Armin Kakas is an expert in analytics, having lots of education in statistics, machine learning and A.I. He has an MBA, and he was a former VP of analytics at American Tire Distributors. He is also the founder of Revology Analytics, a revenue growth analytics consulting company.
In this episode, Armin talks about data analytics and its crucial role in pricing and in businesses as a whole.
Podcast: Play in new window | Download
Why you have to check out today’s podcast:
- Learn the importance of gathering and understanding data both in B2B and B2C setups
- Find out why pricing and price adjustments must be base on data and customer feedback and should never be done internally in a company
- Learn how to communicate and unite insights from both the points of view of business people and statistics people
“There needs to be a much smarter, much surgical way to manage discounts and really reward those customers that have the highest lifetime value or highest volume versus other things.”
– Armin Kakas
Topics Covered:
01:55 – How Armin got into pricing
03:35 – B2B vs B2C: Armin’s experience in applying pricing data analytics, and which one he prefers
05:57 – Armin’s insights on B2C based on data
06:46 – What is promotional effectiveness
07:34 – Products Armin used to promote on Black Fridays when he worked at BestBuy
09:09 – Why CPGs must have a strong understanding of the relationship between price and value
10:19 – Why companies should asses price and value based on customers’ response and not internally
13:08 – How businesspeople and statistics people shall communicate their insights with each other
18:41 – The most common problems Armin find when solving data problems for companies
20:06 – Why companies should have an “algorithm” that tells them how much to buy when a manufacturer offers big discounts
23:18 – Armin’s pricing advice
25:28 – Connect with Armin Kakas
Key Takeaways:
“One of the easiest, quickest insights you can get is by figuring out which are the lowest ROI promotions that are not delivering any value for you or your customers or any of your channel partners, cut them, and reinvest it elsewhere in other growth areas of the company.” – Armin Kakas
“I think that price-value curve tends to change, especially in CPG quite often. And so, doing that more often is really, really beneficial for companies. And doing it in the right way.” – Armin Kakas
“All this unproductive inventory gathering dust in warehouses, clearance price optimization is a huge opportunity. Just really creating some automation and some dynamic methods to clear out the product that is tying up your capital and is actually lowering your productivity as well as your operating profit.” – Armin Kakas
“When you ask the question, “What are some of the other areas that make a huge impact for companies?”, it is really things related to customer analytics, and that has two sides; One is providing insights… and then, the other side is providing actionable insights to the customers themselves.” – Armin Kakas
People / Resources Mentioned:
- Win Keep Grow: How to Price and Package to Accelerate Your Subscription Business – https://www.amazon.com/Win-Keep-Grow-Accelerate-Subscription/dp/1631954784
- Impact Pricing: Your Blueprint for Driving Profits – https://www.amazon.com/Impact-Pricing-Blueprint-Driving-Profits/dp/1599184311
Connect with Armin Kakas:
- LinkedIn: https://www.linkedin.com/in/arminkakas/
- Email: [email protected]
- Website: https://www.revologyanalytics.com/
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.)
Armin Kakas
Manage your discounts much, much better in a much smarter way. Many manufacturers have this issue where they may have guidelines, but what ends up happening is that salespeople just end up bumping against those guidelines all the time, depending on their relationship with their VP or their director. So, I think there needs to be a much smarter, much surgical way to manage discounts and really reward those customers that have the highest lifetime value or highest volume versus other things.
Intro
Mark Stiving
Today’s podcast is sponsored by Jennings Executive Search. I had a great conversation with John Jennings about the skills needed in different pricing roles. He and I think a lot alike. If you’re looking for a new pricing role, or if you’re trying to hire just the right pricing person, I strongly suggest you reach out to Jennings Executive Search. They specialize in placing pricing people. Say that three times fast.
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the critical relationship between them. I’m Mark Stiving, and our guest today is Armin Kakas. I hope I got that one right.
Armin Kakas
Very good to hear.
Mark Stiving
Here are three things you’d want to know about Armin before we start. He is the founder of Revology Analytics, a revenue growth analytics consulting company. He was a VP of analytics at American Tire Distributors, meaning he’s hung out in that consumer product space quite a bit. And he has tons of education in statistics and machine learning and A.I. and even an MBA. Welcome, Armin.
Armin Kakas
Yeah, thank you, Mark. Thanks for that. Thanks for having me. Glad to be here.
Mark Stiving
How did you get into pricing?
Armin Kakas
Oh man, it was by sheer accident. And I would say maybe, love brought me into pricing. So I’ll try to give you the two-minute story maybe. I was with GE post MBA, did a leadership program after business school with three or four different business units of GE. And so, on one of my rotations, I met this beautiful young lady in Arkansas. I worked for Walmart. And so, I ended up moving back to Dallas to lead Salesforce effectiveness for a small financial services arm within GE Capital.
But I really wanted to be closer to the city that I just met – who was not my wife. And so, I ended up searching for jobs and I got recruited into a role with MillerCoors – it was called MillerCoors back in the day, and now it’s MolsonCoors – and it’s a pricing manager role. So, the idea was to take an existing pricing team and transform them into an analytics-driven pricing strategy and pricing advisor for Walmart and Sam’s Club businesses. And so I got recruited, I got the job. And ever since that, I’ve been in the intersection of pricing and advanced analytics, all thanks to love.
Mark Stiving
Okay. So, I got to say – I love the story, by the way – but I got to say, when you first said you got into pricing because of love, I thought you were going to say the love of pricing, but it was actually the love of another person.
Armin Kakas
I had no clue about how awesome pricing is or how awesome the discipline is itself back in like 2011. So, but yeah, it was human love, which then eventually turned into like functional love for sure.
Mark Stiving
Nice. So, you spend almost all of your time on analytics, on data of pricing. And so, have you ever had a chance to apply this in a B2B space? Because there’s so much data in the consumer goods worlds, and it makes a lot of sense that that’s where you would hang out. I’m just curious if you’ve ever been in B2B.
Armin Kakas
Yeah, I have more, actually. I would say, probably 30% of my experience is in B2B and maybe the other 70% is in B2C across CPG and retail. I actually prefer B2B engagements and B2B problems much more so than the CPG type problems. I think they’re more interesting. And I think the upside to deliver value for companies is much, much greater. And there’s also this whole notion of – there’s just not enough human and tech capital in those spaces a lot of times, especially in very traditional companies to do a really good job of uncovering a lot of these hidden insights that actually drive value for companies. So, I love B2B problems as much as I can, I do those. But a big part of my experience is really B2C.
Mark Stiving
So, personally, I’ve spent most of my time in B2B, but what I love about B2C is the fact that we all shop, right? We all buy things. And so, it’s so much easier to relate stories or capability in the B2C space if you got to try to teach someone what’s going on. I find them both fascinating.
Armin Kakas
Yeah. And I think the other thing, Mark, is that a lot of B2B companies — again, I’m thinking, and I’m incurring to the industries that I’ve worked in distribution, consumer durables, distribution. I’ve had a bit of experience in medical devices. There are actually industries where you tend to have a lot of data. Sometimes you have data from distributors, right? If you’re a manufacturer, you may have syndicated data. So, you have a lot of data, but you have very little actionable insights. And I think industries like CPG, especially if you’re a top tier kind of CPG, you’re inundated with insights and advice from syndicated data providers, and Numerator, and Ira, Nielsen, and all these guys. And so, all these other B2B industries, they have so much opportunity to just really make their pricing and profitability much, much, much stronger.
Mark Stiving
Nice. Let’s stick with B2C for a little bit just because most people understand B2C. What are some insights that you might find when you just look at data?
Armin Kakas
Maybe it may be linked to like consumer products again, that’s the easiest and the most relevant. I’ll say in marketing, the two or three things that I always go to, are one; promotion effectiveness. But I think to me it’s probably the single easiest lever to impact and drive operating profit for companies. Many CPGs don’t have a good way of measuring the return that they’re getting on their promotional investments. And for a lot of these companies, it really makes up 15% to 20% of their revenue, sometimes even 25% of their gross revenues. Right.
Mark Stiving
When you say promotional effectiveness, is that price discounting? Is that advertising, or promotional campaign?
Armin Kakas
I think in a broader umbrella, it’s all of the above. But really, the focus and probably the biggest impact is just price promotions. So, price promotions themselves are often 15 to 25% of gross revenues. Many companies, even those with turnkey solutions, have very little idea of the returns they’re getting from those investments. So, one of the easiest, quickest insights you can get is by figuring out which are the lowest ROI promotions that are not delivering any value for you or your customers or any of your channel partners, cut them and reinvest it elsewhere in other growth areas of the company, let’s say. That tends to be really, really creative for companies.
Mark Stiving
Before you go on, I got to ask something. I have written several times about Black Friday. Have you ever had a product that made sense to promote on Black Friday? And have you ever done analytics around that?
Armin Kakas
We’ve done a bit of analytics when I actually worked at Best Buy, and so my team was responsible for setting the prices for products and Best Buy stores and online. And yes, we promoted products, especially Anker products, quite heavily on Black Friday. But tell me more about your segment.
Mark Stiving
Oh, I’m just curious. I’ve written so many different things about Black Friday, one of which is that it’s proof that price elasticity makes no sense. Because even if you didn’t lower your price, you would have doubled your sales that day because people are out shopping. But the fact that you lowered your price and sales doubled, it looks like, “Wow, I had this great price elasticity that happened”.
Armin Kakas
100%. Definitely. when you model price elasticity, you definitely need to control for events like that. But 100%, I’ll be honest, Black Friday has been in this country for an excess of 24 years and it’s still not something that I’ve partaken in, nor will I ever, I think, partake in.
Mark Stiving
So, one year, you have to get up at five in the morning and go shopping on Black Friday just for the experience. My brother lived in Rochester, Minnesota, and we would get up at five in the morning on the day after Thanksgiving to go shopping. Oh, what an experience.
Armin Kakas
Oh no, I don’t. Very little interest. Maybe my kids one day. One day they can do that. But I think the other piece I was going to mention, Mark, which is really kind of your sweet spot; it’s for many CPGs, most of them, don’t have a really, really strong understanding of this price-value relationship of their products. And I think a lot of the things that I’ve seen in the past is that when companies are trying to do this internally and they get a bunch of people from marketing and finance and revenue management of sales, and they’re trying to do some kind of a quantified consumer value versus relative price kind of an equation, as opposed to actually doing some customer research. But I think that’s a big mix for companies, especially when it comes to kind of right-sizing their portfolio in terms of pricing because two, three years pass, and it’s a different world. There’s inflation, there’s different consumer expectations in different brands. And I think that price-value curve tends to change, especially in CPG quite often. And so doing that more often is really, really beneficial for companies. And doing it in the right way.
Mark Stiving
It’s interesting that you bring that up, and the word “value” in the way you used it, I’m going to say, is willingness to pay. How much would somebody be willing to pay for the product? Oftentimes when I work in B2B, we focus on “What’s the specific problem that this customer has that that customer doesn’t have?”, or “What’s the real value for this feature for a customer?”. And what I find fascinating about most consumer work is we rarely go there. It’s usually assumed that there’s some kind of value going on. And by the way, how do you value the color blue on the shirt?
Armin Kakas
Yeah, it’s pretty esoteric. Yeah. But 100%, I think value can be a lot more concrete in B2B settings. Especially when you’re going to be anchoring to like the last industry or one of the last industries that I work in, which is medical devices. It’s pretty objective, right? And you can actually decompose the benefits into several supports in CPG. Again, it’s a lot more conceptual. But you can still do brand trackers and brand health surveys from customers and really, we’re talking about food, or a beverage. You can ask them about the taste and the quality of the product and etc.. And then finally, that’s their purchase intent. I think, based on their responses on these different attributes – some of them quite mushy – based on those different attributes, you can actually model what their weighted benefit is for a particular product. So, you can certainly right size pricing. And I think one of the favorite examples that I keep bringing up is, it’s actually happened to me earlier in my career, is we’ve done a price-value exercise at a company. We’ve done it with an internal team, and it turns out our products were value-advantaged relative to the competitor products. It was just way greater in terms of consumer benefit. And we were roughly priced the same. So, we said, “Great, let’s change the packaging a little bit. Let’s make it a little bit more fancy, and charge more money for about 20% more”. What ended up happening over the next 9 to 12 months is we had to fund all that price increase back, plus some more via trade, because it turns out consumers didn’t quite have that differential value for our products. And we redid the survey – this time based on customer feedback. And that was exactly the case, underscoring our previous trade funds that was needed because we just simply didn’t have the incremental value. So, that’s why I always encourage companies to ask customers directly, don’t do this internally.
Mark Stiving
And not only that test. Spending millions of dollars to launch a new pricing or packaging without having tested it somehow, it’s so risky.
Armin Kakas
Yeah. 100%.
Mark Stiving
So, you are a unique individual, I would argue that I am, too. By the way, I have a Ph.D. and my Ph.D. was on $0.99 and I studied the prices of tuna and ketchup.
Armin Kakas
What was the synopsis of your dissertation?
Mark Stiving
First off, $0.09 really does work. And I’ll give you the answer because it actually leads into the question I wanted to ask you in the first place. And so, what I did next was I just put in a single discrete variable to say that “If it ends in nine, does it sell more?” And the answer is yes. And then I wanted to say, “Well, why does this work?” And I started creating different models to say, “Well, what if people think this way? Or what if people think that way?” And it turns out, the model that fits the best is the one that says “When the left-hand digits are different, people ignore the right-hand digits. When the left-hand digits are the same, the right-hand digits matter.” And it was really cool that they came up. And the answer really is we’re lazy subtractors, and that’s why this happens.
But what I was going to bring up in the fact that you’ve got this very uniqueness to you is. We, as businesspeople, have to create the model that says, “I think this may be what’s going on”, and then we run it against the data. So, how is it that you can communicate? Because there’s two sides in your world: You’ve got the business side, and you’ve got the statistics people. How do you communicate between those two groups or how do they communicate between themselves?
Armin Kakas
It’s a really good question, Mark. And by the way, I have to read your dissertation paper for sure after this, maybe, over some cocktails.
But I mean, listen. I think that’s probably one of the central problems that you get from analytics, particularly advanced analytics and business. And you see that all the time. And by the way, it’s not reserved for pricing or revenue management; there’s a big gap between folks that can do the advanced work, and the people that make the decisions. The business leaders make the decisions. There’s a huge communication gap, right? And on the left-hand side, you have the business folks who don’t quite have the more advanced skill sets to understand basic stats and machine learning and things like that. On the right-hand side are folks who are really good at that, but they have either little domain knowledge, a little interest to dumb things down or whatever else. So, it’s a huge chasm in that sense.
You know, one of the things I’ve learned over the course of my career, and people that have been in this analytics world for a long time, they all get it. And especially somebody like you gets it; it’s you got to keep things simple, even if you use something pretty complex in terms of the analytics method to uncover some insight, you have to keep the explanation very simple. You have to put it in a language that is very natural to the person that you’re telling to on the business side, right? And then you also have to kind of connect the insights and the recommended actions to the things that they care about, which is typically going to be tied to their incentive bonus. And so, I think that’s really, really key when you talk about the communication, the interaction of the folks that do this type of work, commercial analytics or pricing analytics, somebody’s going to call that on this. And by the way, I see this all the time. I still see this in companies and I think that’s a big problem.
Mark Stiving
Yeah, I agree completely. It’s a huge problem. And it feels like people like us are pretty unique in the ability to do what we do. But I couldn’t do the analytics anymore. There’s no chance, unless you taught me how to use the software and I just push the button. Then maybe I could. But I can still think in models, which is very different than most people. And so, I would almost think in your new role as you go out as a as a new consultant in a new analytics firm, it’s almost like you want to tout this ability to say, “Look, I understand the business problems and I can translate business to stats and stats back to business”.
Armin Kakas
Yeah, that makes sense. I see somewhat of a revolution happening in the analytics world. I think you probably see this from the posts in the news feed and whatnot. Like there’s more and more people talking about this idea of “Outcomes are what matter in analytics and data”, right? And it’s not the sophistication of the algorithm, right? It’s the business outcomes that you’re able to drive. So, if that means that you have to use simpler methods, and that’s what you do in order to accomplish the goal. Get some wins and then move on.
You mentioned also to test and learn. That’s obviously one of the easiest ways to drive progress in companies, particularly for prices statistics that might if you run a 6 to 8-week test on a small subset of your products and you do a good job of establishing the test for a control group. That’s a really, really good way to sell in a new strategy for a new pricing tactic for leadership, because then, the results are like in-market, they’re empirical, they’re actual. And we found that to be a good way to affect the effect strategy.
Mark Stiving
Yep. Yeah. Cool. So, what’s another problem that you often find? And a place where I’m going to make a lot of money when I hire you to come solve my data problems.
Armin Kakas
Great question. I think there’s a couple of things. So, we talked about promotion effectiveness. It’s huge for CPGs, right? I’d say it depends on industry, Mark. I think for things like distribution, inventory management is a huge problem, particularly unproductive inventory. So, a lot of these companies, a lot of these wholesalers, they buy up all this inventory, especially when it’s on a heavy discount from a manufacturer. A manufacturer comes to Mark and says, “Hey, man, you can buy these hundred thousand digits because it’s on a 50% discount”. You know, a lot of the times a young Mark may say, “Oh, sure, let’s go get it.”
The reality is your sell through rates are going to be like you’re going to sell through them in two or three years. And so, all this unproductive inventory gathering dust in warehouses, clearance price optimization is a huge opportunity. Just really creating some automation and some dynamic methods to clear out the product that is tying up your capital and is actually lowering your productivity as well as your operating profit.
Mark Stiving
Before you go on, it also seems from what you just described to me that you should give me an algorithm that tells me how much I should buy when someone comes and says, “Hey, it’s half the price”.
Armin Kakas
Yeah, spot on. And that’s the type of work that we’ve done in the past where you actually have – call it a procurement scenario analysis or purchase optimization. You can actually pluck some numbers in and understanding historical sales patterns, understanding certain assumptions, interest rates relative to holding costs, etc. You can kind of get a good gauge of what’s reasonable versus what’s not.
But again, I think many companies in traditional settings don’t quite do that. They still rely on this experience-based method or gut feel. And that’s a big thing. And I think the other area is, Mark, when I started this small boutique firm, I purposely didn’t want to be like this pricing strategy guy because I’m not that good in strategy. I’m really good at analytics, I’m really good at driving those insights. I’m okay with strategy, but what my core competence has been is really commercial analytics, of which pricing is one part.
The other part is what I call “sales and customer growth analytics”. So, when you ask the question, “What are some of the other areas that make a huge impact for companies?”, it’s really things related to customer analytics, and that has two sides; One is providing insights, ideally actionable insights to your sales team on which customers to go after, which customers to have their sales offers because they’re about to churn, which customers to do cross-selling because they have the highest propensity to buy other products. And then, the other side is providing actionable insights to the customers themselves, be it directly or through your sales force around assortment optimization, total profit optimization, things like that. So I think those two things are hugely impactful for companies, especially in B2B settings.
Mark Stiving
I think that’s phenomenal. I don’t know if you know this, my second book was called “Win, Keep, Grow”, which is about managing subscription businesses. So, we know we have to go win customers, and all traditional businesses would ask, “How do you go to win customers forever?” But if you think about it, in subscriptions, once we win a customer, we have to keep them. And analytics should be able to tell us when someone’s about to churn out, what you should be doing to go get them and keep them. And then once we have happy customers, we want to figure out “How do we grow a customer?” And so now, who’s using the most? Who looks like the types of customers who have who have upgraded in the past, or bought other stuff from us for the past? I think analytics are fantastic for that.
Armin Kakas
That’s right. I have to get that book. I think I have like one or two of your books. Pricing impact. I think you wrote that one right?
Mark Stiving
Impact Pricing was my first book. That was 12 years ago.
Armin Kakas
Yeah, I got that when I was ten years old. It’s a really good book. It is a very good book. I think it’s one of my top pricing books that I read.
Mark Stiving
Thank you so much. The check’s in the mail, by the way.
Okay, we’re going to run out of time, Armin. I’m enjoying this a lot. But last question; What’s the one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Armin Kakas
Oh, man, I have so much advice. Can it be two?
Mark Stiving
Okay, I’ll give you two. Make it a compound answer.
Armin Kakas
Okay, I’ll give you a long run-on sentence. I think one of the big, obvious things that I see that needs to improve – and this is really in the B2B setting – is just manager discounts, you know, much, much better in a much smarter way. Right. I think many manufacturers have this issue where they may have guidelines, but what ends up happening is salespeople just end up bumping against those guidelines all the time depending on their relationship with their VP or their director. So, I think there needs to be a much smarter, much surgical way to manage discounts and really reward those customers that have the highest lifetime value or highest volume versus other things. And that’s number one.
I think maybe related to that, this is fit both to B2C and B2B; is this whole idea of really asking your consumers, or your customers if you’re B2B, how they value your product, vis a vis the competition and be able to right size your portfolio based on that, versus just blindly kind of doing a cost plus or doing a competitive index-based pricing, which by the way, 95% of the companies still do or perhaps even 99%. I would say those two things.
Mark Stiving
Nice is what I find funny about the second suggestion or recommendation you made is I make that all the time. “Go talk to your customers”. But I got to tell you, that’s qualitative research. And you happen to be a quant guy.
Armin Kakas
I mean, sure. Listen, I’m terrible about that piece, the actual execution piece of the survey. But what I am good at is, once I get the numbers back and the results and the responses, then we can actually figure out what the price-value relationship is. But, yes, I am fully aware, Mark, that I’m not good at the soft stuff.
Mark Stiving
No worries, Armin. Thank you so much for your time today. If anybody wants to contact you, how can they do that?
Armin Kakas
They can go to LinkedIn, they can find me there. Or they can just go on my website at https://www.revologyanalytics.com/ and get in touch.
Mark Stiving
Excellent. And we’ll probably have those URLs in the show notes.
To our listeners, thank you for your time today. If you enjoyed this, would you please leave us a rating and a review? You can get instructions on how to do that if you go to ratethispodcast.com/impactpricing. It will make it so much easier. And trust me, we value them a lot.
And finally, if you have any questions or comments about this podcast or pricing in general, feel free to email me at [email protected]. Now go make an impact.
Mark Stiving
Thanks again to Jennings Executive Search for sponsoring our podcast. If you’re looking to hire someone in pricing, I suggest you contact someone who knows pricing people contact Jennings Executive Search.
Tags: Accelerate Your Subscription Business, ask a pricing expert, pricing metrics, pricing strategy
