Arnab Sinha is a Managing Director and Senior Partner in the Philadelphia office of Boston Consulting Group (BCG) and the North American Lead for Pricing Topic, as well as Global Lead for Revenue Management.
In this episode, Arnab shares what’s behind writing the book ‘Game Changer’ and discusses how the pricing strategy frameworks discussed inside the book works for the different industries like software, consumer packaged goods, pharmaceuticals, among others.
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Why you have to check out today’s podcast:
- Discover how to create value across diverse industries and implement innovative pricing strategies that can revolutionize your approach
- Uncover the innovative pricing strategies used by pharmaceutical companies to market their products
- Find out the crucial role of creating value to effect strategic pricing
“Figure out how much value you want to share, and how you communicate that, because that’s what drives long-term value creation.”
– Arnab Sinha
Topics Covered:
01:14 – How he got into pricing and why he never regretted choosing it over mechanical engineering
03:48 – What’s behind writing the book ‘Game Changer’
06:21 – Pivotal role of value creation in pricing strategy as gleaned from the book
08:03 – How his pricing strategy framework be used in software companies
11:40 – Significance of understanding customer needs and tailoring offerings accordingly for both acquisition and retention, with competition in mind
14:25 – The strategic pricing approach for consumer packaged goods companies
17:34 – Understanding the ‘uniform game’ in the consumer packaged goods and how it is influenced by factors such as brand strength and price gap elasticity in relation to competitors
20:08 – From a static view of pricing strategy in the CPG towards a dynamic approach utilizing AI and machine learning to model the best pricing strategy
22:00 – Innovative pricing strategy in pharmaceuticals
26:42 – Pricing based on where value is created
29:22 – Arnab’s best pricing advice
30:03 – Discussing on how much value should one keep
Key Takeaways:
“I think the competitor’s price is a critical input. And this is where we weave it in through something like your brand strength and your brand equity.” – Arnab Sinha
“And this is where I think our belief is, it is not just about the one-time value of one transaction, but you need to think about the lifetime value of all of the consumers you will be serving.” – Arnab Sinha
“…at the intersection of the cost and competitive game, you need to understand if you are creating value and make a choice of how much value you want to share regardless of what game you’re playing. Because in the absence of value creation, there is no transaction.” – Arnab Sinha
People/Resources Mentioned:
- Jean-Manuel Izaret: https://impactpricing.com/podcast/563-game-changing-pricing-strategies-for-long-term-success-with-jean-manuel-izaret/
- Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society by Jean-Manuel Izaret and Arnab Sinha: https://www.amazon.com/Game-Changer-Strategic-Pricing-Business/dp/1394190581
- SAP: https://www.sap.com
- Oracle: https://www.oracle.com/ph/
- Quickbooks: https://quickbooks.intuit.com
- Microsoft: https://www.microsoft.com
- Coke: https://www.coca-cola.com/ph/en
- Pepsi: https://www.pepsi.com
- Walmart: https://www.walmart.com
- Kroger: https://www.kroger.com/
- Publix: https://www.publix.com
- Target: https://www.target.com
- Pfizer: https://www.pfizer.com
Connect with Arnab Sinha:
- LinkedIn: https://www.linkedin.com/in/arnab-sinha
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Arnab Sinha
Figure out how much value you want to share, and how you communicate that, because that’s what drives long-term value creation.
[Intro]
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the unique relationship between them. I’m Mark StIving, and our guest today is Arnab Sinha. And here are three things you want to know about Arnab before we start. He has been with Boston Consulting Group for over 16 years with a brief stint as a VP of Comcast in the middle. He has a PhD in mechanical engineering from MIT. Now that’s a unique start to a pricing role, and he’s co-author of the book Game Changer with Jean-Manuel Izaret or, JMI, who was on the podcast last week. Oh, and he’s very passionate about sports and playing soccer with his colleagues. Welcome, Arnab.
Arnab Sinha
Hey, Mark. Good to talk to you. Thank you.
Mark Stiving
Hey, how did you get into pricing, especially coming from where you came?
Arnab Sinha
It’s a great question. Look, I have a PhD in engineering, which means I do a lot of math. By the way, my engineering, while mechanical, was actually doing research on something called volume holographic imaging systems. So I was dealing with Newton’s laws of motion, I was dealing with James Maxwell’s equations electromagnetism, right? So I did a lot of math. I came to BCG, and, of course, I knew math. And when I came here, I started working. And then my first couple of projects were in telecommunications because people assume, well, you did this stuff, did this research in electromagnetism, so you might know what telecommunications are. I did that, and what I found was actually I wanted to act, have things that have impact right at the rock phase. So I wanted things that were consumer facing, which drew me into a consumer, which drew me into pricing because changes you make to pricing are definitely having an impact. And then, because I could do a lot of math, that’s how I started doing big pricing projects because you could crank through reams and reams of data. And having done this as an engineer, albeit, and for different purposes that’s how I ended up doing a ton of pricing work in consumer at BCG, despite starting off as a PhD in mechanical engineering and electromagnetism from MIT.
Mark Stiving
Okay. So do you regret being in pricing? Would you rather be in mechanical engineering at this point in time?
Arnab Sinha
Not at all. I think this is a fascinating field where you have a ton of impact. although mechanical engineering is great as well. I mean, what I like and I find fascinating about pricing is we’re constantly moving the frontier, like how we think about things, the science that we bring in. I would argue that mechanical engineering hadn’t done that for a while. But now with all of the new innovation going on about building rockets and new materials for cars and things like that, I suspect that’s also a cool field to be in. But I don’t regret pricing one bit. I think the amount of impact and the intellectual stimulation it provides is unsurpassed.
Mark Stiving
Yeah, I will certainly agree that with the impact we have more impact than most people inside a company. So for the listeners we had JMI on last week, we talked a little bit about the book Game Changer, and if you want more detail about it, please go back and listen to that podcast. But let’s do a little bit of a review. And so Arnab, give me an overview. What is Game Changer about why did you write it? And then I want to see if we can apply it to some different industries.
Arnab Sinha
Yeah. So look, we wrote the book because JMI, myself, all of my co-authors started to realize that there wasn’t a uniform or universal framework for how to think about pricing strategy, right? The narrative had very quickly shifted towards it being numbers and like, you need a right price point, you need to get the deal, and that requires a 10% discount. Our lived experience was that actually pricing is not that, of course, at the outcome of everything is a number or a discount, but this is a lot more strategic than it is a numbers game, right? And because it’s strategic, you have to think about things like how you collaborate with your customers, how you leave value on the table to create win-win outcomes, how you have to navigate a dynamic environment. So all of those factors led us to say, okay, we should be thinking about a way to simplify and explain pricing strategy that is accessible to everyone who reads about it.
And then they can think about pricing as not just a, well, it’s 399 or 1099 or 10% off. It’s actually a set of choices you make that ultimately result in the transaction, not just the transaction itself. So that’s how we landed. We wanted to write a book that could tell people about this, because that’s what our lived experiences were every time we went. It wasn’t just a, give me a tool that gives me a number. It’s actually taking a step back and saying, okay, how are we thinking about this particular customer, this particular market? How are we creating value? And therefore, now what should the pricing model be? And therefore, how should we still be priced
Mark Stiving
Nice. And so, just so that everybody understands, the way this model is set up is we all know the three Cs, right? Costs, customers, and competitors. If you draw those in a Venn diagram, you’ve got a bunch of different overlaps, and the strategies are in the overlaps. It’s how do you deal with a company that’s mostly focused on customers and cost, or mostly focused on customers and competitors or all three, there’s an overlap in the middle as well, right? So, just to be fair on that, I’ll share with you what I told JMI, I always teach value. Always, always, always, always, always, always. Yep. And so, to me it’s like, well, cost and competitors may come into the story sometime, but it’s always about value. Yeah. And now my customers are making a decision.
Arnab Sinha
Yeah. Look, you’re right. And what we talk about in the book, right? So, it depends on what you mean by value, but the first question in any pricing strategy approach is how much value are you creating for a customer? And how much of that do you want to share? And it doesn’t matter if you are playing the cost game or you’re just playing the competitive game, or at the intersection of the cost and competitive game, you need to understand if you are creating value and make a choice of how much value you want to share regardless of what game you’re playing. Because in the absence of value creation, there is no transaction. Like, why would anyone exchange any kind of monetary sum with you if there is no value being created for both of you? So yeah, it has to start with value. That, by the way, is the first game. Now there’s a little bit of a, well, but then why do you call a value game the value game, or we think the name fits well there, but in the end, every each of the seven games, or the three intersections, or the intersections of the three Cs are about understanding at its core the value you are creating for the people who are buying your offering.
Mark Stiving
Okay, I’ll buy that completely. And by the way, I use as my foundational mantra buyers trade money for value. That’s it — Buyers trade money for value. And so now there’s a whole bunch of nuance in there, but okay, we got it. Let’s jump into seeing how we can apply this then. I love working in the software industry. I think it’s a lot of fun. And, it doesn’t matter to me. If you could pick a specific company, a specific product, and if you were going to try to apply your framework to the software industry, how would you think about it and walk us through that.
Arnab Sinha
Yeah, so look let’s start off with historically where large enterprise software was, right? That was primarily in the core, what we call primarily influenced by competitors. Why do I say that? Well, it’s because you had these big B2B transactions that happened. So I have enterprise software X that I want to sell to a business, or hundreds of businesses. I don’t have a ton of information other than the fact that I know this company bought some other software from me previously. And what I am doing is, I’m going deal by deal, transaction by transaction, and trying to make sure I don’t discount too heavily, right? I mean, if you think, go back 15, 20 years, software was primarily a B2B managing the deals. And quite a bit of it still is, I think where software has now moved thoughtfully. So, and it was triggered by some of the work that Salesforce did at this intersection of the customer and the competitor.
So where you just sort of thought about, well, what is my deal? And I’m going to beat my competition who offers something similar. I’m actually now going to think about what my customer wants. Of course I will have other competitors to compete with, but I’m going to think about what my customer wants. I’m going to design an offering that is fit for purpose. And this is the classic evolution to SaaS, the evolution to the good, better, best type models is when software companies, the big ones bought the hammocks, went from selling deals and like, oh, here’s something. And you get unlimited users as long as you pay me this much and I’ll give you a 20% discount because you’re at 10,000 licenses now thinking about, well, your company really needs my good version of the product.
I’ll get you there. I’m going to show you what better looks like, and over time, I will migrate you there, or I will keep innovating so that what you see in the better or the best versions actually become really attractive to you. But I’m now thinking more from a customer and value creation lens. And you see this prevalent everywhere, right? Everyone is creating good, better, best offerings. You know, of course started with Salesforce, with Intuit, everyone has some offering that brings you in, keeps you in there, keeps you engaged, makes you come back and renew licenses everywhere, which again, is tied to some form of value that you’re creating or the software company is creating for the business. And that business model we think is working well, right? And now again, can you get to a place where you are a hundred percent focused on just the customer value? Yes. I think over time, certain pieces of software, if you become valuable enough, end there. But right now we call this the choice game, right? At this intersection of customer and competition. Lots of software companies are playing there and they’re doing a very nice job.
Mark Stiving
Okay? So I love the explanation in a couple different ways. One is that, of course, you didn’t even mention cost, it’s a software company. So costs are pretty irrelevant in that story, right? Which is nice. And then you talked a lot about the intersection between competition and the customer. One of the things that often happens in software, though, which I find fascinating, is that once I’ve adopted Oracle, I am not switching to SAP. So from that point on, competition is pretty much irrelevant. And so the pricing game for my current customers is very different from the pricing game to win a new customer.
Arnab Sinha
Yep. It’s a great point. And by the way, this also reflects, because if you think about your example of Oracle and the evolution, right? It’s only over time that good folks at Oracle and SAP or whoever realized that, once I have someone retaining them, is much easier than selling the new deal, which is why they move to the choice game. Now, I do think there is a question of how do you get this, so there’s, we call it sort of the land and expand strategy, right? So you need to land the deal. Once you land the deal, you have to expand. And this is the whole, I need to upsell, cross sell, get you other things. But that’s how we think about it. And look, landing is all about, okay, who are you as a customer?
What are you looking for? And do I have a product or an offering that is fit for purpose, right? So in the book we talk about Microsoft coming in with their own accounting software that was offered for free, competing with Intuit QuickBooks. And Intuit’s response was a brilliant one in the sense that it realized that a free software offering was not appealing to the restaurateur who has been on QuickBooks for 10 years. And therefore, if it just sort of tried to take all of its service offerings and offer them for free, it would be cannibalizing its own business. What it did was it created an interesting offering that was bare bones, and it was targeted to all of the hundreds and thousands and millions of new businesses that were being created every day. And those were the businesses that wanted free accounting software.
If you have an established business, you don’t want free accounting software, right? You want something about, you’ve got 10 years of history, you want your taxes, et cetera. You are willing to pay the 50, a hundred thousand bucks per year to actually get going for that. So thinking about land and expand is quite unique in software because you need to know who your customers are. And even if you know, it’s a very competitive space, knowing your customers, knowing what they’re looking for, and then designing your pricing, your discount structures. Now if you’re selling to hundreds and thousands of small businesses, you don’t have a specific discount structure, but depending on who your customers are, the land strategy is critical because you need to think about what gets customer, what do customers want, what are you looking for aligning your prices and your discounts and your pricing basis with those customer needs. And once you have them, of course, now you think about cross sell, upsell and all of those other things.
Mark Stiving
Yep. Perfect. Hey, let’s switch industries. And I’m going to guess that cost comes into play on this one. What about consumer packaged goods?
Arnab Sinha
It’s great. Yeah. It does come into play, right? So consumer packaged goods, I mean, they play in multiple places. We think they play primarily at the intersection, especially the branded consumer packaged goods, right? They play at the intersection of costs and customer value. So we call this the uniform game. The reason why those two things matter is because if I am a CPG company, I am selling something and I’m a branded company. I’m selling a brand, so I am creating some value for the customer, right? That being said, I’m looking or hoping to sell millions and billions of these things to consumers who will hopefully buy this on an everyday basis. So being able to control my costs is critical. So I have to set up a manufacturing location, I have to make sure I distribute it to the right retailers, and I need to get the visibility and that intersection of understanding customer value, understanding what people are willing to pay more or less for, and then controlling my costs so that I get this to customers at the right price is where CPGs do a really nice job.
And if you think about carbonated soft drinks, so Pepsi and Coke and, and Dr. Pepper, they are functionally very similar offerings, right? They’re sort of sweet Colas in a can typically roughly priced at about the same amount, right? I mean, if you look at it, their line price, everyone knows what you are pricing. So Coke knows what Pepsi and Dr. Pepper are selling at, and Pepsi knows what, because you can go look at the store and what every each one player is doing is saying, well, based on what I know about my brand equity, who my consumers are and my costs, how should I vary my prices my prices on the shelf, how frequently I promote, how deep I promote so that I create enough value for me and my consumers. So that is how most of these companies are thinking, which is, I know my price, I know my price of my competitor, I know my cost.
So now how do I keep a certain shelf price at a Walmart, at a Kroger, at a Publix, at a Target? And how do I occasionally pulse it so that I create some injection of volume lift and how do I work that algorithm through? It’s very analytical, very mathematical, unlike some, some of the other games that we talk about where people spend tons of time calculating elasticity, brand equities, and understanding price volume trade-offs to actually say, given my brand strength, given my cost structure, here’s the price that actually I want to be at. And they spend a ton of time using elasticity models to get to those answers.
Mark Stiving
Yeah. Two thoughts jump to mind. Do you call this a uniform strategy or game because of the fact that we set essentially one price and thousands of people choose to buy or not buy? We’re not negotiating prices on individual deals?
Arnab Sinha
That’s right.
Mark Stiving
Yeah. And then the second question that comes to mind is, you didn’t put competitors in there, but it feels to me like the competitor’s price is absolutely vital to this decision.
Arnab Sinha
It is, it’s a great point. Look, I think the competitor’s price is a critical input. And this is where we weave it in through something like your brand strength and your brand equity. Because if I am the leading share player, I have more brand strength and I can actually calculate my elasticities. And this is where we call it the uniform game, because like I said, it’s uniform prices. But if you think of someone like a leading brand marketeer, right? If I have 60 shares, if I go on the shelf and I’m 10% above my number two, all of my volume goes to my competition, right? So when I calculate elasticities, it’s not just the elasticity of my own price. I also need to know the elasticity of what we call the price gap elasticity. So if I am 5% above my competition, I may be okay.
If I’m more than five, I may not be, so what is the right price gap I need to think about? So yes, competition matters. It comes from what customers value, right? Because in the end, you are roughly selling functionally the same product, right? a tissue paper, brown cola, clear soda, paper towels, et cetera, toothpaste, functionally very similar. There’s not that much functional differentiation. So what in consumers’ minds is worth paying more for is what you’re trying to get through via the customer value. And yes, there’s a competition angle there again, right? All of these games are intertwined for sure, and understanding what we call the price cap elasticity is a way for you to figure out how much you can afford to be above or below. And the reason why we didn’t bring in specific competition as part of the lens is because often in this game, you have many, many, many competitors, right?
If I am selling tissue paper, of course, there’s three big companies that do that, but then there’s private labels and then there’s all of the retailers who sell stuff as well. So being able to benchmark against every single competitor becomes incredibly hard. So this is why you use numerical shorthands to say, look, I am at X, on average, the rest of the market is at 0.95X, and my primary competitor is at 0.98X. So is that the right thing? Does that help me solve, if I can look at my elasticity math, can I get to the right answer there? And if you can get there, that’s exactly where you land.
Mark Stiving
Okay. That makes sense to me. I often don’t like elasticity because of the fact that if we calculate elasticity, it doesn’t take into account our competitors’ reactions to our price changes.
Arnab Sinha
Yeah, it’s a great point. And so when we do work here, we say, yes, that is a static view of the world, right? What happens? I am 10% more expensive. What if I became 20% more expensive? But the more sophisticated players, and this is where you’re starting to get into what we call the dynamic game because you are bringing in some other information,you start talking about, okay, so I took a price. And again, elasticity is a really powerful concept in the uniform game. It’s not applicable everywhere. So with other games, I agree with you, but even in the uniform game, by itself, a static number is insufficient. So you need to say, okay, I took, I’m 10% more expensive, I take another 10%. What happens if competitors follow? What happens if they don’t follow? Right? What happens if they follow me halfway or a quarter of the way?
What changes? So sophisticated consumer products companies not only think about the static version of elasticity, then they think about, okay, this is when you get to the game theory of it, like who is likely to follow? Which of my competitors are likely to follow by how much? And if they did that, what would the outcomes be? And that actual analytical exercise is quite sophisticated, and you’re starting to go from the classic uniform game with one price point that everyone knows to saying, okay, how do I model this out using AI and machine learning so I can create scenarios and I make choose the best one from there?
Mark Stiving
Yeah, nice. My rule of thumb to my clients is usually if your competitors raise their price, raise your price. It’s a framework.
Arnab Sinha
Generally, it avoids all of your prisoner’s dilemmas type outcomes, right? For sure, yes. If it is the right move to do, yes, you should, because in the long run, that is the optimized answer for sure.
Mark Stiving
So. Alright. We have one more industry I want to look at. Let’s talk about pharma.
Arnab Sinha
Yeah, it’s, look, it’s a great example and pharma sits squarely in the value or customer value game, right? So in most cases, your offering is uniquely differentiated. So I’ll go back 25, 30 years when Pfizer had Lipitor, right? No one had anything that looked close to it. It was a great product that reduced the risk of death due to heart disease by significant amounts. In that case, I think, and there was really no competition. You either because no one had done the research or even if they had not done the research, you had patents and regulatory reasons protecting you. So quite a bit of pharma is fairly differentiated, where you either have unique R and D that no one else has, or you have some level of patent protection, so you can effectively charge whatever you want, right?
Because you are creating, and in most cases, you are creating such an immense amount of value for the customer because they’re either saving their lives or improving their lives by so much that most customers, to the extent they could, would give you almost all the money they have. Like, if someone’s really sick, they’ll give you all the money you have, right? So this poses a very interesting question, right? I mean, we’ve sort of seen the news and the terrible news of insulin prices went up and the, I’m not going to name the individual, but sort of the EpiPen prices went up and all of these life-saving drugs got really expensive. And this is where I think our belief is, it is not just about the one-time value of one transaction, but you need to think about the lifetime value of all of the consumers you will be serving.
And in most cases, the answer isn’t to raise the price of life saving medication, five, 10, 15000%, but actually think about who is the population you’re serving. In many cases, actually thinking of a different pricing model, maybe a better answer than just charging $10,000 for a particular dose. I mean, I’ll point out the research that my colleague JMI did on Hep C, right? There is a Hep C drug that is very effective, cures Hep C, but hasn’t gotten the traction because it is really expensive and it is the right rational thing for…Each of the players in the value chain do it because spending a ton of money on it, giving it away for a low price to an individual patient destroys value, right? Which is why most individual patients who don’t start exhibiting these symptoms don’t get this treatment.
And when they don’t get the treatment, and when they start getting the treatment, often they’re in the later stages, which increases the cost of the health system tremendously, right? So in the model such as this, the answer isn’t necessarily lowering or raising prices of Hep C. Actually it’s thinking about why don’t I, instead of charging per patient start charging per treatment or actually start charging per population. So I know what the prevalence of this disease is in the population, I can go to a health system and say, you can have unlimited access to this particular drug, provided you pay me $5 for every patient that you covered, right? So now, it’s kind of the, going back to our first topic, it goes, it takes a software license version of paid pricing, which is you’re making the license available to whoever wants it.
And because you are licensing it over a large population, the pharma company makes money. And because now everyone has access to it, it’s no longer $10,000. Every patient who wants it actually, pays only 50, a hundred, a thousand dollars. So every patient has access to the drug. So now it’s the same amount of money over the longer duration of time, right? If you look in and you sort of say a license cost versus individual drugs delivered to patients over 10 years, everyone makes the same amount of money, but more people are cured. So again, thinking innovatively about the pricing basis about what you treat is a big idea in pharma. There’s lots of churn happening in pharma as well as you probably know, cost plus and all of this. But I think pricing strategy is a very deliberate and thoughtful way to solve some of the big problems in pharma and away from, I have a drug that is uniquely differentiated, I’m going to charge $5,000 for it.
Mark Stiving
Yeah. And that brings me back to something that we do in software a lot. And that is the pricing metric, right? So what are you charging for?. Or you might call it the pricing model. And so we might go from per seat to per gigabyte download, and what you’re really saying is, hey, let’s stop going from per patient to per neighborhood, per community, per population.
Arnab Sinha
Exactly. Does the unit or the basis of pricing always need to be the same thing? It doesn’t. In software we’ve worked through and I would argue that the basis that has been used reflects where value is created, right? You can charge it per seat if you know that that is where value is being created, you can charge it per download if, like for example, songs not necessarily software went to a per download because that was where value was being created way back when jobs came in. Now it’s moved to actually people don’t download songs, they want to listen to music. So I’m going to pay for Spotify, which has all the library. And so the evolution of pricing models from, like, I used to pay for CDs, then I started paying for song downloads to now I’m paying for a subscription to something which allows, it sort of takes, what do your customers want? In the end customers want to listen to music and they don’t want to be constrained by the fact that I only paid for these 25 songs. So that’s the only thing that I can listen to, right? And that’s how we should think about healthcare, which is, customers want to be cured and what is the best way to cure, again, things like infectious diseases, chronic diseases, acute diseases, and let’s change the pricing basis to reflect that.
Mark Stiving
Yeah. And what’s even better about this pharma example that you brought up that I love is, on a per user basis, on a per patient basis, yeah, that patient gets value. But the big chunk of value that we’re not accounting for is the medical industry. The HMO, right? So they could take a ton of cost out if they could get more patients to use it. Well how do we capture that? Well, we charge on a per, not per use, but per patient, in the network basis. Exactly. And now we can get the cost out and we’ve captured more of that value.
Arnab Sinha
Exactly. It is truly win, win, win, right? Society benefits, individual patients benefit and businesses benefit. And again, it requires thinking and some international, so people have tried to do this internationally. We, in the US of course, have a challenge, given there’s not a single network that has a range of patients. But again, this is where you use statistics to your favor, you know the prevalence of a certain disease in a certain population. Based on that you can start thinking of how pricing models can help you as opposed to, assuming like, well, it’s going to be every time I see someone it’s going to be X dollars, right?
Mark Stiving
Yeah. Very nice. All right, Arnab, we’re running out time. but let me ask you the final question. By the way, this has been fabulous. final question. What’s one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Arnab Sinha
I’d say think about value sharing, right? Of course you think about value, but think about value sharing because in the end it is about every time you have a customer or someone you are selling a product or service to, you are looking for a relationship. And the relationship is created by ensuring that you don’t keep all of the value, right? Figure out how much value you want to share, and how you communicate that, because that’s what drives long-term value creation.
Mark Stiving
Okay. I’ve not heard it said that way. Certainly I’ve had those thoughts, but I want to ask you, since you brought it up that way, how much of the value should I take?
Arnab Sinha
Yeah, so it depends on what it is that you’re offering, right? So if I have something that is uniquely differentiated, right? no one else has anything, people are inherent, and this comes to like topics of society and fairness, right? If something is fundamentally groundbreaking, innovative, people are willing to let you keep a ton of the value associated with it, right? So when Apple came up with the iPhones, and still today because it’s so fundamentally differentiated, people are like, yeah, apple phones can cost a thousand dollars because I mean, it may cost 200 bucks to make and most people know that, but it’s because it’s so fundamentally differentiated and so valuable to people’s lives. Like, yes, I’m letting you keep a ton of value. If on the other hand you are selling something orange juice, right?
Yeah. It’s a commodity. If you try to, but you may be the only game in town and you have 90% of the volume to sell. You could try to keep a lot of it, but people will remember, right? They’ll be like, wait a minute, this isn’t fair. This isn’t something that you, by your own industry and your ingenuity or entrepreneurship created, this is just something you locked into, right? So think about it again, and this is a hard problem because it’s sort of saying, okay, how much value am I truly creating and is attributable to stuff I have done and I have contributed? And if that number is high, society generally will give you credit to keep you 80, 90% of it and you should still share some of it back. On the other hand, it’s primarily structural. You locked into something. Well, in that case, keep a much lower 20, 30% of the chunk and share most of it back.
Mark Stiving
Alright, I’ll have to think about that one.
Arnab Sinha
Yes.
Mark Stiving
Alright. Thank you so much for your time today. If anybody wants to contact you, how can they do that?
Arnab Sinha
LinkedIn is probably the easiest and fastest way to do that.
Mark Stiving
Okay. And we’ll have your URL, LinkedIn URL on the show notes. And to our listeners, thank you for your time. If you enjoyed this, would you please leave us a rating and a review? And finally, if you have any questions or comments about this podcast or pricing, feel free to email me, [email protected]. Now, go make an impact!
