Hello and welcome to the Pricing Heroes podcast by Competera.
This is a series of interviews with the best and class retail pricing experts driving their companies' bottom metrics and the retail industry as a whole. Today's guest is Juan Diaz Barrientos, pricing manager at one of the biggest home retailers in Sweden, Finland, and Norway and ex-implementation manager at IBM based in Stockholm.
Olena Saraniuk: Hi, Juan, and thank you for joining us.
Juan Diez Barrientos: Hi, Olena. Thank you for inviting me.
OS: Can you tell our listeners more about yourself and your professional steps?
JB: Sure. I'm originally from Colombia. I moved to Sweden around 15 years ago. I did it because of my Master's, and since then, I decided to stay in Sweden. And that's when my career in pricing started.
I started working for the G4S in Colombia, doing cost-plus pricing. I come from pricing from the old days when the price wasn't a thing. So the position was more focused on pre-sales. We only did pricing ABC costing and then added some margin. After moving to Sweden, I started working as a pricing analyst at Coop. I was quickly promoted to a senior position within Coop, where I continued developing pricing strategies. At that time, we adopted our pricing tool, DemandTec, from IBM. So we were in the whole implementation team.
Then I moved to a company called Rexel. I worked as a business analyst there and helped them to create an analytical department. They didn't have any department to handle analysis, so the position was very broad. IBM was my previous vendor, so they knew me very well and wanted me to join.
At IBM, I handled four of the biggest food retailers in the Nordics. I was at IBM for about 3 years, and then I decided to take on the challenge of joining the current company I'm working for today, where we handle home improvement retailing with a new department created from scratch.
When I first joined, putting together the pricing team, we could increase prices by 20 million Swedish crowns per month, with every team member working full-time in all the countries of operation on price increases.
Now we can take 500 million, probably because we were pushed a lot by inflation. Also because we have improved processes and competencies in the team. That's a little bit about me.
I'm an economist. That's my background. I also have a Bachelor's in business administration, and I have two Master's, one in risk management and the other one in finance.
OS: And now, with rising inflation, risk management sounds really up-to-date.
And you mentioned that you were the first to implement the pricing tools back in 2012.
JB: That's when Coop bought DemandTec. It was one of the most advanced tools in the market. There were fewer competitors than there are today. So the offer for pricing tools has grown a lot.
These tools have really nice features, but their implementations are always challenging. Most of the problems usually happen with data integration in any implementation. Companies tend to believe they have all the data available and that it's easy to transfer.
But that's not usually the case. So there was a lot of data cleansing, and we had to go through many fixes, tweaks, and tricks to make the system work correctly.
Today, Coop has much better data. I was their consultant after I left the company, and I had seen an improvement in data. But one of the most painful parts is always the data integration side.
OS: Definitely. And that is the key to success in implementation. And you said you developed the pricing department from scratch in your current position. So what are your and your team's major wins throughout 2022?
JB: It's been really hard for everybody, I guess. But I'm very proud of a lot of the things we have accomplished during 2022. And the main success was handling 9.5% inflation, which we haven't really had for a while. As I mentioned before, it has been a huge challenge for a team, as the company wasn't really able to take out those amounts of money in price increases. So that's one of the biggest milestones. It was super painful at the beginning. I cannot guarantee we did all the price increases right, but we did what we had to do, and now we have a smooth process in place. The most difficult part was at the beginning. Now that the process is in place and we know what to do, it has become much easier to handle.
But for the department itself, starting from scratch, I would say one of the main success factors in 2022 was to establish a team with the right competence and the right roles inside the classroom.
So when I joined the team, I inherited analysts who were not pricing experts. I needed to educate them from zero as well. And we had all the team members located in Sweden. We didn't have any local competence for Norway and Finland. They are the Nordics, but we are totally different countries. You cannot assume that the table lamp you sell in Sweden and the Swedish usually put beside the windows is going to sell in Finland when they don't even understand where to put the table lamp.
Those kinds of things are really important for local knowledge. So we established a team of six different analysts with different profiles. Two focus on the Norwegian market, two focus on the Swedish market, and two with focus on the Finnish market.
And we divided the team into three different roles. One senior pricing analyst became a pricing strategist and monitoring analyst. Then we also created pricing executors and pricing coordinators roles.
And the role division also helped us to reach the targets throughout the year. We also made it to automate a lot of different processes, like data scraping or competitive data analytics.
We are a retailer, so we have a lot of competitors that sell exactly the same product. We needed to be smart, identify the competitors to follow, and develop a model that today is fully automatic.
We got some help from the AI team. We built everything in Excel first, and we started working with Excel templates. But as you know, Excel is way out of capacity when it comes to pricing today. So the only choice is process automation. And it has been a huge win for the team with free time for the analysts to do real analytical jobs instead of having analysts doing very administrative things like manual templates and analysis.
Nevertheless, even though we had quite a hard time handling the inflation, we started rolling out our main pricing strategy: building the price perception.
OS: So, how many people are in your pricing department now?
JB: With me, we are seven.
OS: And you manage the prices for all three countries: Sweden, Finland, and Norway. That sounds impressive because, as far as I understand, you have more than 180 stores in three of these countries.
Your and your team's coping strategy is impressive, especially during inflation. Speaking of which: the holiday season is coming. So what are your thoughts on the current state of home retail in conjunction with the upcoming holiday season and surging inflation? Do you see any new patterns from your customers? Or maybe everything remains the same, and we just make too much fuss.
JB: There are two main patterns. One of them has been really well known in the past and in times of recession. People tend to move towards private labels.
So we see a big switch in terms of volumes between the known brands and the private labels. That's a big win, especially because we usually get better gross margins from the private label. Otherwise, they wouldn't even exist.
And one of the biggest wins is that the people that pick the private label usually stick to the private label. So it's a stable switch in volumes, very positive for private labels, and very positive for companies to develop the right private labels and start selling them as you might get some loyal customers.
And the second one, not surprisingly, is not only because of inflation but mostly because of energy prices. There is a boom for smart home products to help you to understand your energy consumption better.
I have heard cases of some of our customers or even employees that have made it to reduce their energy consumption by 30% by making their homes much smarter. This last applies much better when you have an old house.
There are a lot of old houses in the Nordics, so we see a pattern there, sadly. We don't really own the smart home sector, but we are present, and we see there is a big increase and a big interest from our clients.
I guess this will be the longstanding trend probably because the energy prices just became like a little push, which will keep this ball rolling, I guess, for a couple of decades for sure.
OS: Speaking about the private labels. I interviewed Paul Peugnet from Carrefour, France, and he shared the same thing about private labels. Consumers are switching to them, and the pricing teams see a very positive trend for domestic sellers and private labels.
And you confirm that this is a longstanding and positive trend as well. And speaking about your profound experience at IBM.
How do you think companies should employ pricing technologies to stay afloat and thrive during the current recession?
JB: In times of recession, in terms of inflation, it is highly important to have the right system besides you. It is very easy to make price increases by 300 million in total when the volumes are stable.
But what happens when the volumes are not static?
So 300 million can easily become only 150 million, and then you haven't really done enough to handle inflation. That's when these systems come into the game. They help you to understand where to make the price changes that really matter.
It's impossible to think that any person or company in the world can handle 10,000 SKUs without tech. For example, it's impossible that a big food retailer with 200,000 SKUs, Excel, and one person will implement price changes and then wait 2 weeks to see what happens.
I mean, it's ridiculous to think that it is going to bring any kind of positive results when the amount of SKUs is huge. So these systems usually help you to calculate the elasticity and cross-elasticity for every single product and understand if there are any complementary or substitute goods. They help to create better strategies and identify where you really can affect the gross margin and volumes positively with your price changes.
I see a very important trend when it comes to understanding the underlying factors of price changes, more retailers are relying on technology. Understanding raw materials, transportation costs, and all those variables together is just too much information for a human to handle. So these systems help you to analyze that information and to make better decisions by understanding the underlying factors of the price increases.
And this also helps you to go and renegotiate with your suppliers. If the vendor is increasing the price, you can help them understand if this price is a good base for a price increase that customers will understand. Customers are not stupid. So if you just increase the price by 10% that doesn't have any special raw material where prices have increased, or any transportation cost because it's a local product or whatever the reason is, customers probably are not going to like it.
If you understand the underlying factor, then customers are also going to be more willing to pay the extra price increase because they understand the root of the cost. In addition, it's important to know that most of these systems also have a model that is called deal management, and it's a model designed to work together with vendors.
In times of inflation, I don't believe retailers should be working alone. It should be pretty much a partnership with your vendor so you can decide what is best for the future of both companies together.
And I also want to add about companies' maturity. There is huge opposition in companies where the culture is not mature enough, so it's wise to postpone the implementation of tech pricing solutions for later to make the transformation smoother for the company.
From my experience at IBM, immaturity is one of the major issues in every implementation process. This is why change management is highly important. People don't understand people. Usually, if you are not reporting prices to other analysts, you're probably reporting prices to purchase, and people in purchasing don't have all that data. They only make a forecast out of an initial price. There is nothing wrong with that. But as soon as you come up with a new price and say, "it's because of elasticity here, it's because this other product changed here," then you come up with 20 different reasons why you change the price for a product.
If they are not mature enough to digest all the new data that is coming, their first option will be to oppose the recommended prices.
OS: Definitely, yes. And the level of maturity really matters.
The same thing. I interviewed one of the pricing experts Dr. Markus Husemann-Kopetzky from Munich, Germany, and he also touched upon this particular problem. He mentioned that to be a successful pricing manager, you have to be an excellent orator. So you must speak a lot and know how to convey your thoughts and arguments.
JB: I totally agree.
OS: And coming from reality and into the future. How do you imagine the future of pricing? What are your thoughts about the pricing for ten years ahead?
JB: What I see in retailing in the Nordics is that there is still a big division between the campaign departments and the base pricing or regular pricing departments.
So we are pretty much fighting with each other. But the truth is that the main goal of any department is to improve gross margins.
There are two different approaches, but both, at the end of the day, have a lot to do with pricing. And to drive the company's pricing strategy, you need to put campaign and regular pricing teams together. Putting them together will give the capacity to stop thinking only about the price and probably transform the pricing arena into more margin optimization analysis instead of thinking only about the final price. And I definitely see more and more senior management realizing these new pricing capabilities.
I also feel like people are more aware of not developing their own pricing solutions. I'm against developing pricing solutions just because they rely too much on the knowledge of one or two people in the organization. It's true that they can be much more tailor-made, but they don't get upgraded as far as established companies. So I think more companies realize that those investments, at the end of the day, can be much more expensive than buying an established pricing solution.
OS: And one of the last questions: what literature, media, and podcasts about pricing and retail do you read and listen to? What inspires you?
One of my favorite podcasts is called "Talk fast, Think smart". It doesn't have to do anything with pricing. It's just about the power of communication and how to communicate better. And as the doctor you have interviewed previously told you, a lot is about communication, sending the message, explaining, making your ideas clear, and making everybody understand you.
I also like the McKinsey podcast on consumer retailing. That's a really good podcast, especially because they usually invite one person from every region. So it's not only very focused on America. But also focuses on Europe and Asia, and you get to hear the different trends in the different markets and the different difficulties.
It's usually unreachable, and their guests usually come up with newly released research.
Then when it comes to literature. More specifically, if you are going through a pricing transformation, I would really highly recommend World Class Pricing: The Journey Book by Jim Saunders and Paul Hunt.
For those trying to adopt some data-driven approach around pricing, forget a little bit about the gut feeling. Try McKinsey. BCG Group. They have a lot of free articles, and you just go to their website and then download those articles, like price perception or KVIs. Just to have the overview, I think a five-page article could be enough to have an idea and to have a path to follow.
Also, academics in pricing are very important. I would really suggest that you go back to your academics. At the end of the day, what you are trying to do with pricing is to maximize gross margin. And for that, you need to maximize the demand curve. That's what you are trying to do. So it becomes very academic. And how do you maximize the demand curve? Well, there are a bunch of academics around it. The microeconomics around pricing is really important. It gives you a good understanding and overview.
OS: And what advice would you give to your younger self starting a career in pricing?
Data literacy is also very important. Not only Excel. Excel is good, but you'd better move towards more sophisticated data-driven systems. Python could be one of them.
Learn to code a little bit. We don't have to become data scientists, but we need to be able to retrieve our own information, and we need to be able to understand the information. And sometimes, understanding consumer patterns can take you to analyze 80 million invoices, and you cannot do that with Excel.
So Python becomes much more sophisticated too. So I would suggest starting with the basics. Try to make yourself more familiar with and try to learn a little bit about data visualization. That's also really important.
OS: Juan, thank you so much for this interview. It is really insightful, and I hope our audience and our listeners will enjoy it as much as I did. Thank you for joining me today.
JB: Thank you very much for your time. Lena, keep in touch. Thanks.