Dan Zatta is a leading management advisor in topline growth. He specialized in profit improvement on the revenue side, with extensive experience in pricing.
He is the author of the books ‘The 10 Rules of Highly Effective Pricing’ and ‘The Pricing Model Revolution’, translated into 10+ languages.
In this episode, Dan shares how these pricing models he mentions in his book can greatly impact a company’s growth and profitability when used in a comprehensive approach.
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Why you have to check out today’s podcast:
- Explore the various pricing models that can significantly influence your bottom line
- Discover a pricing model that helps you identify an additional unique selling point, ultimately boosting profitability
- Learn why it’s crucial to have a holistic perspective of the company’s overall impact before embracing innovative revenue models
“Make sure to be quick in increasing prices, ideally combine this with additional value to meet your profitability targets.”
– Dan Zatta
Topics Covered:
01:13 – What finally got him into pricing after being a generalist
02:05 – A trick he does to gain sales peoples’ support when increasing prices
02:32 – What inspired him to write his book ‘The Pricing Model Revolution’
04:16 – Pricing as not an exact science
05:29 – An interesting fact about another reason for writing his book ‘Revenue Management in Manufacturing’
07:34 – From an academic writing style to using language understood by non-pricing experts in writing his books
08:48 – What AI-based Pricing can do for your bottom line even when you are already an advanced organization
11:19 – Many more AI-based pricing opportunities available even with companies already using AI
12:34 – Explaining what Neuro Pricing is and the tool used for this
14:34 – Creating another source of competitive advantage in pricing with outcome-based pricing
17:18 – The need for comprehensive view into the company before adopting pricing models
19:31 – Defining Sympathetic Pricing
21:52 – Important thoughts on the idea of price fairness
25:21 – What is Psychological Pricing
27:28 – Dan’s best pricing advice
Key Takeaways:
“Let’s think about value also when we price and looking into outcomes could be one of those.” – Dan Zatta
“If you are not changing your processes the way you’re approaching how salespeople are compensated, then you risk having an issue with the model that maybe is great, but it’s not pushed internally. And the same can be the case with incentives for clients.” – Dan Zatta
“The impact of volatility of raw materials, there is still inflation in a number of countries. So rather than waiting, make sure that you’re not losing time because the more time passes when costs are increasing, the more time you will need to recover profitability.” – Dan Zatta
People/Resources Mentioned:
- The Pricing Model Revolution by Danilo Zatta: https://www.amazon.de/dp/1119900573/ref=tsm_1_fb_lk
- Revenue Management in Manufacturing: State of the Art, Application and Profit Impact in the Process Industry by Danilo Zatta: https://www.amazon.com/Revenue-Management-Manufacturing-Application-Industry/dp/3319302396
- Uber: https://www.uber.com
- Lyft: https://www.lyft.com
- Peter Drucker: https://en.wikipedia.org/wiki/Peter_Drucker
Connect with Dan Zatta:
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.)
Dan Zatta
Make sure to be quick in increasing prices, ideally combine this with additional value to meet your profitability targets.
[Intro]
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the revolutionary relationship between them. I’m Mark Stiving and our guest today is Danilo Zatta. I’m going to say Dan, from here on out. Here are three things you want to know about Dan before we start. He is a consultant’s consultant. If you’ve ever been in pricing consulting, he’s probably worked at your firm. so he’s been with Accenture, SKP, BCG, you name it. He’s been there. He wrote The Pricing Model Revolution, which we’re going to talk about today. And believe it or not, he started his career as a windsurfing instructor. Welcome, Dan.
Dan Zatta
Thank you very much for having me, Mark. Great to be here with you.
Mark Stiving
It’s going to be fun. So how did you get into pricing?
Dan Zatta
Yeah, it started as a generalist. So I was working on all types of projects when I started my career as a young consultant. I was cost-cutting. I was doing process optimization. I was optimizing post merger integrations. And then I realized that of all these things, pricing is the most fun activity because when you do a cost-cutting activity, you have to discuss with unions, people are in a bad mood. You leave not only friends behind. On pricing, it’s different. On pricing, you increase profitability. We are speaking about growth. We are speaking about increased profits. And people are happy to work with you because you are supporting them to grow and to become better. So pricing is simply more fun.
Mark Stiving
Well, so first off, I agree a hundred percent, but don’t you find that salespeople hate you when you raise prices?
Dan Zatta
That’s very true. The trick is to understand how to make sure that they are part of the game, that they seem that this is also their baby. And if they do things right, there is an upside for them as well. So if you manage to find this way to make sure that they are on your side, then they will also have fun.
Mark Stiving
Yeah, I agree. So let’s talk about your book, The Pricing Revolution. And first off, why’d you write it?
Dan Zatta
Well I am traveling quite a bit during the week, staying away from home. And so one of the things that relaxes me is writing and collecting ideas. So I started collecting a number of ideas and cases around how companies are changing the way they monetize. I find this fascinating because there are so many cool ideas on how to create a new source of competitive advantage through ten price models. So I started collecting them, and then I had so many, and then I thought, why not put them? How to get in a book? There might be some value to have a deep dive on them. So things developed in this way.
Mark Stiving
Okay. so I’m a little disappointed you only had 10.
Dan Zatta
That’s a good point, Mark. Indeed you can also create more hybrid ones, but I was also afraid to create a book that is too scary and big then, and people would not want to have it. So I said, let’s limit it. but you’re fully right. There are so many more coming out of a hybrid combination of them. And you could write for sure a second book, and I would buy it because I bought your other books, and I find them all great.
Mark Stiving
Thank you so much, by the way. So as I read through some of the chapters, in fact, I’ll tell you the chapters I actually read were the ones where I didn’t know what you were talking about before, I couldn’t tell what it was from the title of the chapter. But as I read through them, it’s like, oh, well, this is this and this and this. And so there’s a bunch of different models inside a chapter, which is pretty funny. And probably the easiest one to think about is your first model, which is usage-based pricing.
Dan Zatta
Yeah. Correct. And again, here you are, right? I think pricing is not a precise science. There are different namings for things that people consider to be similar. So I took the names that I found the most meaningful, but I can understand your thoughts that maybe you were thinking of finding something different simply because there are no rules set in stone.
Mark Stiving
Yeah. Nobody, there is no governing body to say, here’s what we call things. So we have to call them whatever we want.
Dan Zatta
Yeah, it’s good. We can still shape a bit what we’re talking about.
Mark Stiving
Yeah. And so I’ll give you my favorite example of that, a challenge in our industry, I think. And it fits along with your first chapter which is the paper use or per wash or usage-based pricing, that whole model. There are people like me who call that a pricing metric, right? So what is it that you’re going to charge for? And then there are other people in the industry who call that a value metric. and so I find that really challenging because I use value metric to mean how is it that your customers measure the value, right? What is it that they get value from? I find that an interesting one.
Dan Zatta
I think it’s a very good thought. And it also shows that in pricing we can get very technical. But let me then reveal a secret to you. Another reason why I wrote this book, the reason was that before writing this book, I wrote a very technical book called Revenue Management in Manufacturing. And indeed, this was also part of my PhD thesis. So really academic. And as my wife is an English teacher, I gave the previous book to her to ask her to review it. And then she told me that she’s not a pricing expert, this book is really boring. Don’t give it to any friends because you will lose friends. And then I said, well, if my wife tells me this, probably others will think about this book the same. So I was really wanting with the pricing model revolution to write a book that is not necessary for experts like you, Mark.
But for managers who are not experts in pricing, I wanted to make it more appealing. So you will find in the book a lot of stories that have nothing to do with pricing some introductions and taking something about poetry history and many other elements and linking them back to pricing. And I was so happy that when my wife read some of the parts of the new book, she enjoyed it. And this was also my goal to have something that people enjoy who are not experts. That’s why you will not find a lot of formulas or technicalities. Also, what you just mentioned before, it’s not deep-dived, but there are more stories. It’s about showing the power of pricing, showing the power of innovative price models and how this can change. And I think that a lot of feedback that came was exactly going in this direction. They enjoyed the fact that there were a lot of examples. It was not too technical, but still helped to understand what pricing is all about and what, especially when you calibrate price strategies you can create.
Mark Stiving
Yeah. I personally love writing for managers, not for pricing people or not for academics. In fact, did you find it hard to stop writing for academics?
Dan Zatta
Well being an academic myself, because I studied economics. I did my PhD, I did an MBA, so I was always trained to think and write in a certain way. But then when I got this shocking feedback from my wife, I thought, this is probably what a lot of managers are thinking who are not trained or are not thinking in the way I think. So why not change our language to communicate and be more appealing also for these people who maybe are leading corporations, but need a different language to understand what we mean.
Mark Stiving
Yes. Perfect. I remember, I learned to write as an academic as well, and then probably five years later, I stopped writing that way. And nowadays I hate reading academic papers. I just can’t do it. I said, why don’t you write in English?
Dan Zatta
Good point. That’s why I also try to kill all notes or references, everything, which sounds academic because at the end it’s the content, the cases, the story that inspires people rather than proving that this was quoted by somebody elsewhere.
Mark Stiving
Okay. So let’s talk about some of these models. I’m going to toss you a softball question. What’s your favorite model?
Dan Zatta
Well what I like a lot, is for example, the one based on artificial intelligence. On one hand there is a buzz because everybody speaks about artificial intelligence. But then I started using this, and I was myself amazed by the power that this can have. To be honest here, I was always very open with you. I’m not capable of programming a very complex algorithm, but I’m sitting with a lot of brains PhDs in statistics, mathematics, physics. And I explain to them what the algorithm should be able to do. And then together we create some powerful things.
Let me give you one example. A large automotive corporation reached out to me and was asking me if I could support them improving the spare parts pricing activities. And then the CEO brought me to the spare parts pricing team. And then when I was sitting with them, they told me, we are sitting here together with you only because the CEO wanted. Because if it was for us, we would never work with you because we are already super expensive and we are part of an exchange with other brands. So we have everything under control. So what do you think you can bring as an added value here? And then I did my best to create a specific algorithm for this company that was taking into account, for example, competitive prices, and was looking into technical features. How large, how heavy, how big are the different spare parts was looking into historical data. And as they had hundreds of thousands of spare parts, it was impossible to do this manually or driven by a simple extra table. So the algorithm was able to spot a lot of opportunities.
All the cases where spare parts were too cheap or not rounded in the perfect way and so on. And then when I showed this back to the team, they were quite puzzled. We started implementing right away in the project and say, after very, very few weeks, they already had half a million additional profit impact through all these small changes that were hundreds of spare parts we optimized. And then we became friends and they said, wow, we didn’t think that AI-based pricing can do such things. And this is just an example. There are many more. So this is something that I find very sexy and cool, namely helping already very advanced organizations with something like AI-based pricing.
Mark Stiving
Yeah, I wonder if that opportunity is going to be minimized in the future because now everybody’s thinking about AI and how can we use it? And so maybe they’re using it on their own before you walk in the door.
Dan Zatta
That’s a very good thought. Probably there will be some developments towards this direction. But to be honest, I also see that a lot of corporations are still using cost plus and are lacking a pricing manager and use some sort of Excel tool. And the numbers they have are not clean and cleansed, and the data is missing. So I think even if you’re fully right, there may be more mature companies on this side. Still, there are a lot of companies who need to fix the basics.
Mark Stiving
Yeah, I agree a hundred percent. Okay, so I tossed you a softball. Now, let me give you one that I didn’t like the title, but I want to talk to you about it, if that’s okay. So the very last one you have on here is called Neuro Pricing. I’m like, what the heck is neuro pricing? So I moved to the chapter, I’m whipping through the chapter. And it turns out that I would’ve called that behavioral economics, right? Because everything in there is instantaneous, or if you think of Danny Kahneman’s Thinking, Fast and Slow, it’s system one thinking, hey, I just responded, or I just replied. I didn’t really logically debate what the decision should be. And so would you, is it the same thing as behavioral economics, or am I missing something?
Dan Zatta
No, I think it’s very well captured. And I can see that you are a true expert. I cannot hide or change names for you, you’ll immediately discover this. The fun thing is that I have a couple of friends that are applying this, and they use, for example, all sorts of sophisticated machines that could measure brain pulses to understand in which direction things are moving. So I find this fascinating. I like the name Neuro Pricing because you connect it to your brain, to neurons, to discovering what is going on in your brain. So this is the reason why I chose this name. But, the essence is as you said, to understand how behaviors are also steered and how people are thinking, how customers are acting, and how you can steer preferences by creating the right framing. So I could agree with you. We can change the name. I like both.
Mark Stiving
That’s okay. You can call it whatever you want. and so the machines that these people are using, are these the field MRI machines actually watching inside the brain?
Dan Zatta
Yeah. And there are different experiments conducted in the US and in Europe. So there are a number of scientists doing this, and I think it’s very interesting. Probably it’s not so widespread yet. probably it will take some time. Probably it’s also linked to a higher cost than the classical market research that also represents a barrier. But I think it’s fascinating to see all the direction that pricing is taking to really explore what the preference and thinking of customers are.
Mark Stiving
Yeah, I think it’s the large CPG firms that are mostly doing this FMRI stuff.
Dan Zatta
Exactly. Yeah. This is very appealing to them. You would find it rarely in B2B, even if there are some cases, but you’re fully right.
Mark Stiving
Yeah. Okay. So that was my first one. What’s your second one? By the way, I’ve got one more I’m going to actually disagree with you on, so get ready. What’s your second favorite?
Dan Zatta
Well, what I also like a lot is the outcome-based pricing or the ones that measure based on what you’re producing. And here you can create new value for customers because what they want is maybe not the product, but what you can do with the products. The classical example is the drilling machine. You don’t want the drilling machine. You want the whole, so why not changing the way you are selling and producing and marketing and pricing also these products, and of course, Peter Drucker, one of the most prominent management thinkers of our times, exactly pointed out to this point that people are not wanting the products themselves, but the value they get out of them. So let’s think about value also when we price and looking into outcomes could be one of those.
And there are a couple of nice examples. I love, for example, what you find on YouTube where you can find this paper love video that is really hilarious, where you see that a small theater in Spain that was facing bankruptcy because prices went up to increase taxes and spectators were staying away, but the quality of the shows was still great. And what they did was to say, well, people are coming here to laugh. As we are sure that they will laugh. they fitted all their seats with some facial recognition devices, and you would pay each time you laugh for a maximum of something like 24 euros so that you would not pay for laughing too much. And this was a major success. And it’s worthwhile looking at this YouTube video because it’s so great and so cool, and shows that also small companies with a bit of fantasy, with a bit of digital technology that is now much more affordable for everyone, can really change the way they are competing and create like this also a new source of competitive advantage.
Mark Stiving
Okay, so let me push back just a little bit, by the way, I love the theater example, really do . So part of the problem I have with outcome-based pricing is when we sell B2B, the outcome or the value that we’re always selling is increased profitability. And companies don’t want to give you a share of their increased profitability. And so there are some examples where you see that. So, a lawyer who does a contingency fee is taking 30% of the lawsuit settlement. Okay. So that’s outcome-based pricing, or you could think of a credit card or PayPal as taking 1% or 2% of the revenue that’s outcome-based pricing. But those are pretty rare examples. Most of the time in B2B, we’re not, companies aren’t willing to give up a percentage of their additional profit in order to achieve this outcome.
Dan Zatta
Yeah, I think that this is a very good point because it’s also about transparency and sharing information that is linked to profitability. And many do not want to share this. So in some cases, you also see failures of these models. And one of the things I learned to overcome these failures is the incentive model, both with clients, but also with your own sales team, to make sure that they have the right incentives to sell something. I’m working with a corporation, they make amazing machines. These are high tech machines, premium machines, very expensive ones. And they started selling this in a different way. For example, they started selling equipment as a service where the outcome is for example, how much are you printing or how much are you producing? So these types of outcomes. But then even if this model was super profitable for the corporation, they realized that it was not selling as they were hoping for.
And then doing some studies, we realized that salespeople are very simple. They said, why the heck shall I sell this machine based on outcomes? Which means that my commission will be diluted over many years for all the outcomes when I can sell it in the old school transactional manner, where you give me so much money today when you buy it and own it, and I have a big commission and I can buy a new car or have a luxurious vacation already this year. So if you are not changing your processes the way you’re approaching how salespeople are compensated, then you risk having an issue with the model that maybe is great, but it’s not pushed internally. And the same can be the case with incentives for clients. So the point you made is very valid, and you need to really take this holistic view before you are introducing new innovative revenue models.
Mark Stiving
Yeah, I agree a hundred percent. I love the idea of outcome-based pricing. I think it isn’t practical or accepted often enough. But if it’s accepted, if it’s feasible, boy, I like that one a lot.
Dan Zatta
Yeah,. That’s very true.
Mark Stiving
Okay, I’m going to give you the one that I don’t like or I disagree with. And so convince me why I’m wrong. But first off, define sympathetic pricing.
Dan Zatta
Yeah, sympathetic pricing, and I like to pick this one, is using pricing to gain goodwill with customers. Because also with pricing, you can do good things, but you also can mess it up. And this is the case of what happens with, for example, search pricing with the companies like Uber or Lyft, when there were some terrorist attacks, be it in London or in the us simply not monitoring the algorithm made it super expensive because demand peaked, everybody wanted to escape the location where there was a big danger. But this of course is not something that was monitored. So prices were going up because demand was exploding. However, if you would do this in a different way, and see there is a big strike, like at the moment here in Germany where I’m based, where trains are not moving around and everything is paralyzed.
And you would say, look, I want to support you because it’s raining. There is a strike. I will reduce prices. I will communicate this. I will help you in this bad situation because the weather is scrap, the strike is kicking in. You cannot come home. It’s Friday afternoon. And by doing a sympathetic pricing and giving you a massive discount, you’ll be very happy to share this great experience on social networks with your friends. And maybe in the future, we will also be willing to accept higher prices with a good memory of me as a company having helped you out in the moment of need.
Mark Stiving
Okay. So I would agree that occasional sympathetic pricing builds brand value, brand loyalty, brand trust. But I don’t see that as a pricing model in the sense that I’m doing a single act so that I can raise prices on you later. Now, I have to say, in Germany, if the train strike goes on for a long period of time, Uber should be raising prices. Uber should be charging a lot more money and making a lot of money and not saying, oh, sorry, you guys are in pain. Because what we typically think of in the world of pricing is, I want to charge based on what my customers are willing to pay. If the trains aren’t running, willingness to pay is much higher.
Dan Zatta
Yeah. And I’m with you. I think it’s a question of price fairness. I find the topic of price fairness always very interesting because you can read a number of studies, for example, why shall a blue razor be cheaper than a pink razor? This was a big discussion for identical products that just are targeting male or female customers and have completely different prices or the topic that we just mentioned about fairness in a dangerous situation. And is it then okay to have massive profits when there is a difficult situation? Or what about these drugs that are sold to patients who maybe cannot afford them? They have a rare disease and you are asking for a very, very high price, maybe a million of US dollars to save the life of a child. So there’s a lot of debate going on here.
So I think what you said is fully true, and I support it fully. If there is a strike then Uber is the winner and everybody understands that there is higher demand and they shall pay more. But maybe there is also the possibility to be consistently sympathetic in order to make sure that you are the preferred brand, because this will pay back. This will bring profits, this will help you grow as a company if you are not fed as being not sympathetic, not fair, and taking advantage of difficult situations. So I’m not saying that you should lose profitability and do it constantly, but if you do it regularly, then you will probably have a stronger brand and a stronger customer base than the companies who are not applying sympathetic pricing.
Mark Stiving
Okay. So you brought up the concept of fairness. And when I teach fairness, by the way, I always say, I always say that fairness is in the mind of your buyer. There’s no way that we know what fair is or fair price means.
Dan Zatta
That’s a good way of expressing it. I like it.
Mark Stiving
And so what we have to do is, A, understand the way our buyers are thinking or behaving, and B, make sure that we price in a way that looks fair to our buyers, right? That makes all the sense in the world. So now let’s talk about Uber at a terrorist activity, right? Everybody’s trying to leave a terrorist event. Why would an Uber driver drive towards a terrorist event?
Dan Zatta
Yeah, that’s a good question.
Mark Stiving
So, if you want to save more people, you raise prices so that Uber drivers are willing to drive towards the event.
Dan Zatta
Yeah. This would be logical, but still, there are emotions and irrationality and if you read then the price of what happened after these events with the prices that went up, there was a massive criticism because people would expect that there is also help provided. But I mean, this is an incentive. So it works. I’m with you. It’s again, a matter of communication of a price, image of fairness, a difficult topic because there are emotional and different views on this.
Mark Stiving
Yeah, I agree completely. Right? Absolutely. Okay, we’re going to run out time here, Dan, but I’m going to give you one more. If you have one more you want to talk. By the way, thanks for taking my shots on that one.
Dan Zatta
No, I like it. I like to be challenged because only if you’re challenged then you can improve and learn. So great to talk with you about this and also have different opinions.
Mark Stiving
Do you have one more that you really like?
Dan Zatta
Yeah, well it’s the one that I call psychological pricing. And here we all know what it is about, namely, making sure that you can sell the product that you wanted to sell, sell it even more without discounting it, without doing any promotions. And the classical example is the, one of the three bottles of wine or two that you find in the supermarket. So if you have only two bottles of wine and you’re not an expert that is a super wine connoisseur, this person probably will choose the one that is cheaper to avoid a regretful decision and say, I chose the one that is more expensive, but I was not able to appreciate it. And the question is, how can we more than double the more expensive bottle without giving any discount, without doing a promotion, without reducing prices?
And the magical word is with psychological pricing, simply putting an anchor in front of it. So a third bottle, which is more expensive, and suddenly the complete setup of the choice will change because suddenly shoppers will say, I don’t want the crappy wine. Who knows what’s inside this? And maybe the one that is too expensive is something that I will not appreciate. So let me take the golden middle, and I will take the one that before was maybe picked only by 20% of the consumers, and now shoppers are taking this by 50% of them are taking this. So this is really some kind of magic because you are steering your customers to the preferences that you would like them to express. And you can do this in B2B and B2C, and by creating the right settings, you simply steer preferences in mind.
Mark Stiving
Yeah, I love that one. I tell all of my clients, at least think about putting together a good, better, best portfolio. Maybe you can’t, but at least try.
Dan Zatta
Absolutely. That’s a huge difference. A good recommendation, Mark.
Mark Stiving
So, excellent. Dan. This has just been a lot of fun. I really appreciate it. But we’re going to have to wrap it up. I’m going to ask you the final question, though. What is one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Dan Zatta
Well, one advice I would give is to really consider always increasing prices. We also, the impact of volatility of raw materials there is still in a number of countries’ inflation. So rather than waiting, make sure that you’re not losing time because the more time passes when costs are increasing, the more time you will need to recover profitability. So make sure to be quick in increasing prices, ideally combine this with additional value to meet your profitability targets.
Mark Stiving
I think that’s great advice. And in fact, I think companies should be thinking about how do you raise prices every year, even if there’s no inflation?
Dan Zatta
Good point, Mark.
Mark Stiving
And so you could do that based on how to add more value to the product, add more value to your offer.
Dan Zatta
Absolutely. Excellent.
Mark Stiving
Dan, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Dan Zatta
They can contact me via LinkedIn. So I’m on LinkedIn. I would be super happy to connect and keep in touch.
Mark Stiving
Okay. And we’ll have your LinkedIn URL in the show notes, I’m sure. And to our listeners, thank you for your time today. If you enjoy this, would you please leave us a rating and a review? And if you have any questions about this podcast or pricing in general, feel free to email me, [email protected]. Now, go make an impact!
