Impact Pricing Podcast

Ep114: Price Modes: Something You’ve Never Heard Of, But Need To with Brooks Hamilton

Brooks Hamilton is the Vice President of Services at Zilliant.  He is responsible for Services sales, the technical team, engagement methodology, partner enablement, and training across multiple countries as well as assist building Zilliant’s brand via industry speaking engagements. Zilliant is a global company with blue-chip customers around the world.

In this episode, Brooks shares how tariffs can make changes on your cost basis and impact your company’s bottom line. That’s why companies who respond quickly in their pricing and have a better understanding of their pricing and tools fare better than those who are not. He also talks about price modes and how clarity and knowledge about it can turn more revenues for your company.

Why you have to check out today’s podcast:

  • Find out why you should care about tariff pricing and what you can do to protect your company’s bottom line
  • Learn and understand pricing mode to turn more profit dollars for your company
  • Understand how pricing culture affects the usage of pricing mode to effect changes in price the best way possible

 

“Pricing clarity to understand the different mechanisms, to understand who owns them, and the decision-making process that’s behind them. So that each level of that process is solving the approach in the best way possible.”

– Brooks Hamilton

 

Topics Covered:

01:37 – How Brooks’ career in Pricing started

03:32 – What is a tariff

05:03 – How tariffs impact cost basis and a company’s revenue

06:03 – Important questions you ask yourself when faced with a tariff concern

07:55 – Contributing factors that can help in the decision to increase price brought about by a tariff

09:15 – Why Zilliant cares about tariff pricing

10:35 – What plagues organizations of all sizes

10:57 – What are a price mode and the mechanisms that go with it

12:04 – What is a great aspect of a price mode for a pricing organization

14:59 – How to use price modes to

16:35 – How the number of price modes used depends on pricing culture

17:17 – Taking a look at an organization’s pricing culture to see how it affects the usage of price modes

19:09 – What is considered as one mode and a price envelope

19:41 – The challenge we see in organizations when it comes to price modes

21:01 – What are the things we need to know for any given price mode

22:05 – Who has the authorization to make the change

23:52 – Understanding price mode and getting into a mode shift

26:43 – Brooks’ best pricing advice that greatly impacts your business

 

Key Takeaways:

“You may be able to provide some air cover, some pricing air cover for you and the competitor. But that’s largely going to be based upon whether or not you are a price leader or perceived price follower in the market. And it may also be one where a competitor is poised to make a bit of a move during that time to try to gain additional market share.” – Brooks Hamilton

“We know that those customers who can or organizations who can respond quickly, who both have an understanding of their pricing as well as tools to rapidly change their pricing are going to fare better in an environment where tariffs are changing quickly as opposed to those where they’re not able to move as nimbly.” – Brooks Hamilton

“So, when we engage with a customer, the one thing we want to make sure we do is we establish a common understanding of the mechanisms that a customer uses to price. So, what I mean by a mechanism is having a product price that’s available to all reference or downstream prices.” – Brooks Hamilton

“I think a great aspect of a price mode for a pricing organization is to first have a really clear understanding of what are the price modes that we use, how much of my revenue do I have going through these various price modes, and then really importantly, who makes the decisions behind the prices for each of those modes.” – Brooks Hamilton

“Every organization has price modes, whether they recognize them or not. And the more common challenge that we see is organizations having great clarity behind the price modes that they use in the role that they play, and having a really good understanding of how they make decisions around them, what portion of their business is associated with it, and which tools they use to inform those decisions, as opposed to the exact setup and structure of those modes themselves.”  – Brooks Hamilton

 

Connect with Brooks Hamilton:

 

Connect with Mark Stiving: 

  • Email: mark@impactpricing.com
  • LinkedIn

 

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.)

Brooks Hamilton 

Pricing clarity to understand the different mechanisms, to understand who owns them and the decision-making process that’s behind them. So that each level of that process is solving the approach in the best way possible.

[Intro]

Mark Stiving 

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the global relationship between them. I’m Mark Stiving. Today, our guest is Brooks Hamilton. And here are three things you want to know about Brooks before we start, he has been in pricing for 16 years. He’s the VP of Services at Zilliant, a pricing software company, and his hometown of Brownsville, Texas, is where they make and launch SpaceX rockets. Welcome, Brooks.

Brooks Hamilton 

Thanks, Mark. Appreciate it being on today.

Mark Stiving 

It’s going to be my pleasure. It’s going to be fun. So first off, did you go and watch a SpaceX launch?

Brooks Hamilton 

I have not been to one in person yet. I’ve missed it by a day. But we have little viewing parties, among friends from my hometown when we watch the prototypes launch.

Mark Stiving  

Nice. Well, it’s going to be fun one day to go out and watch it in person. Let’s jump into this. How did you get into pricing?

Brooks Hamilton  

I started my career in a set of startups in the Austin area, and a great set of enterprise startups, and there was one in particular that I became particularly passionate about. And the objective of the company was to go about valuing and pricing the contract options for large process manufacturers. They may develop contracts that are hundreds of millions of dollars in value. There are terms in the contracts and the sales, interaction with that was one of just being part of a negotiating item along the way. But those companies began recognizing that there were really tremendous financial impact and value that was associated with them. And they were not pricing them. So that began a bit of a quest into three areas for me in my career, which was pricing, utilizing the just starting techniques of machine learning, and applying that to business decisions. And then getting involved in how does that sales process work in various industries?

Mark Stiving  

Let’s say, the power of pricing is so interesting, I think everybody who gets into pricing does it in some roundabout way because of that. When I asked you ahead of time, what are you passionate about? You had mentioned two fields. And I’ll tell the audience today, I’m clueless about both of these fields. It’s going to be a lot of fun for me to learn as well as it’s for you guys. But the first one is going to be tariffs. Now, I’m pretty sure I know what tariffs are. But go ahead and define them to make sure everybody who’s listening knows what they are. And then what do they have to do with pricing? Isn’t that just a tax?

Brooks Hamilton 

That’s a good question. A tariff is a mechanism that a government body, say, the US federal government or others will use in order to adjust the cost of a good that is coming typically into the country, in a sensibly in order to even a perceived trade imbalance. And it goes, it really can impact those companies that are directly importing the good, as well as those further downstream in the process. And when those values change, it can be really surprising, as well as really disrupting, for both the immediate financial impacts and a lot of pricing questions about what you do along the way.

Mark Stiving 

As you were saying that, it suddenly struck me that I’m often asked a question about international pricing. And one of the key challenges is currency rate exchanges. And it seems to me like a currency rate exchange changing is essentially very similar to a tariff in that the question becomes, are you manufacturing locally or internationally and then importing it in? And if you’re importing it in, then you’re hit with the currency exchange rates with the tariff either way, does that make sense to you?

Brooks Hamilton  

Yep. I think that’s a good way of thinking about it. Because the dynamics are a lot the same depending upon where I’m sourcing a good from, might really impact what my cost basis is. And it might open me up to changes on that cost basis that don’t really have much to do with my supplier. But can really impact my bottom line?

Mark Stiving  

Yeah, that makes sense. Now, I’ll ask more hard questions here. Let’s assume that I’m here in the US, and I compete with a US manufacturer, but I am importing goods from overseas. And we’ve got an equilibrium price going in the world, and I’m making a reasonable margin, and all of a sudden, I get hit by a 25% tariff. The cost of my goods just went up 25%. What can I do? Because I’m still in a competitive marketplace, the competitor who’s manufacturing locally, they weren’t hit with that tariff. So, what is it that I could possibly do?

Brooks Hamilton 

Yeah, I think this is where some really hard decisions have to get made really quickly. Especially if we’re dealing with the question of this tariff has been laid on quickly, or if it has been increased quickly, then right away, what I’m going to be faced with is all goods that I’m importing from that source country, or I probably don’t have all of my goods coming from that one country. However, I might have a significant percentage. The questions that I’m going to be hit with right away are, am I going to pass through that full amount of what’s essentially a cost increase because of tariff activity? Or am I going to try to maintain market share for as long as I can, and go about modifying where I can pull margin in other locations of my product portfolio? And do I have enough margin runway and spare cash flow in order to transition either waited all out to increase my price? Or what those manufacturers may be thinking, distributors thinking about are? Do I have enough time in order to shift my supply to another source where I don’t have that same tariff impact?

Mark Stiving  

Yeah, no matter what, it’s not a pretty situation to be in?

Brooks Hamilton  

Not fun.

Mark Stiving 

No, not at all. I could imagine one tactic is, what if we try to increase the price and hope that our local competition decides they want higher margins and they follow the price back up?

Brooks Hamilton 

Yes, they certainly could, you may be able to provide some air cover, some pricing air cover for you and the competitor. But that’s largely going to be based upon whether or not you are a price leader or perceived price follower in the market. And it may also be one where a competitor is poised to make a bit of a move during that time to try to gain additional market share. It’s certainly a set of decisions that need to be made rapidly. And one of the contributing factors that we see that helped the decision is to understand how much of my product portfolio do I have in terms of exposure? And then how quickly can I shift supply?

Mark Stiving 

Right, right. And just so the audience knows, please know, at least on this side, I am not promoting cost-plus pricing. But if our costs are going up, we probably have to do something if we want to stay in business and keep things going. So please don’t think I was trying to promote that. Now, Brookes, the question for you, this is a softball. Why does Zilliant care about tariff pricing?

Brooks Hamilton  

I think this is a subject that gets elevated and is very quickly becomes a hot issue at the top level of an organization. And those things which our customers care about as a pricing vendor and an organization that works with customers on a regular basis, this is something that we’re very interested in solving. And we know that those customers who can or organizations who can respond quickly, who both have an understanding of their pricing as well as tools to rapidly change their pricing are going to fare better in an environment where tariffs are changing quickly as opposed to those where they’re not able to move as nimbly?

Mark Stiving  

Yeah, even if the tariff doesn’t change over and over again, quickly, the moment that it changes, you’ve got to be responding, you’ve got to be doing something. So that’s pretty fast. I once worked for a small company. Let’s call it a 30-person company. It took us six months to change prices. It was ridiculous. And that’s just because of the systems. It’s kind of embarrassing. I can understand that completely now.

Brooks Hamilton  

I think that that’s something that certainly plagues organizations of all different sizes.

Mark Stiving 

Yes. Okay. The other topic you said you’re passionate about, and this one, I really don’t even know what it means is a price mode, tell us all what is a price mode, and then we’ll dig into how we can use them.

Brooks Hamilton 

Great. So, when we engage with a customer, the one thing we want to make sure we do is we establish a common understanding of the mechanisms that a customer uses to price. What I mean by a mechanism is having a product price that’s available to all reference or downstream prices. Some people call that a list price, all the way to the middle ground, which is I may have a segment price, others might call us a column price or a discount factor for a market to the much more granular of having a customer product specific pricing. Each of those is an example of the different pricing mechanisms that organizations use. And we just use the term price mode in order to describe the concept in general of those mechanisms.

Mark Stiving 

Is it fair to say a price mode is, who is the pricelist for type issue?

Brooks Hamilton 

I think a great aspect of a price mode for a pricing organization is to first have a really clear understanding of what are the price modes that we use, how much of my revenue do I have going through these various price modes, and then really importantly, who makes the decisions behind the prices for each of those modes. And what we find is, those are typically different, depending upon the mode and sometimes the organization. As a quick example, we may have a distributor, you may have a product manager who is, or a category manager who is setting the list price for those products within their portfolio. And then you may have a salesperson setting what the price is for that same product at a national account that is within their account set. Each of those organizations is responsible for a different part of the puzzle. And there is a different decision-making process associated with each one.

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Mark Stiving 

Okay, that’s making a lot of sense to me. And so is the idea of a price mode, besides the fact that I have to define who’s responsible, how we get those set, that we can tie these different modes together to say, ‘Hey, I just got a tariff, I need to increase all my prices somewhat.’ Let’s go out to each of these modes and figure out what we need to do. Or do we just change the list price list and it rolls through to all the modes. How do we use this?

Brooks Hamilton 

Yeah, that’s fantastic. Let’s take two example organizations, I think a simple way to look at it or really simplistic outside view, maybe somebody who’s not related to pricing might say, ‘Hey, we have a tariff on this good, it’s going to push our costs up 10%. Why don’t we just use a really simple approach and say, we will be 100% taken care of if I just increase my list price 10%.’ In some organizations, that might be a very executable answer, because what we will know is, in the organization, one, we have a group where all of the revenue flows through the list. Then we might have an organization where only 40% of the revenue flows through the list. The rest is on customer contracts that need to be individually negotiated. Unless we have a good understanding of how our revenue is priced, which modes we use to price it, then the answer that I might have for my CEO, in that case, is really going to be radically different in terms of setting the expectation that we try to increase our prices 10%. How much of that are we really going to see?

Mark Stiving 

Okay, and how many modes does a company want?

Brooks Hamilton 

It is typically the number that corresponds with the major pricing decisions that they’re making. Let’s take the two great examples, we typically see between three to six modes, primarily used in an organization. And the distribution of revenue among those modes. And the use or number of them will really vary depending upon the organization. And interestingly, the pricing culture within the organization.

Mark Stiving 

Okay, give us more about the pricing culture, how does that affect the number or usage of modes?

Brooks Hamilton 

Yeah. We may have, let’s take a medium-sized distributor. If in some organizations, the founder may have been a category manager in their prior life. And they’ve built an organization that feels that product and category managers are the lifeblood of the organization. And in that case, what we see is a pricing culture where much of the revenue is being priced at lists, or they’re using certain set discounts. And there’s only a small percentage that is negotiated on an order basis, or within large contracts. In other organizations, they may have been founded by a fantastic sales leader, who knows and feels that it is ultimately an organization’s success is built upon the great relationships that are established at the individual level of the salesperson and commercial leaders with their customers. And in that case, those pricing decisions are really decentralized and pushed to the sales team. In which case, the pricing mode of individual contract price or order price is going to be the predominant mode. And there might be 0%, that is priced at lists, and only a small percentage that is priced as a column discount, or a segment discount.

Mark Stiving 

That makes all the sense in the world. One of the techniques that I really like to see companies use when they have a direct sales force (and by the way, not enough companies do this) is to establish a list price, a target price, and a floor price. Is that three modes or one mode?

Brooks Hamilton 

We would see that as one mode. That is a great set of price envelopes. That is a price envelope, which informs our decision about a price mode, which might be negotiation guidance on direct sale.

Mark Stiving  

Right, exactly. Okay. And now what’s the huge advantage to having price modes? Does a company have them whether they call them price modes or not? Or do they just not use enough of them?

Brooks Hamilton 

Great question. Every organization has price modes, whether they recognize them or not. And the more common challenge that we see is organizations having great clarity behind the price modes that they use in the role that they play, and having a really good understanding of how they make decisions around them, what portion of their business is associated with it, and which tools they use to inform those decisions, as opposed to the exact setup and structure of those modes themselves.

Mark Stiving 

Okay, I think you just answered the question I want to ask next, but I’m going to ask it anyway. I’m suddenly getting excited about price modes. And the reason I’m getting excited is, I could imagine inside organizations, we have things like list prices, and regional prices and negotiation guidance prices, and not a lot of real clarity on who’s responsible for which one and how we manage it. The question I really want to ask is, for any given price mode, we’re going to document the mode. What are the things about it I want to know?

Brooks Hamilton 

Yeah, great. The things about it that I want to know are, what role does it play in the overall sales process? Who owns the decision about the value of that typical product or service that’s associated with it? How is that decision made? The third thing is what portion of revenue is associated with that mode? Is it 5%? Or is it 95%? And then, finally, what is it connected to? So that way we understand the flows between those modes, and we all know that none of these live in a vacuum.

Mark Stiving  

Right. And so, connected to is something like, hey, if we’re going to change the list price over here that needs to change the list price on the sales negotiation sheet.

Brooks Hamilton 

That’s right. Okay. That’s right.

Mark Stiving 

Explain the role part a little bit more, would you please, the first one you mentioned?

Brooks Hamilton 

Sure. The first part of the role is let’s maybe go back to the example of the different pricing cultures, when we have one mode that we have is oftentimes called a country discount, or a customer segment discount. And let’s use a really simple setup here, I differentiate my price depending upon the amount of business that a company does with me. So maybe we call this like a customer size. And I have a different discount associated with each one of them. Well, in a given organization, there may be a pricing team there. And the pricing team owns what the discount is. In other organizations, there either might not be a pricing team, or it’s the sales team who owns it, or it is the marketing team who owns it. And there’s sometimes very little understanding about who actually does own that. And obviously, organizations or individuals with different backgrounds and career paths will take different approaches to make the decision about how those values are set, and where they end up.

Mark Stiving 

Got it. So, the role is kind of like who inside the organization is driving this. Got it.

Brooks Hamilton 

Exactly, who has the authorization to make the change.

Mark Stiving  

Yep. Excellent. This sounds fascinating to me, Brooks. I never thought of it this way. And it’s really interesting when you start to dive in.

Brooks Hamilton 

We’ve seen something, which, if we think about price mode, as an intro as a 101, we’ve seen some organizations do a bit of a, if you think about the 201 or 301 coursework on it, to get to understand the modes, and then do something called a mode shift. There’s one organization with whom we worked, where they understood the amount of revenue flowing through the different modes, saw that there was a really high percentage of revenue that was flowing through the customer-specific pricing mode. And there were millions of pricing records sitting out there, which had created the circumstance where there are many static prices that had not been changed in years. And sometimes when this is a fairly dynamic market. And what that pricing leader did is, they said, ‘Listen, let’s transition a certain portion of the revenue, that’s low risk from one mode, which is customer-specific pricing set net prices to another mode, which is matrix price or we call column or segment price, right. What they took some baby steps to remove pricing, say for customers that hadn’t bought very much in the past six months were very small. Then over time began illuminating more and more of those pricing records associated with that customer-specific pricing mode. We’re able to really gain quite a bit of value associated with the price where they should be priced. I think for them, it was a good trade-off of a lower-risk activity, coupled with a great increase in the bottom line. They could not have done that without having some great mode clarity, in order to have those internal discussions to what otherwise would have been something like a very emotional topic.

Mark Stiving  

Yeah, what I love about what you just said is, knowing things is fun and interesting. But if you can do something with it, then who cares? And you just said, ‘Look, here’s an example of a way to take this knowledge and turn it into more profit dollars for your company.’ So that was awesome. We’re going to have to wrap this up, Brooks. But I’m going to finish with the last question. What’s one piece of pricing advice you could give our listeners that you think could have a big impact on their business?

Brooks Hamilton  

I think it’s pricing clarity, to understand the different mechanisms, to understand who owns them, and the decision-making process that’s behind them. So that each level of that process is solving the approach in the best way possible.

Mark Stiving 

Yes. And so that’s pricing clarity inside our company so that we know what we’re doing, how we’re doing it, and why we’re doing it. Nice. Nice. Brooks, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Brooks Hamilton 

Two great ways. First, I’m always available at brooks.hamilton@zilliant.com and the other is LinkedIn. Love to hear from everybody.

Mark Stiving 

All right, thank you so much. And Episode 114 is all done. If you’re listening, would you please do us a huge favor, tell a friend, leave a review. I would be hugely grateful. And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me at mark@impactpricing.com. Now, go make an impact!

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