Below is a summary of our interview with Dr. Tim J. Smith. You can listen to the full interview using the embedded media player below or in your favorite podcast app (e.g., Apple Podcast, Spotify and Amazon Music).
Our guest on our recent episode of Pricing Heroes is Dr. Tim J. Smith, a foremost thought leader in the pricing community. Tim wears a variety of hats in the pricing profession. He is the Founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, an academic advisor at the Professional Pricing Society, and the author of four books on pricing, including Pricing Done Right and Pricing Strategy. Those of you who are active on LinkedIn may know him as the brains behind the Pricing Spine-o-meter.
Tim dives into evaluating pricing teams, explains why technology alone can’t tackle today's most pressing pricing challenges, and explores the positive role pricing can have on public perception and social equity. Tune in to learn how you can take your pricing strategies to the next level.
Behind the Pricing Spine-o-meter
Tim talks about the inspiration behind his "Pricing Spine-o-meter," a diagnostic tool he crafted to evaluate the maturity of an organization’s pricing framework. Developed in response to the frequent disconnect between pricing theory and its practical application, this tool helps companies assess their use of strategic pricing tactics and their integration within broader business strategies. Tim, driven by his desire to improve the field's standards, created the Pricing Spine-o-meter to provide a clear, quantifiable measurement of a company's pricing maturity, using a unique rating system based on the metaphorical 'vertebrae' of a pricing spine.
The Pricing Spine-o-meter measures various aspects of pricing practice maturity, including the understanding of pricing's role within the organization, the management of transactional pricing, the strategic decision-making processes around pricing, and the company’s ability to adjust prices in response to global economic changes. By focusing on these metrics, Tim aims to help companies strengthen their pricing strategies and enhance their financial performance and market positioning.
The Foundation of Effective Pricing Practices
Dr. Smith discusses the critical role of a structured pricing team within an organization. He emphasizes that setting prices is just the beginning; a robust pricing team delves deep into market analysis, competitor insights, and internal cost evaluations to develop strategies that capture and sustain market value. This is especially crucial in global companies where market dynamics can vary extensively. He also explores the ideal structure of these teams, noting the importance of seniority and direct reporting lines to ensure effectiveness. For instance, if the highest-level pricing professional within a global business is only at the manager level, this could indicate a lack of authority and misalignment with the strategic goals of the organization. Dr. Smith advocates for pricing departments that report directly to the CEO, enhancing their ability to influence corporate strategy and decision-making effectively. This alignment is crucial for the pricing function to drive forward the company's financial and strategic objectives seamlessly.
Technology's Role in Modern Pricing
Tim discusses the transformative role of technology in pricing. He emphasizes that while technology has revolutionized the ability to collect real-time market data, predict customer behavior, and simulate pricing scenarios, it should not replace human insight. Tim advocates for a balanced approach where technology enhances the capabilities of pricing teams without leading to an over-reliance on automated systems. He warns that while technology can provide powerful tools for data analysis and decision-making, the strategic element of pricing must still be guided by skilled professionals who understand the broader business context and customer dynamics.
Dynamic Pricing and Public Perception
Tim elaborates on the challenges and nuances of dynamic pricing, using the example of Wendy's pricing trial to highlight how public backlash can stem from poor communication and misconceptions. He suggests reframing dynamic pricing strategies not as surge pricing but as "surge discounting," where businesses raise list prices but offer discounts during off-peak hours. This approach helps consumers focus on the savings they gain, improving their perception of the pricing strategy.
Tim stresses the importance of transparency and predictability in pricing. He notes that all pricing is inherently dynamic, as external factors necessitate adjustments. For instance, he discusses the historical evolution of pricing in retail, such as the shift from dollar stores to higher price points, underscoring the economic realities that drive these changes. Moreover, Tim advises that predictable pricing models, which allow consumers to anticipate costs, can enhance customer satisfaction and acceptance. He concludes that companies can manage dynamic pricing effectively by utilizing historical pricing data and consumer behavior analysis to strategically communicate benefits and manage expectations.
Pricing, Fairness, and Economic Justice
Tim discusses the philosophical and ethical implications of pricing strategies through the lens of John Rawls's theory of justice as fairness. He connects this philosophical approach to practical pricing strategies, emphasizing the potential of price discrimination to promote economic welfare and justice. Tim explains that effective, ethical pricing can ensure that while wealthier consumers may pay more, economically disadvantaged groups can still access necessary goods and services at lower prices. He cites the medical device industry as one such example. This approach not only aligns with Rawls's principles of fairness, where trade leaves everyone better off, but also supports the idea that such trade practices can contribute to a more equitable society. By adopting pricing strategies that consider economic disparities, businesses can contribute to social justice, making essential goods more accessible to those with limited financial resources, while still achieving profitability.
Resources
For those interested in further exploring advanced pricing tactics, Tim recommends his publications, Pricing Strategy and Pricing Done Right, as essential resources. He also encourages pricing analysts to check out the Certified Pricing Professional designation offered by the Professional Pricing Society. Be sure to also subscribe to the Wiglaf Pricing Missives on LinkedIn where you will find the Pricing Spine-o-Meter.
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