Kiran Gange founded RapidPricer and is currently working on automated pricing and promotions for retailers using image processing, spectral images, IOT data and artificial Intelligence.
In this episode, Kiran shares a dynamic pricing strategy for retailers that increases profits while providing greater value to customers.
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Why you have to check out today’s podcast:
- Develop a dynamic pricing strategy that prioritizes maintaining long-term customer trust rather than solely focusing on profit
- Discover opportunities for retailers to implement dynamic pricing strategies
- Learn about a pricing strategy that reduces food wastage in the retail industry
“Take a look at your data to understand how customers are reacting to price changes.”
– Kiran Gange
Topics Covered:
01:16 – What inspired him to write the book ‘The Expert Guide to Retail Pricing’
02:55 – The reason for suboptimal pricing in most retail companies he works with
06:13 – Pricing in B2B versus B2C as it relates to value associated with the product or service
07:51 – Explaining about the lagged reaction between the value and the price of the product
09:22 – Illustrating the work they do at RapidPricer when it comes to dynamic pricing
13:16 – What helps customers in their decision when choosing stores to buy from
15:05 – Frameworks used and discussed in Kiran’s book
16:16 – Identifying products that are profit drivers or traffic drivers
17:45 – Determining individual product elasticity even without changing prices [plus a discussion on category and product elasticity]
20:30 – Seeing opportunities for retailers to do dynamic pricing [Costco having a brilliant customer level analysis]
22:30 – What is the ‘minimum margin rule’
23:26 – How does pricing improve value
24:58 – Kiran’s best pricing advice
Key Takeaways:
“There’s so much more value to be achieved in actually selling the product at a lower price than to take this incremental profit and to lose the trust of the customer, which is much more important than your profit in the long run.” – Kiran Gange
“It was Jeff Bezos who once said that our elasticity numbers always show that people are inelastic, but that’s not true in the long run. You don’t want to take prices up and lose the customer’s trust. You might as well use a system to build trust while reducing the wastage and increasing the customer satisfaction.” – Kiran Gange
“It’s not about what the customer is going to see while he is already inside the store, but giving them a fair value where it matters.” – Kiran Gange
People / Resources Mentioned:
- The Expert Guide to Retail Pricing by Kiran Grange: https://www.linkedin.com/posts/kirangange_retailpricing-booklaunch
Connect with Kiran Gange:
- Website:https://www.rapidpricer.com/
- LinkedIn: https://www.linkedin.com/in/kirangange/
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.)
Kiran Gange
Take a look at your data to understand how customers are reacting to price changes.
[Intro]
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the lagged relationship between them. I’m Mark Stiving, and our guest today is Kiran Gange. And here are three things you’ll want to know about Kiran before we start. He is the CEO and founder of RapidPricer out of the Netherlands. He was a senior strategy analyst at Fry’s Electronics, which is something I’m just really, I don’t know, jealous or thrilled with. And he recently published a book called The Expert Guide to Retail Pricing. Oh. And he really loves baby photography. Welcome, Kiran.
Kiran Gange
Thanks Mark. Pleasure to be here.
Mark Stiving
Hey, it’s going to be fun. You were on about a year ago and you told us how you got into pricing. Tell us, how you wrote this book. You actually told me a minute ago, but go ahead and retell the story so the listeners can hear this.
Kiran Gange
Okay. So I started doing this retail pricing in 2005, right? In 2005 all the way until now, I’ve been doing pricing for retail. So go Monday morning, fly across the country, sometimes fly to another country, sometimes, and then go discover the challenges, find a solution, and then implement it. After doing it for a number of years, I realized it’s the same path everybody’s taking, right? It’s the same challenges. It’s the same way we were resolving this solution for them finding a resolution. Let’s see if we can document this. Let’s see if we can make this a standard so that I don’t have to come in every time another consulting company doesn’t have to come every time because there are other things we can do with our time, right? So I always had this on my mind to write this book.
And then we started doing something slightly different. Also, we went into fresh produce pricing, but all this knowledge I had gained, not just me, all of my colleagues and I, we had built together on how pricing should be done inside a retail organization. Well, there was still a lot of interest in this subject. So I thought it is a good idea to put this on paper. I wish I had this when I was younger, when I was just getting started in pricing, or maybe even as a student. So all of this gives me great pleasure to know that it has been set in paper at least, or for the next generation to learn from.
Mark Stiving
Nice. Very nice. Okay. So what was the common problem that people have or set of problems?
Kiran Gange
So, basically, the way we start when we work in an organization is, the way pricing would’ve evolved by the time we as a consultant would enter a project, Mark is, okay, we know the cost of the project or the product, and this is how much we’re going to mark it up. Or instinctively we think this is the right price, or this is how it’s always been done. One of these approaches would be used in retail to do the pricing, right? So when we use mathematics, when we put modeling to see what exactly is happening with seasonality and where is the peak of the curve where you can make more profit and the customer gets more value also, you find this out every time and every time you do this, there it is 6%, 8% increase in margin without losing customers while getting a better competitive position. The customers are happy. It’s just economically reaching the right price point is how we do it. And that doesn’t have to be so difficult anymore. It used to be like a closely guarded secret, Mark, maybe five, 10 years ago. But I wanted to bring the secret out. I want to let everybody know it’s done.
Mark Stiving
So, I think what you just said is that the single problem that everybody had was they were using the wrong pricing strategy. They weren’t using mathematics or science to say, here’s what demand looks like. Here’s what seasonality looks like, here’s how we can do better pricing. Is that what you said?
Kiran Gange
Yeah. Well, I wouldn’t call it wrong. Maybe it is not optimal, so it is not right enough. Right? Yes, we do still consider the strategy, the instinct, the experience behind the category managers and the pricing managers. We don’t let the algorithm just go wild or AI just say, just do this because the numbers are going to work. There’s also the human side to it. So we kind of combine them and then give them a better price than there was already existing, Mark.
Mark Stiving
Yep. I mean that makes all the sense in the world to me. One of the things that was in the description of the book, I want to read a sentence that was in the description of the book. Retail pricing is not about dollars, pounds or euros, but the value a customer associates with a product, which can and does change over time. So first off, let’s just start with the part that says, pricing should be based on the value a customer associates with a product. Most of my work is in B2B, and a lot of my work is in, I want to look at different segments and who values my product by how much. And we really dig in and we say, how much is this person? Or how is this person getting value? What problem are they solving? So it’s real work. And on the retail side, I always assumed that we didn’t do that. We said, hey, we’re going to estimate a guess to statistically determine what their willingness to pay is. And so we could call that value, but not how they value it. So, am I wrong in what I just said or what do you mean when you say, what’s most important is how a customer values a product?
Kiran Gange
So when you compare B2B with the retail pricing or B2C pricing in B2B, many times the instinct, the relationship, the experience you had with that particular customer goes a long way in determining the price and understanding what this particular customer wants. But you think about a retailer who has a thousand stores, 50,000 products, right? And they get purchased multiple times in a year. Suddenly mathematics is so much more reliable for every purchase. It is not about one person or like whether that person had a bad fight with his family or not on that particular day, the numbers are going to tell you a little bit more of a truth when you have more numbers to stand behind it, right? So now you can measure the value of customer associates for this product based on the geography, based on the time of the day, based on the freshness of produce, based on the weather outside. So that value can be measured that much more accurately mathematically when it comes to B2C pricing. So I wouldn’t change completely how you’re doing B2B, but in B2C there is more value with the numbers compared to B2B, I believe.
Mark Stiving
Yeah. I’m a hundred percent in agreement with what you just said. If I were to change anything, I wouldn’t change anything. I would just make sure that we understand the word value when you’re using it in that sentence by the way. It really could be replaced with the words willingness to pay, which by the way, sometimes is what I call value.
Kiran Gange
Absolutely. Especially when you think about something like a banana, right? So if a banana is ripe and ready to go and you are hungry, your value for the banana is so much different than a banana which is not ripe or a banana you want to take home for the weekend and it looks like it’s about to go bad. The value of the banana is very different for that customer in front of that shelf at that moment. But most oftentimes the price is very, very static. That’s why I call this the lagged reaction between the value and the price of a product.
Mark Stiving
So when you said lagged, what you’re really saying is, we as retailers are slow to respond to customer changes in willingness to pay.
Kiran Gange
Absolutely. Because that changes very, very quickly. Amazon, one of the fastest moving retailers, does this once every 10 minutes on average. They change the price of every product once every 10 minutes. But most retailers I know, unless it’s a super competitive product, change it once in three months, once in six months at best. And that’s not how the value inside the customer’s mind is changing, right?
Mark Stiving
Yeah. It’d be kind of tough in a retail outlet, not e-commerce, but in a retail outlet to change prices every 10 minutes because if I go pick something up off the shelf and the price changed from the time I picked it up off the shelf until I got to the cash register, that might be a little challenging.
Kiran Gange
You’re right. So, we do have examples of retailers doing this. So what happens is oftentimes the price is always going down. It is not going up while the customer is inside the store, right? Let’s say it’s started raining outside and you have 200 more umbrellas than you can sell this season. An automatic announcement in the store saying, umbrella’s 20% off right now, and go pick it up. Everybody wins. So there are cases for this, but can’t be like, oh, because you’re more hungry, I’m going to take the prices of bananas up. We wouldn’t want to do that. Now the goal is to provide better value, reduce food waste while making profit for the retailer.
Mark Stiving
Okay, so I’m going to ask a stupid question. Why don’t they raise prices on umbrellas when it’s raining outside?
Kiran Gange
Well, you could, but, see that’s the thing we want to avoid, right? We don’t want this to become a mechanism to extract at the desperation of the customer, say for example. Or you don’t want to say that, oh, you are having this fever, so I’m going to increase the price of this thermometer, right? But at the same time, the goal of which we work on at RapidPricer, my company, is to reduce food waste through dynamic pricing. If you don’t sell a mango or a banana, you’re going to lose a hundred percent of the value of it and it goes into a trash can. There’s so much more value to be achieved in actually selling the product at a lower price than to take this incremental profit and to lose the trust of the customer, which is much more important than your profit in the long run.
Mark Stiving
Yeah. So dynamic pricing with produce or perishable goods to me is obvious. I’m not saying it’s easy, but it certainly seems obvious that you would want to change the price of a product as it gets closer to perishing. And we see that in airlines as well, right? An airline seat is perishable. It’s not produced, but it’s perishable. And what’s funny about them is they actually raise the prices as you get closer to losing the seat.
Kiran Gange
Yes, that’s true. It is a good use case for fresh produce to actually reduce the price. But there might be other use cases where you might see retailers wanting to increase the price, but, in the long run like, I think it was Jeff Bezos who once said that our elasticity numbers always show that people are inelastic, but that’s not true in the long run. So you don’t want to take prices up and lose the customer’s trust. You might as well use a system to build trust while reducing the wastage and increasing the customer satisfaction, right? That’s what we work on at least.
Mark Stiving
Yeah, I think that’s a fair comment because I often talk about this concept of ‘will I’ versus ‘which one’, which means, am I going to buy something in the product category versus which one am I going to buy? And to me, what that really means is, is my customer looking at a competitive alternative or not? And so once someone steps into my retail store and I get to set the prices of all the items, they’re not looking at competitors anymore. They’re just looking at my items. Now, if you’re a brand, you think there’s competitors in there, but I’m in the store, everything is mine. So I don’t really care which one you buy. I want to make the most margin, the most profit. And so theoretically, I’ve got you in the store, so I have the ability to raise prices on you or get you to pay me more. The problem is I need you in the store the next time.
Kiran Gange
Exactly.
Mark Stiving
So there’s all these decisions that say, how is it that people choose stores and how is it that people choose stores?
Kiran Gange
It’s like the classic story of, don’t kill the duck, which lay the golden eggs, right? You want to keep it for the long term. If the customer is inside the store, although he is not checking, he’s coming there with the trust that he’s going to get a good buy in your store maybe. And when he goes back home, his cousin or his friend says, oh, how much did he get it for? And I’m like, holy, I’m not going to go back to this store. You don’t want that to happen, right? So it’s not about what the customer is going to see while he is already inside the store, but giving them a fair value where it matters. That’s the mathematics behind it because sometimes customers don’t care. I don’t care what the price is, I need it right now. I need convenience, I need quality, that’s a separate category, versus I need a low price on a can of milk, let’s say.
And, that’s another use case for dynamic pricing is, by finding out where the market is and then seeing where the customer is actually making a decision based on the competitive prices and then dropping your price immediately based on where Amazon is, based on where another large retailer is. How could you make those changes quickly? But, one thing I want to mention is I’m talking a lot about dynamic pricing, but this book, Mark, and when I want to bring back the focus is about setting up a framework. It’s not just about dynamic pricing, it’s about setting up a framework to do the basics of mathematics and analytics to leverage these models which are already built and available to do an everyday pricing decision to run promotions and markdown. But this book briefly touches on dynamic pricing, but that’s not exactly the full focus of the book, just to be clear.
Mark Stiving
Okay. So then what are the frameworks? Give me an example of a framework that we’re using inside the book.
Kiran Gange
So oftentimes retailers have many different sources of data, right? So we have competitive data, inventory data, pricing, promotion, competition in online versus brick and mortar. All of this is available, but it’s oftentimes not connected to each other and there is no process set in place as to how you use it, how do you prioritize your strategy and formulate your strategy based on all of these data inputs. So the approach here talks about how you can start, how can you start making the decisions and how do you define the roles of your various categories? How do you identify your profit drivers, your traffic drivers, right? And then how do you translate that into responsibilities for your pricing team? So we need to do that first before you talk about dynamic pricing, right? We need to establish that all the data you have is sitting in the right place talking to each other, and the entire team is leveraging this data to make better everyday pricing decisions. This is mainly what this book talks about.
Mark Stiving
And using data, how do you know which products are profit drivers and which products are traffic drivers?
Kiran Gange
So there are many methodologies you could use to come up with coefficients for your sales data, right? So, there is another chapter on how this modeling is done, but, basically let’s say you have elasticity to begin with, right? You have elasticity, you have volume, and by building a two by two matrix basically of elasticity and volume, what is highly elastic and what does high volume is your image item is your traffic driver. This could be the example of the egg, the milk, right? If it’s something that is a high volume but highly inelastic, then that is your profit driver, right? It could be like maybe whiskey or meat or high end meat or whatever it is. We will find out from the data. And oftentimes this analysis requires you to take out the elements of seasonality from it, the product life cycle. You need to take out the days of the week, days of the month and then look at this analysis before you go forward. But there are many options now retailers have of finding out this elasticity. And by combining this with volume, there is a lot more insights to be taken out. And those kind of quick wins is what this book is talking about. You don’t need a PhD to understand this book.
Mark Stiving
Nice. And how do companies get elasticity if they never change their prices?
Kiran Gange
So it is not true that they never change the prices because of inflation. Everybody’s changing prices. Very rarely do you see products which haven’t changed prices for a long time. If that is the case, even then, there can be models built to leverage information from similar products, from similar stores, from similar categories or even industry level elasticity numbers are available to begin your analysis on.
Mark Stiving
And so when you say elasticity, you are talking about the category’s elasticity, not an individual product’s elasticity.
Kiran Gange
I’m talking about individual products and by location and sometimes it’s by season also. A Christmas mug in Christmas is very different from a Christmas mug in summer.
Mark Stiving
Totally agree. But let’s assume I have two different brands of green beans and I raise the price of one brand of green beans and I don’t raise the price of the other, then people are going to shift their buying to the one that didn’t get the price increase. So it looks like it’s highly elastic. If I raised the price on both of them, then probably brand choice didn’t change, but whether they purchased the category might have changed. And so there’s a difference between category elasticity and product elasticity.
Kiran Gange
Yes. One level deeper than this is what we use in our models. We build decision trees. So beans say for example, green beans of the economy variety are grouped into one group of products. And then there are high end premium beans, then you’re looking at demand shifting within that group and the product elasticity also at the same time. You don’t have to have a most complex elasticity model built on day one. You could start with basic, but the elasticity models we have are pretty much, they’ve evolved over 16 years now. Like all of these factors you’re mentioning. Okay, what about the category elasticity? What about the cross elasticity between products like you mentioned? Or how does the competitor’s price matter or a nearby store closed? That’s why more demand walked into your store. All of that gets modeled at the same time when you think about elasticity. But it’s like, don’t have to be super complex to begin with. Let’s start somewhere. But the models have evolved to take into account the fact that you just mentioned, Mark.
Mark Stiving
Okay. So now it seems to me that what you’re saying isn’t obvious or easy to do, but it seems that it’s obvious that it’s necessary. Are there still stores that aren’t doing this?
Kiran Gange
Oh, absolutely. So, and again, it depends. I have this chapter on how different countries have evolved to different levels of maturity, like Northern Europe versus America versus Latin America versus Asia. There are many countries and even retailers inside the United States, which still do cost plus markup of pricing, right? So there are some AI based dynamic pricing to match Amazon immediately also. So there’s a big ladder and a lot of different retailers are successful for many other reasons other than pricing all also. But, there might be opportunities for them also to incorporate some mathematics into their pricing.
Mark Stiving
Yeah. So I guess I don’t mean to say that they have to use your techniques, but it feels to me like everybody’s using something. But I guess maybe cost plus is the easy answer today. Is Costco still using cost plus? Do you know?
Kiran Gange
I highly suspect that Costco has been very smart to have just a few products and then they really measure the sensitivity of these products to see where people do want a discount and where it’s okay not to discount it. Very steeply. In fact their customer level analysis is brilliant. They would send the right coupon to the right person. You might receive 20% off on something and I might get 40% off. And that is another example of elasticity being done, at the customer level. Now, store product customers, that’s the third level of elasticity you’re talking about.
Mark Stiving
Yeah. And I would bundle that into price segmentation, but absolutely right. I mean, that is taking advantage of somebody’s price elasticity and that implies they’re not doing cost plus. They might do cost plus for a list price, but beyond that…
Kiran Gange
Yeah, oftentimes what retailers have is like a rule, which is a minimum margin rule, right? So I’m not going to make less than a 10% or 20% margin, and then whatever is the right price mathematically determined has to be about that. And sometimes retailers are okay with compromising on that. I don’t mind making only 5% margin because it’s a very competitive item. So they have a floor. But on top of that there are usually most efficient retailers that have some format of pricing which is based on analysis.
Mark Stiving
Nice. One other thing that I read that you said and I don’t know that I agree with, so I want to ask you what you mean. And that was you said you can improve value through pricing. What does that mean? Improve value through pricing?
Kiran Gange
Improve value. So basically when a customer is buying something, he has in his mind how much he wants to pay for it, right? So if more customers are able to find the price which works for them, then there is more value delivered in the market overall, right? So there is more products being sold, the customer is happy and the retailer is making more profit. That is overall increasing the value delivered to the ecosystem.
Mark Stiving
Okay? Have to say every time I disagree with you or anybody about these things, it almost always comes back to what’s the definition of value because there are so many different definitions of value. It depends on when we’re using it or where we’re using it. So, nice. Good answer.
Kiran Gange
I would go to say it is at the point of purchase, right? How much is the customer willing to depart with to obtain that at that point of time, right?
Mark Stiving
Yeah, that’s certainly one definition. How much is someone willing to pay for something?
Mark Stiving
And so I think about that a lot.
Kiran Gange
Could be many.
Mark Stiving
Nice. Kiran, this is fun. I love learning about retail pricing cause I don’t know that much about it and I just, it’s so fascinating to me. But, we’re going to have to start wrapping this up. Let me ask you the final question. What is one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Kiran Gange
So take a look at your data to understand how customers are reacting to price changes. Very simply build a price versus volume chart, even better on the same chart, include your competitor’s prices and quickly you could use a filter option to get a visual feel to see what’s happening to your volume as it depends on pricing. I mean, very simple, it’s an Excel analysis. Basically an analyst can build in less than 30 minutes, but if you already have the data, do that first. Maybe it’ll give you a lot of eye opening insights for you to decide what you should do with your pricing strategy.
Mark Stiving
Yeah, great answer. And I’m going to pull this back to B2B for a second because that’s the world I live in mostly. And in the B2B world, I often recommend that you create a scatter plot, which is exactly volume versus price. Show me how many deals I won and then if you could throw a win there, that’d be great. Which deals did we win? Which deals did we lose at what different price points and what different volumes? Oh my gosh, that is so insightful to see what you’re doing as a company.
Kiran Gange
We’re on the same page then. When it comes to retail, you don’t have to have scatter plots because it is a much thicker stream of data coming in over time. So that’s why we make it a line plot instead of a scatter plot.
Mark Stiving
Nice. All right, Kiran, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Kiran Gange
Well, you could get in touch with me on LinkedIn. My name is Kiran, K I R A N G A N G E. I go by the same email, [email protected]. And I also welcome you to go check this book out on Amazon. It’s called The Expert Guide to Retail Pricing. You should see it in your local country. And let me know your thoughts on the same. I’d be happy to help you for free if I can on any topics related to this.
Mark Stiving
Alright, thank you Kiran, that was fabulous. And to our listeners, thank you so much for your time. If you enjoyed this, would you please leave us a rating and a review? You can get instructions by going to ratethispodcast.com/impactpricing. 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!
