in which you measure and define good and bad needs to
be thought through a little more carefully.
In the recessionary world. That's interesting, that
actually makes a lot of sense and it's especially for
Recessionary times. That's a very interesting
example that you provided. Now let me ask you this, how,
how does the goal or or the tactics of pricing of the
pricing team change during recessionary times?
I'll offer with a what I admit is a bit of an
oversimplification, but I sort of think of it like this.
And we'll start with the inflationary time and then we'll
contrast in the inflationary time.
The general goal is to, you know, raise your prices as much
as possible without putting your revenues at risk.
I think most pricing teams are. Inherently seeking this, they're
trying to find that glass ceiling of prices, right?
What's the highest amount I can charge?
And of course I want to move there as quickly as I can, but I
still want to hit other objectives.
I have a revenue objective, a market share objective, so I
don't want to compromise those. But you know, we talked about
leaving money on the table. The pricing team is essentially
saying, how can I take that money off the table?
Where is it? Somebody tell me how much it is
and let me go grab it and bring it back to my own company and
the way I increase my prices smartly.
So all that makes sense. But that's during the
inflationary time. You want to take that money off
the table, put it back in your pocket.
But now let's flip over and look at the deflationary time.
You know, the goal is fundamentally different.
If you know your prices are going down, you are effectively
putting money onto that table. Right.
You're you're putting it on, you're you're giving it away in
some form. You're not taking it back.
And so here is how your tactic changes.
You want to give away the least amount possible and you want to
give it away at the latest possible time.
That's the mindset you have to have.
How can I lower prices just enough but no further?
And I want to delay that price decrease to the latest possible
moment in order to hit my other goals, revenue and share and so
on. And you know, your competitors
are doing this too. And so you can think of this as
like a game of mutual bloodletting, if I could say it
that way, right? He who bleeds the least is
actually the winner. So your job as a pricer in the
deflationary environment is. Honestly and transparently,
you're going to be bleeding off price, you're going to be
bleeding off margin and you want to do just enough, but not too
much. You want to avoid being the
first one to race to the bottom. We've all heard that.
It's certainly true here. So you have to work hard to be
sure that you're not overshooting by the amount of
those price decreases you give or the timing with which you
give them. And so that really inverts, you
know, the tactics that the pricing teams are generally
using in the normal, if you will, normal inflationary
period, HM Okay, that's good. So to put the least amount on
the table at the furthest time is what you're saying does.
That make sense? Yeah.
You know you're gonna have to give something cuz there are
gonna be again, there's an assumption around this.
Inflation or sorry, deflationary period is the price pressure
means prices are going down overall.
They're going down more often than they're going up.
So you have to figure out where do I need to take that price
decrease, how much is just enough?
Not too much. And then you don't want to lead
too early. You don't want to give a price
move, you know, six months before your competitors do it,
Not if it's downward, you don't want to give it away yet, right.
So the timing is going to matter there as well, but at least my
own table, the latest at the latest amount of time.
Now let me ask you this, What happens if I overplay this hand
of mine and I hold back on a price a little too much, or I
hold out on a higher price longer than I probably should?
Does that? Does that hurt me?
Yeah, that's that's really the risk, right?
It is this balancing game and a game of judgment because it
will, you can get, you can get burned on either side so.
Let's use this example you gave. What if I'm hanging on to a high
price in a market where the prices are decreasing?
You know, how does that hurt me if if I my price is too high or
I hang on to it for too and I hang on to it for too long, How
does that hurt me? The way I think about it is you
might have to ask like a correlated question and that is,
what is the what is the scope of that price mistake that I'm
making? You know an example is if.
If I have 10,000 skews in my catalog, and it's only a handful
but doesn't skews, you know where I'm kind of got the wrong,
too high of a price or I'm hanging on to it for too long.
You know what? What might that mean?
When somebody comes to my website and they're filling out
that order, putting things in the basket, maybe I lose one
item on the order and that has some impact, but it's not the
end of the world. You know what happens if it's a
bit more pervasive, and I've got several.
Product categories or hundreds of products that are mispriced
and maybe some products that are very visible.
I do a high volume on those. Well, back to this example, my
ecommerce customer, I might lose several products and in fact if
they're filling out the order online, they might say, gosh,
you don't have much of anything I need priced the way I want to
buy it. So you might lose the order
itself. Now that could be a one time
thing, right? They come to you in January for
replenishment. You didn't have the prices
right. You were too high.
You were too late with your price move.
So you lost the January order. You know if they've been doing
business with you for five years, 10 years, they're likely
to come back in Feb and just try again and see if you sort of got
it right, see if you got synced up.
But what if you. What if you didn't?
What if you continue in a pervasive way and over time,
you're? Always lagging the market in
terms of taking that price down when the others are going down
and you never seem to get in line with the market level.
Well, after the customer comes a couple of three times and gives
you a chance to get serious and get it right.
And they see that you're not and they've given up several orders.
At some point they're just going to move on as a customer.
They're going to decide that you're not the vendor for them.
And then if your situation is really pervasive, I mean.
Major parts of your catalog out of whack, You're hanging on to
prices many months let longer than you should, then you're not
going to lose just one customer, right?
You're going to lose many customers and that's tantamount
to losing a market. So the the, the impact that it
has, how much it hurts you to be too high or too late on your
price move is largely dependent on how often you're making that
mistake on how many products and how long are you hanging on to
that mistake. Wow, But that's that makes a lot
of sense as well. Holding out for too long can
come back to bite you in the bud essentially and not just with
customers or clients starting to potentially question if your
value, if your product is worth that value or not.
But it could, it could move them towards them as a customer
moving on from from your product.
And then the worst case scenario is, as you said, losing many
customers, essentially losing a market as a whole and so huh.
Yeah, there's some tolerance. There's some tolerance for like
occasionally I don't have the numbers quite right.
You could take some bumps and rattles here and there and you
can work that out over time. The market is likely more
forgiving of that. But if you show in a big way
like. Every time they add something to
the cart, you're 15% higher than the other guys.
And you seem to, even though you might say to yourself, well, I
have taken my prices down, you know, since the beginning of the
year, yes. But if you've only taken them
down half as much as someone else, or you've taken it down on
half the products but you've missed the other half, you know
you thought you could hold on to it.
These things are always asymmetric.
You know you'll be able to, you'll need to drop more in some
areas than others. That's true.
Hopefully you can judge each of those appropriately, but.
Let's see if you get it right. Half the time, you miss it half
the time and you stick with that.
That's gonna be more obvious than if you occasionally, you
know, have a blip and then you catch it up in the next cycle.
So it's a balancing act. It takes a lot of finesse.
It takes a way to sense what's going on, you know, watching the
order streams, watching win loss rates.
Looking at well for using ecommerce for example, even
monitoring you know, card abandonment rates would be
incredibly useful information. But even getting feedback from
customer service reps and field sales reps on the kind of thing
that the market and the customers are saying when you
went in with that line item and you went in with that price, you
know, if if you're way out of line, you're likely to hear
that. And if you hear that from
several places, several different customers and close
proximity and time you know. You can begin to trust that
signal, sure, yeah, if the patterns there, it's likely
true. Right now it seems that you're
fairly deep in your exposure on price decreases.
Let me ask if you don't mind me asking where did you get that
exposure since most of the time the pricing function is centered
around around increases. Yeah, that's I too have realized
so many B2B businesses and in their normal times, right, the.
It's up and to the right as we said at the beginning and that's
that's great in the growth market.
But interestingly, Terrence, even in what we would consider
times of growth when the economy is not in a recession or not
under this kind of pressure, there are specific industries
whose natural state is that of decreasing prices over time,
sometimes radically decreasing prices.
And I know that might seem. A bit odd to folks here or you
know maybe if you're in industrial manufacturing or you
are in certain kinds of distribution, you know building
supplies, something like that. You you do not see routine price
decreases year on year in a stable or normal or growth
market. You see increases right in the
inflationary world, but in semiconductors, particularly the
manufacturers making the CP U's and memory chips and so on, LED
lighting. Also went through this and I
think it's still in it several years ago when at when there was
a big conversion out of you know incandescent and fluorescent to
LED lighting the because that's a high tech thing a lot like
semiconductors every quarter and every year prices were dropping
double digit period on period. And so out of those industries
when I've worked with those kind of customers and when I've
talked with them about their needs and.
Kind of gotten In Sync with how they think about approaching
their pricing, since this is where they live all the time.
This is what they live every month and every quarter is
deflationary prices. That's where I've been able to
glean some of my best understandings about what are
the strategies and tactics that should be used.
When any B to B company is in an A deflationary period, even if
that might be the exception for them, you know it's the norm for
someone else. So I've done my best to pick up
on the practices that work and distill those down and you know,
compare them to what is usually experienced in the price
increase world. So that informs my perspective,
and I'm looking forward to sharing more of the ideas and
strategies that I've learned from these industries at the
MIPPPS session coming up in October.
Mr. Barry Thompson everybody. You are full of knowledge on
this topic and you know you would be considered an expert in
this realm. So I want to thank you so much
for being on this podcast with us.
Barry Thompson is going to be with us at our Atlantic
Conference coming up in October, specifically October 10th
through the 13th. Want to make sure you guys take
the time to visit our website priceandsociety.com and visit
the conferences tab to learn more about about the upcoming
conference, those guest speakers who are gonna be in attendance,
and what you can expect. Now, Barrett, one more question
before I let you go. Where can people learn more
about you, or read more about what you stand for, who you work
with, and just all things Barrett Thompson?
Well, I encourage them to connect with me on LinkedIn.
You'll see my profile there at Barrett Thompson 2 R's and two
T's in the first name, and I'll be happy to make your
connection. And also, I look forward to
seeing you at the PPS event. If come by, see me at the
session or see me at the zillion booth on the vendor hall and
let's be sure we trade contact information.
I look forward to seeing you all there.
Sounds good. Thank you so much everybody for
tuning in. Until next time, have a good
one.