Hello and welcome to the #Pricing_Heroes podcast by Competera. It is a series of interviews with the best-in-class retail pricing experts driving their companies' bottom metrics and, therefore, the retail industry.
Our today's guest is Stephan M. Liozu.
Stephan M. Liozu is the Founder of Value Innoruption Advisors, a consulting boutique specializing in industrial, digital, and value-based pricing. He is the author of 12 books on pricing. He has also written many articles on strategic pricing issues for the Journal of Professional Pricing. Stephan sits on the Advisory Board of the Professional Pricing Society and LeveragePoint Innovation.
OS: Could you tell our listeners more about yourself and your background in pricing?
SL: Sure. Interestingly, I didn't start my career in pricing. I rose to become CEO of a building materials company, but I always paid attention to value-based pricing because I worked for differentiated companies. So I decided to do a doctorate in value-based pricing and published a book on it. Since then, I have left the corporate world and have been helping companies get better at pricing. Young professionals should do a stint in pricing because it will make them better at sales, marketing, and supply chain. To have a career in pricing, you need both technical and soft skills.
OS: Could you give any advice to people deciding on their careers or moving deeper into pricing?
SL: I recommend people who want to become pricing managers to develop their business acumen and leadership skills. If you want to be a VP of pricing, you have to be a leader with a strong base on the technical side of the matter.
OS: What are your killer tips for a killer change management strategy?
SL: You have to be a change agent in pricing, so I recommend getting certified in change management. Use change management inherently in your work, and organizations will benefit from it. Organizations must adapt to changing markets, and you'll be at a disadvantage if you can't lead change.
When it comes to change management, it's essential for pricing professionals to understand the difference between change leadership and change management. Not only do you need to understand the technical side of change management, such as road mapping and stakeholder mapping, but you need to be an engine of change and a charismatic leader who knows how to bring people on board and convince with your authority.
OS: That sounds important. Could you share your thoughts on the retail industry in the last five years, particularly in 2020 and 2022?
SL: Certainly. The last few years have been challenging for the retail industry, and 2020 was particularly crazy. In 2022, things weren't necessarily easier, but a few keywords came to mind. First, dynamic pricing is crucial. Retailers must be very agile and reactive in their pricing to avoid pricing themselves out of the market or leaving money on the table. They also need faster access to competitive data to understand what their competition is doing.
Second, supply chain resilience is essential. Retailers need to be able to secure their supply chains, as we've already seen empty shelves in drug stores due to the flu, colds, and COVID. Last year, thousands of products were not supplied or procured, impacting a retailer's bottom line and ability to grow, bundle products, and offer a full assortment.
Overall, retailers need to be super agile and think about faster and more collaborative teams that can respond quickly to changing situations. Everyone has suffered in the last two years, but retailers need to be more dynamically prepared for the next three to five years. It's also essential to stay relevant and differentiate yourself from companies like Amazon or Walmart, which are growing and attacking core businesses. Retailers must have the right product offerings and differentiation to compete against these larger companies.
OS: That makes sense. You mentioned the empty shelves in drugstores. How do you see retailers adapting to these kinds of challenges?
SL: This is a typical example of a situation that retailers need to be prepared for. If you're a retailer, you need to be able to adapt quickly to changing conditions like this. Having the right product offerings and being online is crucial. Retailers need to differentiate themselves and compete with companies that are becoming larger and offer everything online. It's a new world, and retailers need to be ready to adapt.
It is important for businesses to quickly change their business models and adapt to the changing market. Retailers must change their portfolio or product assortment and react to market trends. They should be able to change their assortment and secure the supply chain quickly. The key is to anticipate what's going to happen in the future and have a strategy in place.
OS: How can retailers adapt to changes in pricing?
SL: Retailers need to understand what's going up and what's going down in the supply chain and adapt very quickly. There's consistent inflation in the market, and consumers are upset about it. Retailers need to have a real-time pricing strategy that reflects what's happening in the supply chain. They need to stay relevant in pricing and ensure their pricing is fair to avoid customer backlash. To stay relevant, they need to know what their competition is doing and have pricing systems that dynamically track who does what. Consumers are shopping more often due to inflation and spend more time looking for alternatives.
OS: What are your thoughts on relevant pricing strategies for the next year?
SL: Regarding pricing strategy for the next year, there are several factors retailers should consider. Profits are relatively high, so retailers should search for ways to raise their prices. However, they need to be careful not to overprice their products and lose customers to competitors. Competitive data should be analyzed to become better than competitors tech-wise. Finally, retailers need to understand their competitors' pricing strategies and determine where they can differentiate themselves.
Procurement managers in retail should challenge price increases from suppliers. They should negotiate with suppliers to keep prices low or find alternative suppliers if necessary. Retailers need to become experts in the supply chain to accept or reject price increases intelligently. They should understand the value of the goods they sell and create quicker bundles or special promotions that bring more value to customers.
Retailers can also do value-based pricing if they understand the value of what they buy and the value to customers. This involves pricing products based on the value they provide to customers rather than simply pricing them based on cost. By doing so, retailers can capture more value for themselves and provide a better experience for their customers.
OS: What role does technology play in pricing strategy?
SL: Technology plays a crucial role in pricing strategy, particularly when it comes to value-based pricing. Through technology, retailers can implement various pricing tactics, such as bonding, versioning, assortments, time-based dynamic pricing, special promotions, etc. Therefore, technology is necessary for retailers to do value-based pricing. By using data and analytics, retailers can better understand customer behavior and preferences, which can help inform their pricing decisions.
For example, retailers can use machine learning algorithms to analyze data and determine optimal prices for their products. They can also use pricing optimization software to automate pricing decisions and ensure that prices are adjusted in real-time based on market conditions.
OS: What issues do you see with pricing strategy during the holiday season?
SL: Pricing strategy during the holiday season can be particularly challenging for retailers. Retailers need to pay attention to how far they push their prices and whether there is a true willingness to pay. Regular continuous market research is necessary to determine willingness to pay. Retailers should also look at trends to determine pricing strategies. Trends change rapidly, and retailers need to adapt to new trends quickly.
Another issue that retailers face during the holiday season is the potential for supply chain disruptions. If retailers are not able to obtain the products they need, they may need to adjust their pricing strategies accordingly. Finally, retailers should also consider the impact of promotions and discounts on their bottom line. While promotions can drive sales, they can also cut into profits if not executed properly.
OS: What can B2B and B2C retailers learn from SaaS pricing strategies?
SL: Both B2B and B2C retailers can learn from SaaS companies' pricing strategies. SaaS companies are known for their innovative pricing models, such as subscription-based services and usage-based pricing. B2B and B2C retailers can apply similar models to their businesses to increase customer loyalty and generate recurring revenue.
SaaS companies can also learn from retailers about bundling, promotional pricing, and the value of the goods they sell. Retailers are skilled at creating attractive bundles and promotions that encourage customers to make additional purchases. Additionally, retailers have a deep understanding of the value of the goods they sell and can communicate that value effectively to their customers.
OS: I'm really fascinated by the sales pricing strategy you talked about with Best Buy and this upselling strategy. So you buy an iPhone or a Samsung phone, and then you understand you need the case. That's genius. Is that something that Plastus does?
SL: Yeah, and they're also Best Buy also bought the Geek Squad, so now they're offering maintenance and service and installation. So you could buy a Ring camera for $84 and then install it for you for another 125, and then they sell you a warranty. So before you know it, you went from 84 to 300, but you do nothing. It's a service economy. You know, someone shows up and installs that for you, and you're ready to go, right? And in the future, are we gonna maybe offer data-enabled solutions? So the key is how do we price this? So now we get into the price match, and now if you're the only one to do this, you have a great advantage, right?
OS: And you have the key to create great bundles with hardware installation and service and insurance and warranties. But imagine the pricing power.
SL: Yes, it's always easier to be the only one, but not always. Well, you gotta get it right. You gotta do the right pricing strategy. You gotta, obviously, understand the value you bring and then price it right so that you attract people. But when I went to the store, I originally wanted to buy a Ring camera, and before I knew it because I'm not a very handyman, I bought the whole package.
The salesperson asked me the right questions, such as whether I could install the product myself, what had happened to my old product, and what was important to me. They provided a solution for me, which made me more loyal to the company because I paid for better service and warranty.
OS: That's interesting. How can retailers use this approach for different products?
SL: Retailers should focus on systems, services, and maintenance to attract customers rather than just passing through products from suppliers to consumers. For example, Staples started by selling office supplies but now offers printing solutions and design services. They attract small business owners who also buy office supplies while they're in the store. The same goes for pet food stores that offer grooming and pet-sitting services. A great value-based pricing strategy requires a great value proposition and understanding the competition's pricing.
OS: How do you recommend keeping up with the competition?
SL: You should know your competition's price level on a daily basis and make pricing decisions based on real-time information. Staples is one of our clients, and they use competitive data to inform their pricing decisions. You need to be relevant and have an innovation strategy, a great value proposition, and awesome pricing technology to be successful in retail.
OS: Lastly, could you recommend any literature, media, or podcasts about pricing?
SL: As a pricing expert, it's important to understand what software providers in pricing are talking about. You can follow thought leaders and attend webinars by software vendors like Competera to stay informed.