Below is an abridged transcript of our interview with Stephan Liozu. 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).
Today's guest is Dr. Stephan Liozu, the Founder of Value Innoruption Advisors, which is a consulting boutique specializing in industrial, digital, and value-based pricing. He is the author of 14 books on pricing, including his most recent book, Monetizing and Pricing Sustainability, which he co-authored with Fabien Cros. Stephan has also written many articles on strategic pricing for the Journal of Professional Pricing. He currently sits on the Advisory Board of the Professional Pricing Society and LeveragePoint Innovation.
Stephan was on the show back in 2023 for a conversation about an array of pricing topics (you can find that episode here: #Pricing_Heroes: Change Management and Pricing Tactics with Stephan M. Liozu). We asked him back on the show today to discuss his most recent book, Monetizing and Pricing Sustainability, which was published in July 2023.
In this episode, Stephan discusses how pricing experts can lead sustainable innovation within their organizations by helping them understand the value of sustainable pricing and helping executives transform go-to-market strategies to have a sustainable impact.
Aaron Thomasson: Can you tell us about the book and your motivation for writing it?
Stephan Liozu: Well, sustainability and ESG is a very hot topic right now in the pricing discipline, and it plays a role across the entire business. We saw it as a good opportunity to put forward the concept of the three P's: planet, people and profit. To make a profit, you have to touch on pricing. So, Fabien and I decided to put together a book and invited experts to contribute. It's version one, but we are already working on the second edition because it’s been such a popular topic.
AT: What is your main message in the book?
SL: It has a lot of messages, but the primary message is that, if you're going to do sustainability, and for sustainability to become mainstream, you have to make it part of your business strategy. You have to speak to the CFOs and the CMOs and make sure they understand that you’re doing this to have an impact for the organization, your customers, and stakeholders. We want leaders to understand that working on sustainability cannot just be a cost reduction play or a regulation play, it has to be something that contributes to the company. When you approach sustainability from that angle, it will have to be on the radar of the finance, marketing and sales teams, and only then will it become like any other strategic innovation in a company.
AT: Efforts to achieve sustainability require businesses to go beyond pricing and consider their go-to-market strategy as a whole. How might businesses rethink how they go to market and align with sustainability?
SL: I think you've got to make sustainability part of your products and service offerings; it can’t just be an intangible quality that you use to finish your conversations with customers or stakeholders, like, “Oh, and by the way, we reuse cardboard, or reduce your carbon footprint, or we have beautiful recycled products.” It has to be part of your business’s catalog.
When we work with companies, we help them productize sustainability just like any other service. First, we help them consider what it means for their customers, and then we create a “product” that they can price or give away for free as part of their premium offering. But sustainability, productization and monetization really cannot be separated within the business.
It's one of the issues we saw during the digital transformation tsunami. Companies were doing digital transformation projects, but they weren't in the core business. And what we're saying here is, if you offer a sustainable product or services or any service, you have to make it part of the core, which means then you price it, you market it, and the sales team sells it.
AT: You write about the concept of “true price,” which refers to the total cost involved in offering a product or service when social and environmental impact is taken into consideration, in addition to the time, materials, and all the other factors that go into pricing. How can businesses offer their products and services at a true price and win over customers when other brands offer the same product or service at a market price that might be more appealing from a cost savings perspective?
SL: You got to think of pricing sustainability like a toolbox. In your pricing toolbox, a lot of the tools are the same you would use in what's called traditional pricing, except you might have some unique tools, like true costing and true pricing, and even true value pricing.
True pricing is an emerging concept. It's not yet fully embraced because, like you said, there are some consequences. How do you incorporate all these true costs — cost to the planet or cost to the human race — into your product, and then how do you price that for the market?
There is the accounting of the true costing — the “real cost.” And there is the sales price, what a business passes on to the consumer. Obviously, you have to make a business decision on how much you want to put into the price or account for it as part of your overall brand’s differentiation. Some companies, like Ikea and Interface, are charging a minimum price, sometimes a premium, but generally speaking, it's part of their corporate objective to be carbon neutral. So they move part of their products under the true pricing umbrella, and they publish an annual sustainability report with a true pricing framework.
Are they charging the full premium? Not yet. First, you have to consider your customer segmentation. Some customers will be willing to pay the real true price of your products because they really care about the environment, they are really sensitive to human rights, and they have the purchasing power and they want to make a contribution. But not every customer is going to be the same. So, you have to find these segments of customers in B2C or in B2B who are really willing to pay for sustainability.
I will tell you that segmentation is probably one of the most neglected concepts in marketing, but it's even more important for pricing sustainability than in traditional business pricing.
AT: That ties back into the importance of working together with your CMO, your marketing team, sales teams, everyone across the organization to make sure that the go-to-market strategy is aligned with sustainability and that it's a priority for the business. That way, when you adapt pricing to accommodate that focus within the organization, you're not sacrificing anything because you know who you're selling to and how you're marketing to your ICPs.
SL: That's a great point because if you don't do segmentation, then your offering becomes one-size-fits-all. Then everybody's going to get a little bit of sustainability. But is that resonating with all the customers? Probably not. But if you take it the other way around and really focus on segmentation — how you want to attract and communicate a dedicated productized sustainability offering, like sustainability consulting, carbon footprint reduction programs, recycle products, green marketing claims and packaging — then these people are going to love it.
It's not for everyone, but for those who care about sustainability, they are willing to pay for it. If you look at all the pricing research now, there is a willingness to pay between 15-30% for specific customer segments, but not across the board.
AT: I agree 100%. For example, as someone who likes the outdoors, I’m willing to pay a premium for those brands that I believe actually support the environment. Some outdoors brands, like Arc'teryx or Patagonia, know how to target the customers who share their values.
SL: Some retailers are more successful than others because they understood that early in the game. There’s a company in France called Decathlon who's been very successful in promoting sustainability in their stores. They offer their customers choices, like renting instead of buying, and really communicate the value to them.
AT: This also provides an opportunity for retailers to engage in pricing transparency. Not only are they being transparent about their values and showing how the products are created and delivered to their customers, but also they have the opportunity now to demonstrate why products are being sold at a premium price. They're building trust with their customer base and validating their values within the market.
SL: Retailers play a key role here. Some retailers price too high for sustainable and green products because they think they can, and there is a myth that green means premium. This is not always the case. You got to do your research on willingness to pay. You got to really do your merchandising very well. And you have to make sure the claims are simple, transparent and relevant to the shoppers and priced at the right level.
AT: From a tactical perspective, what makes pricing for sustainability different from other approaches? We've talked at a high-level about what it looks like for a business to align its sustainable values with business objectives. But tactically, is there a fundamental difference between “traditional pricing,” if we can call it that, versus pricing for sustainability?
SL: I would say it's probably 90% the same. Obviously, traditional pricing existed for a long time. If you're a company today selling products and services, you've done it for many years, and you know there's a clear understanding by the consumer about what you offer. Toothpaste is just toothpaste, right? And what's in the toothpaste doesn't change much.
But sustainability is relatively new. There's a lot of new technologies, raw materials, ways of producing, and what really changes here is that you have to understand the perceptions of consumers and their willingness to pay.
Let's take a tire, for example. A sustainable tire for some people means that it is made of recycled materials, for other people it means longevity, and for others it means reduced amounts of residue left on the road.
You really have to do research to understand what sustainability means for the consumer. This is one of the major differences in pricing for sustainability. On the other hand, research into willingness to pay will be a bit different, but the methodology will be the same. Research shows that willingness to pay is all over the map. And there is even a bigger difference between what consumers say they want to pay and what they will actually pay.
But that's the beauty of it: as pricing professionals, we can use the toolbox for sustainability, and it's not that you have to go completely outside of your current skill set and acquire a lot of skills, but you do have to apply the current skills on the topic of ESG and sustainability.
AT: When some people hear the term “sustainability,” it conjures up anti-capitalist sentiment. Perhaps they think that sustainability pricing is antithetical to competitive pricing or profit generation. But you argue for monetizing sustainability. Would you mind explaining how sustainability and profitability are compatible?
SL: I think we always go to the extreme, and that's a problem. When the market embraced digital transformation, we were promised trillions in value that never materialized. The same happened with sustainability; everybody promises the moon and that we're going to change the world. Let’s be realistic and use common sense. For example, only 7-8% of the economy is circular, and I think we can improve circularity.
There's common sense discussion around scarcity of resources, for example, and we can use technology to improve that. We don't have to go to the extreme, saying, “Oh, we're gonna kill profit.”
Some companies have been very successful at creating profitable business models around sustainability. So, let's consider sustainability as an innovation. Let's plug it in the pipeline of innovation in any company and watch it compete on its own merits. And if it brings a profit, great.
Now, if your whole corporation wants to be a strong player in sustainability, like Danone or HP, they have a huge strategic vision on sustainability and still make a profit. Nothing stops them from profiting. You can be very caring about the human species, social values and sustainability and still make profit.
The key is to do it in a way that integrates into the core business.
AT: Can you provide examples of retailers that have been successful implementing sustainability into their business strategy?
SL: There's a chapter in our book co-authored by Michael Mansard and Yann Carré, about a case study on Decathlon, which completely transformed their offers in stores, from offering a subscription model on kayaks and bikes to how they label products. It’s been a real success story. They’ve been around for many, many years, and they just keep on transforming themselves. One could argue that they should have disappeared following the rise of e-commerce competitors, like Amazon, but they're still going strong.
Another retailer to pay attention to that is very appealing to the new generation of shoppers and environmentally conscious shoppers, is IKEA. The brand is a tremendous player in sustainability. They have a whole philosophy on the way they produce, how they source and manage wood. And so it's another great example. They are really taking the leadership in their space. Millions of people go into IKEA stores and get educated about sustainability.
AT: We know that AI can be a valuable tool for setting and maintaining optimal prices, but when it comes to sustainable pricing, is there a role for AI to play?
SL: For sure, there's a role for AI everywhere. What businesses need is data. If a business is just starting, obviously, they may not have that much transactional data or reference data in their category, because maybe you're the first leader in the space. So it becomes a question of doing your own research and creating your own data. If you're in retail, you're blessed with data, so it's a question on segmentation based on your data and supplementing this data with research into your customer base. The power of AI can be applied to whatever products or services you offer.
AT: Would you say that sustainable pricing is right for any and every business, or are there some businesses that should not be focused on sustainable pricing?
SL: Some businesses will be more focused on the ‘E’ of ESG because they can make an impact on the environment. Other companies may not have a strong position on the environment, but they have a greater position on the ‘S’. Let's say, for example, my former employer, Thales, which is a technology company working in AI and cybersecurity. Now, you could argue that they can make a contribution to the environment, but their biggest contribution is on the social side. Wealth creation, making responsible AI, etc. Everyone can make contributions to the ‘E’ and the ‘S’, but it depends on your organization’s strengths. The question should really be focused on how organizations can embrace the concepts of sustainability and have the desire and motivation to see it through.
Now, most companies today will do it because they have to. Regulations, especially in Europe and some states in the U. S., require that you report, control, and reduce whatever impact you are having on the environment. But you can also do this because there is another motivation, namely having an impact on the world for the sake of your stakeholders, shareholders and consumers.
Generally speaking, there is growing pressure from shareholders, such as investors and pension funds, right now to make the move toward sustainability. And if you're going to make that move, let's do it and make a profit. That's our whole point. It's not a contradiction. You could do sustainability and still, if you do it well, monetize, price and make a profit. There's no reason you shouldn't.
AT: Focusing on the more tactical aspect of pricing, how can pricing professionals advocate for sustainability within their organization?
SL: They need to be aggressive. They have to knock on the doors of the executive team and tell them, “You know, let’s adopt sustainable innovation as a core value and make a profit.” They need to begin by focusing on proving a few successful MVPs, rather than trying to adopt sustainability across the organization all at once.
This is why I recommend that sustainable innovations become part of the innovation portfolio, because everybody gets involved in the innovation portfolio. It's very multifunctional. You may have an innovation council with marketing, sales, and technology. And if you make sustainability programs part of this, then everybody's aware of them. Then we can help each other to select the ones that are going to be more successful. So pricing people need to force themselves in the innovation council. They need to go talk to the VP of sustainability and ESG and ask them to work together on making sure that the contribution on the go to market side is accounted for in the ESG reports.
Unfortunately, the pricing function is not very assertive. They need to knock on doors, invite themselves to meetings, make some noise, promote case studies, bring in outside experts, and buy a book for you Chief Sustainability Officer. It requires a change of mindset.
AT: For the pricing experts listening to this and who say, “Stefan, I completely agree. But I don't know anything about sustainability or what it looks like in pricing; I don't know where to turn for more information; I certainly don't have a seat at the table when it comes to decision making within my organization; and we have so few resources as a pricing team. Where can they begin? Where can they turn for information on the next steps that they can take to begin to learn and equip themselves to approach the leadership team, bring real value for the organizations, and hopefully deliver sustainability in the future?
SL: I think they have to educate themselves first — read books, papers, and research on the topic, especially on business models, value propositions and segmentation. We have a book now, which is really the first book on that topic. There are resources on anything that you can think of on pricing and sustainability.
We also have a certification course at pricingfortheplanet.com called monetizing and pricing sustainability MPS. It's a six hour course, and we go through the entire process. It includes a lot of papers and videos. I think that's the best way to get everything in one shot. Also, we are developing a learning community, which is more of a two year program with monthly activities for pricing people to really follow the trends, understand emerging trends in sustainable pricing. We also have a newsletter that we send out every two weeks because we want to share up-to-date information on what's being published.
But it is just the beginning. Learn on your own, ask your managers for a little bit of training money to go get certified, and be the leader that you need to be in that space.
AT: Can you recommend any books, podcasts or other resources to our pricing community?
SL: I recommend PPS (Professional Pricing Society). They have great courses, journals, and newsletters. It’s my go to for new things that pop up. When it comes to sustainability, I recommend the Center for Sustainable Business at New York University’s Stern School of Business. They came up with the ROSI (Return on Sustainability Investment). They publish great papers.
Links
PricingForThePlanet, Sustainability Monetization and Pricing
MPS Certification: Monetizing & Pricing Sustainability by PricingForThePlanet
NYU Stern Center for Sustainable Business - NYU Stern
True Price Foundation – We create standards for the adoption of True Prices
