Michael Hammersley co-founded and invented a payment system designed to locate the market price of any consumer good. He authored the utility patent that protects the invention.
In this episode, Michael discusses the platform he co-founded, a dual-sided marketplace of buyers and sellers that helps businesses reach a pricing competitive advantage.
Podcast: Play in new window | Download
Why you have to check out today’s podcast:
- Discover what Drop Pilot platform is
- Find out how it can benefit both sellers and buyers in determining the best price possible
- Learn to figure out the best pricing your customers are willing to pay
“Find out what your customer is willing to pay before you sell them the product.”
– Michael Hammersley
Topics Covered:
01:34 – How he started his career in pricing
02:21 – What’s so interesting about analyzing pricing potential as a distressed fund
02:55 – Getting to know what Drop Pilot is and what dual-sided marketplace mean
04:00 – Is Drop Pilot a marketplace or research area and what benefit does this platform have for the sellers?
05:26 – What kinds of businesses work with them and what it means to have multi-unit transactions?
06:18 – Buyer’s benefit in using Drop Pilot and explaining the research aspect of the platform
08:34 – Proprietary payment system’s role in the marketplace and where his coaching focuses on in regard to the platform
11:01 – How to get people to bid with B2B businesses
12:56 – What is a Drop Day?
18:17 – Is the platform representing the real market?
19:11 – How the whole idea about Drop Pilot started and dealing with scalping issues
20:36 – Michael’s best pricing advice that impact’s one’s business
Key Takeaways:
“We have a lot of repeat droppers who each time they come up with a new product, they’ll come back, release it with us, figure out how to price it, and then sell it on their own website.” – Michael Hammersley
“If you want to figure out customer willingness to pay for a pricing tool, you really have to generate those numbers on your own based on estimations.” – Michael Hammersley
“If you want to look at the pricing analytics and you want to find out what your customers are willing to pay, it actually makes more sense to operate in a pressurized environment because you get the highest and best price.” – Michael Hammersley
“What you would want to do is take a look at the analytics and find the clusters of where the most bids came in like what the most common bid was, and then use that as a reference point to set your retail price.” – Michael Hammersley
“One thing that our algorithm or our platform actually does is it completely prevents the use of scalping bots.” – Michael Hammersley
Connect with Michael Hammersley:
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.)
Michael Hammersley
Find out what your customer is willing to pay before you sell them the product.
[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 discovered relationship between them. I’m Mark Stiving and our guest today is Michael R. Hammersley. And here are three things you want to know about Michael before we start. He is the co-founder and CEO of Drop Pilot, which is why we’re here because I want to learn about what they do. He has a background of finance and accounting and he has a law degree. No wonder he doesn’t want to be a lawyer. And finally he was the US ambassador to Antarctica. Welcome Michael.
Michael Hammersley
Thanks for having me, Mark.
Mark Stiving
Hey, with such an eclectic background, how did you get into pricing?
Michael Hammersley
So, I kind of just stumbled into it as a career. But I’ve always been interested in pricing. Before I went to law school, I ran a distress debt value fund. And one of the things that I would look at and when I was evaluating companies was their particular pricing competitive advantages to determine whether I was going to make an investment or not. And then later after I graduated law school I was asked to come aboard Drop Pilot. And that’s how my career developed into becoming a pricing consultant, pricing analyst.
Mark Stiving
So first off, I work a little bit with private equity firms and I have to say the idea of analyzing people’s pricing potential as a distressed fund is pretty awesome. I mean, that’s a great thought.
Michael Hammersley
Yeah. I mean, because it’s interesting to see whether they’re going to be able to turn around or not. And if they have a pricing competitive advantage but they’re just in a bit of a rough spot or have a liquidity issue, then that’s probably a good investment.
Mark Stiving
Yeah, absolutely. And so I say that’s probably the same decision private equity firms could make as well.
Michael Hammersley
Yeah, Absolutely.
Mark Stiving
Right. How much room is there to grow. Nice. Okay. So tell me about Drop Pilot. What is it that you do? You sent me a little bit of a description, but unfortunately the listeners can’t hear it. So give me a quick overview and then we’ll dive into some specific questions.
Michael Hammersley
Sure. So we’re a dual-sided marketplace and the main point of the platform is to help businesses learn what a customer is willing to pay for any new product before they go to sell it through their primary sales channel. And so as a dual-sided marketplace we’ve got benefits for both buyers and sellers. It might make sense to walk through the seller side first and then discuss the buyer side.
Mark Stiving
Yeah. So when you say the words dual-sided marketplace, first off, tell me what does that mean to you?
Michael Hammersley
So it means that we don’t actually have any products of our own. So we’re reliant on sellers to sell their products to our marketplace and we’re reliant on buyers to use us to buy those products.
Mark Stiving
So that’s like Amazon?
Michael Hammersley
Yeah, exactly. Well, Amazon has some of their own products. It would be more like Etsy
Mark Stiving
Or Etsy. Right. Okay. So these are essentially marketplaces
Michael Hammersley
Exactly, yep.
Mark Stiving
Is what we’re saying. And so are you guys a marketplace or are you a research area? Because my implication or inference was that it was more research.
Michael Hammersley
No, we’re a marketplace. We do lots of research, but no the platform is a marketplace.
Mark Stiving
Okay, so let’s hear it from the seller’s side. Go ahead.
Michael Hammersley
Okay. So the benefit to sellers is that they can learn what a customer is willing to pay for the product before they actually go to sale. And how that works is they’ll do a limited release with us, all right? So it’s not 500 units, it’s not a thousand units, it’s typically six to 10. And they’ll set a minimum bid to cover their manufacturing costs. All right? And then what happens is our customers, or third party customers will come in and submit blind bids for that item for sale. We put a hold on the buyer’s card for the full amount of the bid, for the duration of the transaction. And it’s important to note that when sellers sell with us, it has to be a multi-unit product release, all right? And all of the products have to be the same. And so going back to the customers the blind bidding for the customers we will put a hold on their card for the full amount. And then once the product release is over, the businesses get to look at all of those blind bids that were submitted and they can calculate and quantify how much a customer is willing to pay for for this item. And then they go to full production and sell it through their own primary sales channel.
Mark Stiving
Okay. So give me an example of a product. What’s somebody who would do this and, and who’s done this with you?
Michael Hammersley
So we’ve had a number of different brands work with us. We’ve had artists, we’ve had clothing companies, we’ve had service providers like apps for health and life coaching, workout coaching. We’ve had hot sauce and we’ve also got a company that works with us consistently, and they sell puzzles. And so it’s a new puzzle every time and there’s a cash reward attached to that. So there’s no real limitation on who can drop with us or who can release their products with us. As long as it’s a multi-unit transaction and the products are all uniform.
Mark Stiving
Okay. And so the transaction has to be multi-unit. If I’m selling a puzzle, do I have to sell multiple puzzles or can I just sell, I mean, I assume I have to have six to 12 of them so that I can deliver six to 12 of them to six to 12 different customers, but I only need one puzzle per customer. Right?
Michael Hammersley
Okay. So you would need to have six of the same, or 12 of the same puzzles, all right. But not everybody’s going to actually buy your puzzle. And so it might make sense to transition here to the buyer side so I can explain why.
Mark Stiving
Okay.
Michael Hammersley
When buyers get on our website, the benefit to them is that they will either pay less than they bid for the item or they’ll get a full refund. And so how that works is what we call the drop price. All right? So that’s the price that all of the winning bidders will pay. So say, let’s go back to the puzzle example. Say we’ve got six puzzles, all right? And say a hundred people bid for that puzzle. So whatever the top six bids are, those people are going to get the puzzle, but they’re not going to pay what they bid. What they’ll pay is whatever the seventh person bid. And so what we do is use the inventory available or the inventory for sale and then count down from the top bid. So starting with the highest and second, third, fourth, fifth, sixth. And then we go to the next lowest bid, which is the seventh bidder in this case. And that’s what all six of the top bidders will pay for the product and everybody else gets a full refund.
Mark Stiving
So from an auction perspective, that makes sense, right? That’s a really good idea for buyers. But I’m still struggling with, is this a research tool or a marketplace? And so if I’m a puzzle manufacturer and I create six puzzles and I give them to you and you sell them and I say, oh look, their price really should be $23, then I go to Amazon and I sell it for $23?
Michael Hammersley
Yeah, you could definitely do that. Okay. So from that perspective, it’s really both. Because we’re a marketplace since we are selling other people’s products and other people buy them from us, but the research tool aspect of it comes from the payment system that we operate on. And so that’s a proprietary payment system that we developed. And from that perspective, yeah, we definitely are a research tool.
Mark Stiving
Okay. And what is the payment system? By the payment system, you just mean we select who it is that’s going to win, or is there a separate payment system like PayPal or something like that?
Michael Hammersley
So we partnered with Stripe and so we have a proprietary algorithm that attaches to Stripe’s payment network, and that’s how we run the drop price calculation and things like that and figure out who’s going to actually win the option. And so then once that transaction clears, then Stripe handles the rest and takes the payment methods of the buyers and things like that.
Mark Stiving
So you don’t have to manually go back and say, these people all bought it at this price. You just essentially told Stripe this was the winning price and Stripe has put that algorithm in their system.
Michael Hammersley
Yeah. So they clear all the transactions for us. There’s nothing manual about it.
Mark Stiving
Nice. And so how much coaching do you give sellers when they’re trying to figure out how to handle this?
Michael Hammersley
A lot. I mean, because it’s a pretty different way to look at pricing and it’s a different way to discover on what a customer is willing to pay. And so a lot of the coaching comes in the form of what should I set my minimum bid at? Because that’s really all the seller has control over, it’s up to the buyers to actually decide what the drop price is going to be and whether they’re going to bid on that product or not. And so we do a lot of minimum bid coaching because there’s a science to it as to whether you should set a low minimum bid, high minimum bid and things like that. And so the brands we work with really have to get used to that. And we spend a lot of time helping them.
Mark Stiving
And do you tell the buyers what the minimum bid is?
Michael Hammersley
Yeah. So when a buyer comes in and they want to place a bid for the item, they’ll see when they go to pay what the minimum bid is and then they have to, of course put it in a bid that’s higher than that.
Mark Stiving
Okay. So some challenges I see, if I’m a manufacturer, I’m a business, I want to sell something on your site because I’m trying to figure out how much it’s worth, how much people would pay for it. You have to have a set of buyers that are appropriate for my product. So for example, I sell pricing consulting hours, and so I want to put an hour of consulting, I’m going to give you five different hours of consulting or six different hours of consulting, you can put it on your site. I’ll give you a zero. Well now I’m going to make it a thousand dollars minimum bid and you’ll get nobody to bid on it. I mean, maybe you would, but my guess is it’s nobody because you’re mostly running a B2C site and most people who would ever want me is running a business.
Michael Hammersley
So we’re actually B2B2C. And so how you would get people to bid on that is if you announced to people that had previously gone and bought your pricing consulting services from you, you could say, hey, I’m doing this product drop, product release and if you are interested in buying an hour of my services go to the droppilot.com and you’ll be able to get those services for less than you actually bid. And so we use the sellers’ existing customer base to help them determine what their customers are willing to pay for the product.
Mark Stiving
Yeah. And so what you’re saying is that I could bring in my own buyers…
Michael Hammersley
In fact, you would want to do that because it’s going to give you better data. It’s going to give you better pricing data, because if you’ve already made a sale to these people, you know that they’re interested in your product, which means that when you’re releasing a new product, you want to see what they’ll pay for it.
Mark Stiving
Yeah. In a way that’s kind of interesting. So let’s say that I had 20 hours a month I wanted to work, or I wanted to sell hours for, and I put all 20 hours on your system and I told all my customers, go buy over there. So then they’re going to bid for the hours.
Michael Hammersley
Yeah.
Mark Stiving
And they end up paying the 21st price.
Michael Hammersley
Exactly.
Mark Stiving
The 21st hour price.
Michael Hammersley
And you would set your minimum bid so you know whatever your manufacturing cost or whatever your cost is going to be, you’re positive that you’re going to clear that. And so there’s a benefit to both sides there because you’re right, the buyers will pay less than they bid.
Mark Stiving
Yeah. Okay. So tell me about how many buyers you have. I’m the hot sauce manufacturer, I’m the puzzle manufacturer. Do I have to bring my own buyers to the market in order to make this work? Or do you have a hundred thousand, a million buyers who tend to shop there and say, oh, I think I’m going to buy hot sauce today?
Michael Hammersley
We’re not quite at a hundred thousand or a million yet. So typically we do a once a month event called Drop Day. All right. And what that is, is we’ll have 10 different brands dropping their new products all in the same day. And so we typically have about 3,000 to 5,000 unique visitors that come in to make purchases for these particular products. And so what we do is we ask the brands we partner with to advertise on their own social media and things like that to generate hype. And so then they get those users to come in on drop day. And the benefit to them is that there’s cross-selling that goes on. So somebody that comes in to buy a bottle of hot sauce ends up with hot sauce and a painting. And so they get to benefit from getting new customers as well.
Mark Stiving
Hmm. That’s pretty interesting. And have you had any sellers tell you how this compares to doing their own pricing research?
Michael Hammersley
Yeah. Most companies, I mean, even small businesses just use cost-plus margin where they’re just they’ll research what’s the appropriate margin for a t-shirt or what’s the appropriate margin for a bottle of hot sauce? And they’ll just put that margin on their own product and then sell it at that. But then when they, you know, drop with us or release their products with us, they’re surprised because consumers are willing to pay more for their products than they would’ve ever expected. And so then once they go through the process with us, we have a lot of repeat droppers who each time they come up with a new product, they’ll come back, release it with us, figure out how to price it, and then sell it on their own website.
Mark Stiving
So that’s actually interesting. So let me go through a scenario with you where I think this won’t work and you can fix my thinking. So I’m going to sell a t-shirt. Um, It’s got a really cool saying on the front, ‘Whatever it happens to be’, you have a million shoppers, and I give you 10 t-shirts and you happen to find a hundred shoppers who love that T-shirt. And so they ended up bidding the price up and it comes out to be a really high price, right? So I’m selling my t-shirt at 50 bucks a piece. This is pretty cool. So then I go to the real world and I go on Amazon or some site like that. I post my t-shirt for 50 bucks a piece, and I find it doesn’t sell as well. And that’s because the $50 came from a hundred out of a million potential shoppers. So in essence, the price came out higher than what I would’ve done if I were looking for a bigger market share.
Michael Hammersley
Yeah. And so in that case you’ve got to remember that the data we generate is really just a reference point. Because right now, if you want to figure out customer willingness to pay for a pricing tool, you really have to generate those numbers on your own based on estimations. But in this case, we have actual customers who are separating with their money to buy your product. And so it’s a better quality of pricing data that doesn’t really exist anywhere else. And so you wouldn’t want to use the highest bids or even sometimes the drop price to price your product. What you would want to do is take a look at the analytics and find the clusters of where the most bids came in, you know, like what the most common bid was, and then use that as a reference point to set your retail price, because you’re right.
Mark Stiving
Okay, so I’m going to restate what I said because now I think that this is a really good idea. So you’ve got your million customers, it turns out that a hundred thousand of them bid on the product, so that’s good news, right? A hundred thousand thought it was worth more than my cost or whatever my minimum bid was, and the top 50 paid me a lot. So I made a little bit of money on selling those 10 units, but in truth, the thousand I now have a data of how much a thousand people are willing to pay for this.
Michael Hammersley
Right. Exactly. And, and just a small minor correction. So you said the top 50, it would actually be the top 10. Okay. So the top 10 Yeah. We always base it on inventory.
Mark Stiving
Yep. Top 10. Sorry, I’m not writing all my numbers down.
Michael Hammersley
That’s okay.
Mark Stiving
I’m messing this up as we go, but no, because now what I’m seeing is I’m actually seeing the bids of everybody and now I can tell where I should be pricing if I want to sell a thousand out of a million? I don’t remember if I think I said a hundred thousand, but it doesn’t matter, right? If I want to sell a hundred thousand units, I’ll price it at my cost, and if I want to sell, you know, X number of units, we can go figure that out. This is actually a really interesting way to create a demand curve,
Michael Hammersley
Right? And you’ve got to remember too that we put a hold on the buyer’s card for that full amount. So it’s not like, you know, they can just come in and push these inflated artificial bids. They’ve actually have to separate with that money for X number of days until the transaction clears and they get either a partial refund which is, the difference between what they bid and the drop price. That’s what all the winners get, and then everybody else gets a full refund. So the data quality is very high.
Mark Stiving
Nice. So I like the idea. So the only thing that we’re back to in terms of what I would push back on is, is the market that you’re using representative of the real market?
Michael Hammersley
Yes and no. So no, because we operate our product releases on a time scale, so it’s typically three days. All right? And so you’ve got a scarcity factor that does skew the results a little bit. But again, if you want to look at the pricing analytics and you want to find out what your customers are willing to pay, it actually makes more sense to operate in a pressurized environment because you get the highest and best price, the highest that the customer is willing to pay. And again, you don’t necessarily want to charge that, but it’s still interesting to see exactly how much they want to pay. But they are skewed because it is pressurized in the sense of a set amount of time, finite time to make the purchase.
Mark Stiving
Yeah. That’s pretty interesting. What a clever way to create a demand curve to simulate a demand curve. Love that. Excellent. Michael, did I not ask you something that we really need to know about this?
Michael Hammersley
Well, but I do want to tell you about how the idea actually started, because one of our co-founders went to buy tickets to a Muse concert. Alright? So we all know about the scalping issues faced by Ticketmaster, Nike and things like that. And so one thing that our algorithm or our platform actually does is it completely prevents the use of scalping bots. And how we’re able to do that is because we don’t actually know what the price is going to be for the product. And so there’s no way to disclose that SRP or price for whatever is selling. And so because of that, we take away the advantage that scalping bots have. They actually can’t function on our website. We’ve hired scalping bots to come in, operators of scalping bots to come in and try to bot our website and it never works because their algorithms can’t function. And so that’s just another interesting aspect that we’ve started as an anti-bot, anti-scaling tool and then sort of worked our way into becoming basically a researcher pricing analytics platform.
Mark Stiving
Nice. And that’s pretty common that we go to solve one problem and then we find other problems that we solved while we’re doing it. Exactly. That’s good. All right. Well Michael, as we wrap this up, I have to ask the final question.
Michael Hammersley
Sure.
Mark Stiving
What is one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Michael Hammersley
Find out what your customer is willing to pay before you sell them the product.
Mark Stiving
That’s always great advice. Try to figure out what the willingness to pay actually is. Michael, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Michael Hammersley
LinkedIn or email. My direct email is [email protected]. LinkedIn also works just fine.
Mark Stiving
Okay. And I’m sure we’ll have the URL in the show notes. And to our listeners, thank you so much for your time today. If you enjoyed this, would you please leave us a rating and a review? And speaking of reviews, BamaMegan left a review on, of all places, Audible podcast. I was on Audible the other day and I saw they had podcasts there. And so I looked up my podcast and there was a review. So thank you, BamaMegan. She wrote:
“Thought-provoking. Thoughtful discussions about showing value to customers and pricing optimally for the business. Good guests with broad perspectives.”
Bama, the check is in the mail. I appreciate it.
And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me, [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.
