Tim Smith helps executives address critical questions in pricing, marketing, sales, and corporate strategy in the face of high uncertainty by using proven best practices informed by solid academic research.
In this episode, Tim delves into the Pricing Spineometer, a comprehensive tool designed to assess a company’s pricing capabilities. By examining financial performance and organizational structure, one can provide valuable insights into the gap between a company’s current pricing practices and optimal strategies. He also touches on the crucial role pricing plays in business success and the importance of CEO involvement in driving pricing excellence.
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Why you have to check out today’s podcast:
- Discover this pricing tool called Pricing Spineometer for assessing a company’s pricing capabilities and learn how it works, its significance, and how it can benefit businesses
- Gain insights into the world of pricing strategies discover surprising findings about pricing practices in various industries and how they impact business performance
- Explore the critical role of CEOs in driving pricing excellence within organizations and understand why pricing decisions often require the direct involvement and prioritization of top leadership, and how this impacts business outcomes
“Take the time to apply the expertise necessary to your pricing questions. Think about it, and then listen to that expertise.”
– Tim Smith
Topics Covered:
01:36 – Sharing an enriching experience teaching and consulting
02:45 – How he found himself in pricing
04:08 – What made him create Pricing Spineometer, what is it all about, clarity on it measuring a gap versus a scorecard
07:31 – The process of using the Pricing Spineometer
11:40 – How the initial financial analysis sets the foundation for understanding a company’s pricing needs and capabilities
14:29 – Understanding that creating a Pricing Spineometer for a company involves significant work and expertise
16:26 – AI’s impact on pricing and the companies’ various reactions on their pricing capabilities assessment with pricing spineometer
19:16 – Valued for the expertise and insight not on time spent
20:08 – Surprises coming up for different companies pricing sophistication
22:19 – Does the CEO takes care of the development of pricing expertise and how does a CRO differ from a VP of Pricing
24:26 – Tim’s best pricing advice
Key Takeaways:
“If you changed the way you thought about pricing, there’d be a huge bottom line impact to your company.” – Tim Smith
“You’re charging for the intellect that goes into the work, not the actual amount of time it takes to do the work.” – Tim Smith
“There are ways to get around tools, there are ways to use the tools, but you’ve got to understand what the goal is.” – Tim Smith
People/Resources Mentioned:
- World Class Pricing: The Journey by Paul Hunt: http://www.pricingsolutions.com/world-class-pricing-the-journey/
- TI: https://www.ti.com
- Walmart: https://www.walmart.com
- Coca Cola: https://www.coca-cola.com/us/en
- Pepsi: https://www.pepsi.com/
- Nvidia: https://www.nvidia.com/en-us/
- Kraft Heinz: https://www.kraftheinzcompany.com/
Connect with Tim Smith:
- LinkedIn: https://www.linkedin.com/in/drwiglaf/
- Website: https://wiglafpricing.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.)
Tim Smith
Take the time to apply the expertise necessary to your pricing questions. Think about it, and then listen to that expertise.
[Intro / Ad]
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the trusted relationship between them. I’m Mark Stiving, and our guest today is the one and only Tim Smith. Here are three things you want to know about Tim before we start. He founded and has been running Wiglaf Pricing since 2002. That is 22 years. And can I tell you, the only thing in my life that I’ve had for more than 20 years is my wife. He taught at DePaul University for 20 years. He’s an advisor to PPS, but that’s only been for 13 years, a newbie and he’s the originator of the Pricing Spineometer. Welcome, Tim.
Tim Smith
Now I feel like I’ve totally broken the rule for millennials. Trying to switch a job every 2.5 years.
Mark Stiving
Exactly. You don’t know anything. You’ve been in the same place the whole time. Well…
Tim Smith
That’s, I can hear that message being said, but I actually do think there’s something called expertise. And you develop that over deep thinking and hard work with time. It doesn’t just pop in. Yeah.
Mark Stiving
And the good news about being a consultant, Wiglaf, if you guys don’t know, as a consulting firm, is you see so many different situations and so many different companies. So it’s like you’ve probably had a hundred jobs in those 22 years or more.
Tim Smith
That’s how I look at it. Same with DePaul. It’s not like I taught the same courses for 20 years. I’ve been teaching in economics and finance before that. I’m sorry, economics and marketing before that. I’ve taught accounting and other things. I mean, it’s just, you get to have fun and teach random things, so it’s fun. Yeah.
Mark Stiving
Yeah. Nice. You know, you were on the podcast several years ago, but let me ask the first question. I’m sure you answered this several years ago, too, but let’s ask, so everybody knows, how did you get into pricing?
Tim Smith
Well, what attracted me to pricing is it’s questions that’s asked. There was, as I got into pricing deeper, I realized that there was no set book, no set template for how to address pricing questions. The pricing tended to be scattered all across the company. It wasn’t actually a point of expertise. And there was a predecessor who has a degree similar to me, hull, as well as black skulls. So these are physicists who went into finance and wrote a book on options, swaps, futures, and the financial derivatives, the technology, the scientific approaches, the techniques to price these financial derivatives. And I looked at pricing and I saw that there was a devoid of a body of literature, a singular body of literature that put this together to enable people in pricing to well do their job better, more accurately, have a theoretical background as to why they’re approaching this question this way, and that question the other way. So that really attracted me. I realized that this was a wide open field ready for some intellectual instigation into trying to bring the field into a body of knowledge for execution.
Mark Stiving
Pretty fascinating. And it’s one of those fields where people don’t really know what it even means.
Tim Smith
Absolutely. That’s what prompted the Pricing Spineometer series. But before I get to the Pricing Spineometer series, there was another book I wrote besides Pricing Strategy. That’s the textbook. I thought the textbook did a nice job of putting together the field and defining what it is you should be technically doing for a lot of the questions, not all of them. but I realized that CEOs weren’t going to read it. So I tried to write another book called Pricing Done Right. And it builds up the pricing questions into what are the bodies of questions you need to ask at market pricing and execution, discount management strategy. I still realized that CEOs weren’t even going to read that book, so I decided to write the Pricing Spineometer and just get right at them. And that’s been very successful for me.
Mark Stiving
Nice. Well, I really wanted to talk about the Pricing Spineometer. If I remember correctly, I don’t know if it was the last time you were on the podcast, but I know I talked to you just before you released it and you’re like, well, you’ve got to wait to see what it is. So now I’ve seen several examples, but let’s talk about it. What is it? Why does it matter and are people using it? So let’s start with what is it?
Tim Smith
It’s a gap analysis. That’s what it is. And I’m trying to look at the gap between what the CEO says they need to do and what capabilities they have on their team to get it done. So how big is that gap between the pricing need and the pricing capability within the company. That’s fundamentally its goal.
Mark Stiving
So, when I read it, I don’t see it as a gap. I mean, obviously you do because you said it that way. I see it as almost a scorecard for how well a company is doing.
Tim Smith
Well, that’s part of me being a professor, is that I know how to give out grades and even in the qualitative areas. So, if you do a gap analysis, you’re going to find holes. And the question is, how big are those holes? How big is the opportunity to be investing in pricing? But how big is the payoff going to be if you start to change the way you have addressed pricing questions? And according on a one to five scale, five vertebrae and the pricing Spineometer says, yeah, you got some good backbone there. One says, we have some issues here, and I think that if you changed the way you thought about pricing, there’d be a huge bottom line impact to your company.
Mark Stiving
So, we’re going to jump right back to that in just a second, but I want to say why I don’t think it’s a gap. And then tell me what I’m missing. so it doesn’t feel like a gap to me, because if, as a CEO I never mention the word price, and I don’t think price is important, and our company doesn’t do anything around pricing, and we’re a horrible pricing organization, I would guess you give them a one. Even though there’s not a gap there, the gap is in what you should be doing, not what the CEO thinks you should be doing. Does that make sense?
Tim Smith
Correct.
Mark Stiving
Okay. Excellent. So, let’s say the gap is what’s possible to what you’re doing or what’s reasonable to what you’re doing.
Tim Smith
Right.
Mark Stiving
And that makes a lot of sense to me then from a gap. Now, what do you do when you build out? This takes you physically going out and collecting a bunch of information about an individual company?
Tim Smith
Correct?
Mark Stiving
So what do you do? What do you all collect?
Tim Smith
I start by looking at the financial performance. I prefer to do it on an annual basis, but sometimes it’s just, I didn’t get that quarter right. The fourth quarter just isn’t now, and I need to publish on a regular basis. So I’ll take the most recent quarter. I look at the financial papers. What’s their profit and loss? What’s their revenue? Was it growing or not? What kind of performance did they do? How does it compare with the same period last year or the same or the entire prior year? If it’s an annual report, I’ll also conduct a 1% windfall calculation. So if I have a 1% improvement of price, what is the bottom line impact in terms of profit? Does it improve profits 3% or does it improve at 45%? The average, as many people will tell you, is about 12%, depending upon the year. But that’s an average. No company is average. So you calculate it per company and you see what the windfall will be, and it’s usually significant. That’s all just math, financial reading calculations.
Mark Stiving
Quick interruption. Do I get a higher score or a lower score based on the 1% windfall number?
Tim Smith
The 1% windfall number doesn’t tell you the score impact at all? No. Okay. It is just like me tracking things and similar, like me tracking things. I look at, you had an earnings call, what was the stock one week, one day before the earnings call? What was the stock one week after? Okay. Did your earnings call have any impact on your stock performance? Sometimes it has and sometimes it doesn’t. Okay. All of that was for me to get background information as well as things like, what does this company do? I mean, AutoCAD, I always just thought of as engineering drawings. And then I realized you also do sewage and you do all sorts of other weird drawings. So I learned about what that company does. Okay? That’s step one.
Step two, I look at the presentation. If there is a presentation for the earnings call, not every CEO or CFO uses a presentation, but they all do have prepared remarks. And then they follow up by roughly half an hour of Q and A with analysts and their prepared remarks. I’ll read it over and say, okay, I now know what industry you’re in. I have an idea for your financial papers, your geography. So how big is your problem? How big is your product line? Let’s hear what the CEO says is going on. What kind of turbulence is happening in the industry? basic rule, more turbulence, you need more pricing pressure. It increases the importance of pricing as a functional capability over stay times. Alright? So that’s like one of the things, geography, let’s face it.
Pricing in China is different from pricing in Argentina. And I got to deal with high inflation, Argentina and Turkey. I don’t have to deal with that in the states. How do I manage my pricing in different regions? Do I have the capability commercially to help salespeople close deals? So how has geography impacted reading through the financial, reading through the thoughts, the CEO, CFO or whoever else is on the earnings call, reading through the questions. So the analyst and then the responses, it gives you an idea of what kind of problems does this company have? Is it a multi-skew company or is it a single-skew company? They’re all multi-skew, but, just how much, how much price experience do you have in the market? How much of it’s negotiated versus I’d a set price? It shocked me when I realized that AutoCAD has one price. But anyway, you learn about these things.
Mark Stiving
What I find fascinating is that everything you’ve said so far, I would say has to do with the role of being a financial analyst and really doesn’t have to do with the role of how well they are doing pricing yet. Now, I’m sure we’re going to get there. I just wanted to point that out, so far, it’s just financial analyst stuff.
Tim Smith
Pretty much. It is, but in doing so, going back to the Pricing Done textbook, I mean the book as well as my textbooks, from my experience, 20 plus years, I kind of have an idea of how many people need to be involved in pricing. Where do they need to be involved in terms of geography and what kind of questions should they be addressing to help this company perform well? things like this and as well as seniority. Do I need… You get the idea? So at this point, I understand what they should be having. I understand how their company is working. I’ve paid attention to them, I’m being respectful. And I’ll move into the last bit of the research, the research asking, well, do you have what I think it takes to get it done? What could be done or should be done at this company? And that’s where I use LinkedIn heavily and actually search for people in pricing or revenue management sometimes in that company. What are their titles? What do they say that they’re doing, their job responsibilities, how is this working out? Do they meet the criteria, the minimum criteria of what a decent pricing company for that size of a company should be? Or are they off by and what are their magnitudes, where are they fitting?
And that’s where the gap comes in. After I understand what they have and what they needed, we can then come out with a, quickly, five says, from my research, not that I know everything, I don’t know everything I was using public sources, but from my research, it looks like you have the capability it needs to get done what you said you wanted to do and what needs to be done. One, you’re off base, you’ve missed to plan out. Okay? Two, you get what needs to be done, but you haven’t built it yet, you know it needs to be done, but you haven’t built that capability. Three, you are in the process of building that capability, but there’s a lot of opportunity to keep doubling down if you’ve worked in pricing as long. Yeah. You have, you remember how Paul Hunt talked about the pricing journey?
And he talked about years, a seven-year journey. You can’t just build pricing excellence overnight. It takes a journey and it’s a long journey. Four implies everything kind of looks like it’s going great, but there’s a few things wrong that I can just identify and they just really rub me wrong. Maybe you should address those or you can ignore me. But that’s the idea of these pricing Spineometers, looking at what they would take to get pricing done right at that company and coupling that with what they actually have from a pricing capability.
Mark Stiving
Okay. So a couple thoughts jump into mind. First off, this is a lot of work. Yeah. How long does it take you to do one company?
Tim Smith
It is a lot of work, Mark.
Mark Stiving
Yeah. So not only is it a lot of work, you have to have a lot of expertise to do what you just said, right? So there isn’t this, hey, let me give you some check marks. Yeah. You made it. No, you didn’t make it. It’s really how you stack up relative to what Tim Smith thinks you should be doing. Because anybody who’s not Tim Smith or someone with a lot of experience couldn’t say, this is what an organization should look like in a company like yours.
Tim Smith
Yeah, that’s true.
Mark Stiving
So, okay. So how many of these have you done so far?
Tim Smith
Over 80.
Mark Stiving
80. And do you know the statistics on the scores? The mean, the mode, the standard deviation, the min, the max?
Tim Smith
Not off the top of my head, but I have taken a look at it. Most companies end up rating a four or five, or that’s the grouping. There are some ones and twos and threes. it is pretty evenly distributed. It just kind of skews a little bit high. And that might be because I’m missing too much. And it also could be because I’m looking only at Fortune 500 companies, and we know that if we move down to smaller companies, the capability would be much, well, much more questionable often.
Mark Stiving
Right. They don’t need as much, but they typically are way below what they need.
Tim Smith
Right. Yeah. And there was an aspect of this rating score that I wish I could have done better, but I can’t use public sources or I can’t easily. I want to know what software they’re using, if any. But that’s separate…
Mark Stiving
It’s probably a separate scale.
Tim Smith
Yeah.
Mark Stiving
To see how much they’re investing in that. Nice. Are you seeing a lot of these companies using AI now in their pricing capabilities? Can you detect that?
Tim Smith
Not from the Pricing Spineometer, but from my other work like consulting, I am definitely seeing the AI coming in there. And in some ways I have to eat, grow and accept that AI is just simply a renaming of statistics. and another word. And we’ve been using statistics and pricing in my entire career. So it’s nothing really new, it’s just we have a new marketing name for it and we like to call it machine learning or AI. I wish intelligence augmentation had taken off instead of artificial intelligence. But you know, my wishes are not always fulfilled.
Mark Stiving
Not always. We don’t get to make all the rules. So tell us how this impacts your business. And so I’m going to make a wild guess and you can tell me if I’m even close. Anybody who has four or five smiles and says, oh, I don’t need any more help, thank you very much, Tim, for letting me know we’re doing great. And anybody with a one or a two gives you a call and says, Tim, what did we do wrong?
Tim Smith
I like that. I wish that was true.
Mark Stiving
Oh really?
Tim Smith
If I give out a five, I may get their PR department circulating it around. if I give out a one or two, I may hear grumblings, but never directly, no one has directly contacted me from the Pricing Spineometer. Indirectly though, there was a company, I gave two, so you know, that’s not so good, right? I gave a two to it and then immediately I started to see their people attending events saying, yes, that was a correct two, we earned that two, that was a good score. accurate score. We want to be better. So you’re seeing that Kraft Heinz, I gave them a low score one year later they went through a reorg and built up a pricing group. I’m not sure if there’s a correlation. Okay. I’m just pointing this stuff out. Part of the reason for this is that I felt free to write the Pricing Spineometer, Mark, I’ve been at this for 20 years. Do you know how often any of those companies I’ve ever rated has even spoken to me? We’re talking zero. So I realized after 20 years they don’t care about me, and that’s fine. They don’t need to care about me. I’m going to still write what I have and it will form a good template for my market that I do serve, which is in the more mid-size company. And I’ll make progress there. And it has helped in that regard.
Mark Stiving
Oh, that’s good. And it gives you the examples to say, hey, here’s what makes sense, or here’s what doing it well looks like and here’s what doing it poorly looks like. Do you think you could run the spineometer for midsize companies?
Tim Smith
Oh yeah. As long as I got a financial report.
Mark Stiving
And so, that’s the next business, right? Mid-size company calls you, publicly held, mid-size company calls you and says, hey Tim, would you do the analysis for us?
Tim Smith
And that’s why I won’t tell you how long it takes me to do it.
Mark Stiving
Oh, okay. So the 30 minutes it takes, you’re charging like 10 weeks worth of work for I get it.
Tim Smith
You’re charging for the intellect that goes into the work, not the actual amount of time it takes me to do the work.
Mark Stiving
We know we don’t do hourly pricing, we price by the value of what we do.
Tim Smith
That’s right.
Mark Stiving
That’s absolutely right. Nice. So what surprises have come out that since you’ve been doing the spineometer, what’s something interesting or surprising that you’re like, oh, I didn’t expect that?
Tim Smith
I grew up in a silicon world. My father worked for TI for his career, then he worked for another silicon company and I grew up understanding that technology driven firms are all about lowering the price, build it fast, build it bigger, build it, build, build, build, build more. Just market share is all that matters. So when I started looking at tech firms, I expected to see no pricing department ever. I just thought, ah, these guys don’t care about… I was dead wrong. And when you look at the pricing capability of Nvidia, a high growth company, high growth company, yes, it’s high-tech. They have a great pricing department. Very strong in contrast with, well, TI still doesn’t have much interest in pricing. So you have that. I thought I had these biases about who would be great at pricing and who would be bad at pricing. It’s not true.
So, you have technology companies that are great at pricing and other technology companies that are bad. I thought Walmart everyday-low pricing. I didn’t expect to see much there. Boom! I mean, I got tired of counting people doing pricing. I just gave up. I said, fine, you have enough people. They have a huge, everyday low pricing is hard and they actually have a team doing this stuff. So that was the other surprise. clearly there’s a large group of people in India doing pricing analytics and pricing software. Because I got a large group of readers from India reading this and then commenting on it. So it was those things. It led me firmly to come to my original hypothesis at starting this is that pricing is a CEO decision. The CEO decides, do I invest or not invest, is true. The CEO is the person in charge, whether or not you have a good pricing department or not. And some CEOs, it’s clear, they don’t care. Others do.
Mark Stiving
And so, do you think in the Fortune 500 world, it takes the CEO or does it take the president of a division or leader of a division to drive it?
Tim Smith
Do you think it takes the CEO to drive the development of pricing expertise? And when I look at some of these companies, I just see nobody above the level of manager. And if you’re a manager and you’re sparring with a sales vice president or a product vice president, you have no ground to stand on. They can just shut you down and make you get quiet. And so it’s like somewhere that we’ve talked about the dotted line between the pricing director for pricing, vice president, and the CEO that has to exist. And if that doesn’t exist, then pricing is just simply an input to somebody else making a decision where pricing may or may not be of concern to them. They were concerned about something else.
Mark Stiving
Yeah, something else had a higher priority. So really quick question, and it’s kind of off the wall, but I think you have a good answer. What is a CRO and how is it different from a VP of pricing or marketing or sales?
Tim Smith
It’s partly it’s industry dependent issue, but the chief revenue officer is what CRO usually stands for. And they’re doing something like revenue management. And revenue of course comes from both price and volume. So in a sense they’re driving that trade offs, that pricing people are sent to trade off. I’m seeing chief revenue officers happening more in the software field for SaaS, or I’m seeing it happen in food as in Coca-Cola, Pepsi, quick food.
Mark Stiving
So SaaS makes a lot of sense because you’re trying to do the expand the land and expand. Right? But I don’t see it in Pepsi. I guess that could be expand, as in, I need more usage. I’ve only got so many customers.
Tim Smith
It comes down to really just, what do they call the pricing people? And yeah, I will see them in certain industries being listed under revenue management.
Mark Stiving
Yeah. Nice. Thanks. Tim, it’s time to wrap up, but here’s the final question for you. What is one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Tim Smith
Take the time to apply the expertise necessary to your pricing questions. Think about it, and then listen to that expertise.
Mark Stiving
And, give me an example of that. What do you mean by the ‘expertise’?
Tim Smith
So if I’m pricing a new product competitively or just looking at the price of something competitively, we’ve made a plan for that product to do a certain amount of revenue and a certain amount of profit, et cetera. The pricing expert comes in and says, do we need to raise or lower, the question being asked, do we need to raise or lower the price? I’ve looked at one problem and the raising of the price would’ve not helped you actually get more revenue; lowering the price, it will not really help you get more quantity where your price was fine. The actual problem is you don’t have enough control over the price. There was too much price variance that was uncontrolled giveaways to salespeople. And we need to provide some better guidance to provide that pricing capture. So it was completely different from what they wanted me to do.
They wanted me to just change the price. I’m like, I can change the price a few percent, but your variance is 40%. So me moving the price up a bit or down, you won’t even pay attention to it when it comes to transacting. Let’s go for that. Right? And the price setting process, are we doing economic value to customers, which is like competitive pricing, but adjust for differential? What kind of information are we using to inform that decision? Where’s the role of market research now? We like to pull out market research techniques that are known to be flawed. So when do you actually just say, stop this. There are ways to get around tools, there are ways to use the tools, but you’ve got to understand what the goal is. And, simple example, when we do good, better, best pricing, when do we add a super best?
When do we add the bottom? When do we take away the bottom? How does this work out? And that all of it is pricing-based questions. I was talking with a plumbing supply company, I’m going to call them that. And they were thinking about building a new lower price product and we said, yeah, but that’s going to hurt our sales. That’s right. It’s going to cannibalize the sales of the high price stuff. Are you sure you want to use your brand, a luxury brand for low price stuff? Why not use some other brand for that? I mean, it’s just the trade-offs that are there. Now this goes back to pricing being a CEO importance. If the pricing doesn’t have the backing of the CEO, when they go to talk to the product manager, they’re just being ignored when they go to talk to the salesperson about saying, hey, we need to get control over this. I’m not going to tell you to shut down this stuff, but I’m saying this is how you can get control. We need to be listened to. We need to sit at the table and we don’t have it. I will mention that another surprise I had doing this is both the president and the CEOs of Waste Management, a garbage company and Republic Services, another garbage company. They both came from pricing.
Mark Stiving
Very nice. Thank you Tim. And by the way, thank you for your time today. If anybody wants to contact you, how can they do that?
Tim Smith
Look me up on LinkedIn. Dr. Wiglaf will work or look at wiglafpricing.com.
Mark Stiving
Excellent. And to our listeners, thank you for your time today. If you enjoyed this, would you please leave us a rating and a review? And finally, if you have any questions or comments about the podcast or pricing, feel free to email me, [email protected]. Now, go make an impact!
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