Impact Pricing Podcast

Ep130: When is Inflation Good for Price Increase with Robert Ribciuc

 

 

Robert Ribciuc is a Managing Partner at EBITDA Catalyst and a Pricing expert for Consumer & Software brands, driving 2-5+% profit & valuation gains in less than 12 months.

In this episode, Robert shares how as pricing experts, we need to capture as much of the value and use value-based pricing to its full advantage while understanding a client’s business goal regarding social concern in taking care of its vulnerable market segment.

 

Why you have to check out today’s podcast:

  • Learn how to make your pricing function and capabilities tuned in for price increase even at a time of inflation
  • Find out about a white paper on how you can turn inflation into a competitive advantage
  • Learn how to make your role as pricing experts be economically and morally satisfying

         

Don’t accept inaction for too long as your standard course of action. 

Robert Ribciuc

      

Topics Covered:

02:01 – How Robert’s journey began in pricing

05:27 – Talking about what EBITDA Catalyst do: customer insights and designing offers

07:03 – The broader definition of customer insights

08:49 – What he has to say about the price increase and inflation

11:40 – When do cost start to matter when pricing

17:53 – The deal-envy factor that happens

19:02 – What you earn for superior procurement function and competitive advantage

20:33 – A question on when should we start putting a second lens on value-based pricing

23:13 – Showing what mission-driven pricing is about

27:42 – What it means to enlarge the definition of one’s role as pricer

29:49 – Robert’s best pricing advice that could significantly impact one’s business

     

Key Takeaways: 

“Seeing the human impact of doing pricing better, I’m not going to say right, but doing pricing better can impact the teams and the lives of the people who produce the value in the first place.” Robert Ribciuc

“When we look at inflation; if you do nothing and you think just the cost impact, of course, bad things are going to happen to your margins when costs are up and everything else stays the same.” Robert Ribciuc

“Being able to articulate, especially in B2B conversations, hey, part of why the price is higher is like, look, it’s fair, our costs are higher. That does play a role in the sales interactions that moves the needle towards achieving that price increase a little easier.” Robert Ribciuc

“The conversation we just had reflects this role we have as pricers to help our clients or our employers capture as much of the value as possible. And I think there’s also a part of what we should be doing, which is to think about the sort of social role and ultimate role of pricing as a vector in social movements.” Robert Ribciuc

“We should enlarge the definition of our role as pricers because our first role is to understand our client.” Robert Ribciuc

“If the client or the employer, part of their mission is not to capture as much as they could from the value pie that’s being created, but to consistently leave more on the table than they could, I think that makes our work both economically satisfying and morally satisfying when we can be part of that.” Robert Ribciuc

      

People/Resources Mentioned: 

        

Connect with Robert Ribciuc:

        

Connect with Mark Stiving:   

                          

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.)

Robert Ribciuc 

Don’t accept inaction for too long as your standard course of action.

[Intro]

Mark Stiving 

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the increasing relationship between them. I’m Mark Stiving; today, our guest is Robert Ribciuc. Here are three things you want to learn about Robert before we start. He has a BA in Math and Economics from Harvard and an MBA from Chicago Booth. He was head of pricing at Honeywell and Residio, a company that spun off from Honeywell. And for the last ten years, he’s been a managing partner of EBITDA Catalyst. Welcome, Robert.

Robert Ribciuc 

Thank you so much, Mark. I appreciate the introduction, the rightful pronunciation of both my name and Harvard’s name, for having me on and for just all the service you’ve been providing to our pricing community and beyond through hosting this and all of your teachings around the industry. I very much admire you.

Mark Stiving

Oh, thank you. I appreciate that. I appreciate that a lot. So, I was actually going to make fun of you go into Harvard. And it’s mostly because the guest last week also went to Harvard. I was like, man; we can’t have all these Harvard guests on here. But we’ll let it slide.

Robert Ribciuc 

Well, you know, for what it’s worth, you know, most people assume certain things go with that, silver spoon and all the like. And, you know, I don’t think I quite qualify for the silver spoon characterization of more stories about my humble origins later, but I’m proud I made it there. And I hope to not disappoint your listeners with much Harvard talk from here on.

Mark Stiving 

Well, and it’s the other Harvard alumni, you have not to disappoint now, the expectations are high. So, to start with the easy question, how did you get into pricing?

Robert Ribciuc 

It was actually, Mark. So, thank you, I think for me, it was a combination of sort of serendipity and discovering something great. So, I had been in finance roles for the early part of my career. And in 2008, 2009, as many of your listeners will know, many of us found ourselves looking at the financial crisis, and in my case, leaving a hedge fund I had been at, and sort of wondering what’s next. And what happened was, as I was looking around, I came into a couple of different situations where I was able to work with founders, starting from a pretty broad mandate; hey, you can come in, give us some ideas. And it felt like in both of those early experiences, over and over, pricing rose as one of the most interesting areas to work on. But more importantly, in at least one of those, I was able to bring those ideas, and I was given operating control to implement. And in the process effectively, I acted as the president of this division; the founder basically gave me the keys to make some of those ideas happen. And as you get to know the teams that are actually producing the value, right? We talk a lot about value in our pricing work; you get to appreciate the people who do an exceptional job, day in and day out. And yet, their organization is not harvesting the rewards for that value. And in this case, it was an organization that was losing money. People had gone without raises without rewards for four years, and we’re talking about line workers 15, $20 an hour. And these raises were that they had hoped for all these years that were not forthcoming. You’re talking about 65 cents an hour, $1 an hour, that could have made the difference between sending the kids to kindergarten or not getting kids braces or not. And so being able to go in there, I think sometimes it’s better to be lucky than good. There were a lot of low-hanging fruits. But we turned around that division in six to nine months. And we went from losing money to double-digit EBITDA margin, something that I would not have really believed was possible. And more importantly, for me, I have the experience of walking with the founder through the production floors, and giving raises, sometimes ketchup raises for these folks. And just seeing the human impact of doing pricing better, I’m not going to say right, but doing prices better. Pricing better can impact the teams and the lives of the people who produce the value in the first place. And so that moved me at the very human level, and I wanted to find more work like that. And I guess the rest is history.

Mark Stiving 

Nice. So, as I look through what you guys do in EBITDA Capital and by the way, am I saying that okay for you?

Robert Ribciuc 

Yeah, catalysts that have, you know, more capital would be good.

Mark Stiving 

As I looked at what you guys are doing, a couple of things you do are customer insights and designing offers, and do you think of those as part of pricing?

Robert Ribciuc 

Yeah, so I think offering a design, I absolutely think of it, this as pricing. I think different people use different words to… and unfortunately, our profession, like many others, has a bit of a proliferation of terms. But for me, offering design is what some people would call packaging. So, if you’re talking about the software subscription business, you could be talking about what should be the metrics this business should charge on? What should be their good-better- best lineup? What should be the feature allocation between those? And that to me goes to offering design, right? So how do we design what we offer to different customer segments, personas, and so on? So, from that one, absolutely, customer insights are somewhere between pricing and the broader marketing universe, and in my mind, and so I think of it as adjacent, and potentially having a feedback loop to pricing, but not necessarily as central as offering design.

Mark Stiving 

Nice, although I appreciate your answer, I just have to tell you that I was actually fishing for a different answer.

Robert Ribciuc

You’re the educator on the call. So, I’m standing ready.

Mark Stiving 

No worries, the answer I was fishing for was that pricing is really about value and understanding of delivering value. So, if you think about offering design, it’s really how do we package up that value. And if you think about customer insights, it’s really how do we understand the value we’re delivering? Because in the end, it’s value that we’re going to get paid for?

Robert Ribciuc 

Yeah. And I think again; we’re kind of that loose border of the definition. I completely agree with you. If you think of customer insights as a feeder into what we call customer perceived value, right, which then indicates customer willingness to pay, your definition in your assessment is absolutely right. Right? So that becomes central. I think the broader definition of customer insights sometimes also includes all these things about what we observe in their behavior and interaction with our communications and emails and customer acquisition costs and all those kinds of things that are a little less directly tied to value? So, in that broader sense, I think I offered my answer, like the piece you’re referring to is absolutely central. I agree.

Mark Stiving 

Yep. No worries. Okay, what got us together to have this podcast was that I posted one of my blogs on LinkedIn. And it was about how, I think it was Procter and Gamble who had announced a price increase. And I said, hey, here are these three lessons. And by the way, you should go, if you haven’t listened to these or read that, you should go read them. It’s really good. And then Robert replies back, it’s like, well, you should read my article. And he sends me this PDF article, it’s pretty well done. It’s pretty long. It’s titled Inflation and Price Increases: The New Death and Taxes. So, let’s talk about price increases, inflation; what should we be doing? And I want to frame the conversation as follows: Inflation obviously means our costs are going up. But is it fair to say that we’re just going to talk about cost increases because that simplifies our conversation? Or does inflation mean more than that?

Robert Ribciuc 

Oh, I think it absolutely means more than that. And I think, thanks for highlighting the white paper. And, of course, your thoughtful blog post was, I think we were aligned. And I just wanted to reinforce what you were saying. But I think when we look at inflation, the white paper starts saying, well, if you do nothing and you think just the cost impact, of course, bad things will happen to your margins when costs are up and everything else stays the same. But I think then the white paper goes on to say, well, many of the leading companies take inflation as an opportunity to think about price actions and think about the environment and the consumer being primed to receive those price actions in a different way when there is this massive surrounding buzz, especially in our day and time with social media and everybody watching cable channels and so on. You know, the consumer is being told effectively, prices are going up, and even the federal government is telling you the prices are going up. And so of course, smart firms know that that does something to what we were talking about before, consumer insights, the consumer willingness to pay, and so forth. And so, I think the white paper then explores how an aggressive price increase stance would look; what can companies do to mitigate inflation? And, again, to your point about the broader impact, is it just costs? Well, I think it’s also a place where competitive advantage for companies that have strong procurement functions gets expressed, right? Because they can manage their cost increases with different tools, different negotiating power than the average player in their industry. And so, I think you have some of these relative differentials that get created. And you know, the big tend to get bigger, and the medium-sized than the smaller players have difficult choices to make.

Mark Stiving 

Yeah, it seems like that’s probably true. Anyway, the big tend to get bigger, right? It’s tough to beat that. Let’s use, by the way, one of the things I loved in the paper was the fact that you also talked about what happens when costs go back down, right? What happens when commodity prices come back down? And it’s a chance for us to make more money. And we think about that ahead of time. And as soon as I read that section, what jumped into my mind was pricing gasoline. Because the price of oil goes up and down constantly. If we were to watch what happens to the price of gas as the price of oil changes, right? If the price of oil goes up, every gas station announces a price increase that day, even though we know it takes nine weeks before a drop of oil makes it to the gas station. Yeah,

Robert Ribciuc 

Yeah. And I think you’re hitting a very interesting point, which is this continuum between at one extreme, you have commodities, right, and, you know, byproducts of commodities so you could think of gas as a byproduct of Petro commodities, right? And those tend to be, you know, extremely homogeneous products, a perfect candidate for price sensitivity measurements because the gas is the same with every gas station. And at the other extreme, you have these highly processed, whether it’s industrial goods or things where those input costs feed through and manifest. And how long does it take? Is the stuff that’s in your inventory today built at the old prices, you know, or is it built at today’s prices, all those questions kind of make it more opaque, and make the reaction times a little longer? And I think that to your point, if even in the gas business, they’re able to take advantage of that and proactively raise right away, and not necessarily immediately lower, like they might take a day or two to lower when the Price has come back down, or a month or two. So, they’d still clip on a little arbitrage coupon on that option value, right, to increase when it goes up and not necessarily decrease right away when it goes down. Part of the white paper showed how that gets pretty gigantic over time for companies that can do price increases relatively frequently and then have that kind of opacity, maybe B2B, maybe my product is not directly comparable to your product. And so, the pressure to lower back down takes a long, long time to arise if those input costs go back down, maybe never arises. So, I think that companies that take advantage of that well have the pricing function and capabilities basically tuned in dialed in. Honeywell was pretty good and pretty aggressive when cases like this had two-plus price increases a year. And that’s kind of a call to action for middle-market firms and others who aspire to take advantage of those types of situations to invest in their capability and get informed.

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Mark Stiving

So, one of the things for my listeners or followers, they know that I say all the time, and that is costs don’t matter to pricing. Right now, I can make a slight argument where costs might matter to pricing in some cases, but in most of what we talked about, costs don’t matter to pricing. Now, it doesn’t mean that we as business people shouldn’t be using cost in making smart decisions. But in my view of the world, the only thing that matters to pricing is a customer’s willingness to pay. And so, let’s go back to gas just because it’s easy for a second. Price of oil goes up; how is it that I could possibly get away with raising my prices before the cost actually hit my books? Well, the reason is that I know every other gas station owner will raise their price, too. And if I think about the decision my buyers are making, they get to choose between my more expensive gas or your more expensive gas. But I know it’s going to be driven based on willingness to pay. It’s not driven based on costs. So, I’m going to give you a chance to refute that.

Robert Ribciuc 

Well, I will fully refute it because the foundation of what you said is right; that cost-plus mentality can get you in trouble fairly quick. I think, though, there are some important distinctions to make. So, gas is something most people can’t go without, right? Maybe they can dial down the consumption, but you have to drive to work, right? And so, in that case, to your point, if the entire competitive space is pretty much aligned, the consumer is going to have to pay that until it gets outrageous and we have a revolution, right? But when you talk about more discretionary purchases, I mean, think of luxury things, fashion, think, you know, anything you can think of that’s discretionary. I think that the input of costs as a fairness argument, right, starts to matter a little bit, right. So, it’s still about, does the consumer really want this at this price? But being able to articulate, especially in B2B conversations, hey, part of why the price is higher is like, look, it’s kind of fair, our costs are higher. That does play a role in the sales interactions that moves the needle towards achieving that price increase a little easier. Does that make sense?

Mark Stiving

Yeah, so I’m going to repeat what you just said. And it’s something I say a lot, by the way. And that is one of the only reasons that buyers, except for a price increase, is that our costs went up. And so, buyers tend to think of if our cost went up, and we have to increase price, they tend to think of that as fair. They hate us less. Now, they still hate us, but they hate us a little bit less.

Robert Ribciuc 

Yeah, I mean, I think that it’s obvious, especially in B2B situations, right? There’s this sort of like deal-envy factor that happens, which is like, even though I’m buying your product, and I’m still making money on selling whatever I’m making to someone else. And so, I should feel pretty good that you have your product available. Like there’s this other part of my brain that sort of like, well, you just increase your prices, and you are taking a little bit more out of the deal. So of course, that can feel unfair in anything the sales team and, you know, we talked about sales pricing execution, right? So, you have to prepare your sales teams with these playbooks and the types of arguments in the conversation. And to your point, the fact that our own costs have increased is one of the few things the other party, the other side can’t really argue with, right? Like, they don’t really know. And they risk looking silly if they contradict us. And it turns out, we’re correct.

Mark Stiving 

Yep. Absolutely. And by the way, that doesn’t mean that we have to lower prices as our costs go down. It just means that we use those as an excuse…

Robert Ribciuc 

You’ll be fired from most of these places if you suggest that. But, yeah, it’s so interesting, because, you know, I think that companies, particularly large companies that have been at this for a while, tend to think in situations like this. Well, anything we can do to take the costs down below what the rest of the world is experiencing. Right? So, if the rest of the world sees 10% or whatever increase in input A, we, because of our size, and our procurement relationships can keep it down to a 5% or even a 0%. Well, that’s not really something that should go to the customer, say these big companies. That’s something that should go to us as a return that we’re earning on our superior procurement function and competitive advantage. And do you like that as a customer?

Mark Stiving 

So, from my perspective, as a pricing person, I don’t even think that way. And the only thing I think about is how much the customer will pay me. And if I could say the cost went up, even if my cost didn’t go up, I can say the cost of oil went up, and I can charge you more and you’re willing to pay it. I’m a happy camper as a pricing person. But now that I said all that, just before we started, you said that you were interested in mission-driven pricing. And I’m sure I’m doing the opposite of mission-driven pricing. So, I just want to ask you, what do you mean when you say that?

Robert Ribciuc 

I think you know, so just the conversation we just had, right, reflects this role we have as pricers to help our clients or our employers capture as much of the value as possible, right? And I think there’s also a part of what we should be doing, which is to think about the sort of social role and ultimate role of pricing as a vector in social movements. In other words, if we care as human beings about things like racial inequities, or diversity, or the growing inequality, should we ask ourselves as a community when is that relationship between the seller who hires us or has as on staff has all this firepower to claim more dollars from the transactions, versus our buyer who in some cases can be sophisticated than no problem meeting of the minds fine.  But, sometimes it’s very unsophisticated, if you’re selling to the consumer, if you’re selling a product that goes to the consumer’s outer edges of need, or desperation, like medical treatment, or energy in a crisis. One of the professors at the University of Minnesota here wrote an article in the Harvard Business Review that highlighted some of this efficient pricing gone astray. So, the result of applying too closely value-based pricing, in effect, becomes more akin to not a free contracting situation between two agreeing parties. But more than one party is under the gun. And we’re using that to extract more. Right? And so, I think drawing the limits around when we should start putting a second lens on value-based pricing is at least a question interesting to me.

Mark Stiving 

Yeah, one of the areas where when people ask, what do you price? I usually say everything except medical and government. And one of the reasons I don’t do medical, there are actually two big reasons I don’t like medical. One is I can’t understand insurances, insurance companies…

Robert Ribciuc 

It’s not really pricing. It’s an exercise in political and opacity, you know, manipulation.

Mark Stiving 

Right. But the other reason, which I think fits exactly with what you just said, is that you remember the EpiPen and the fact that the guy bought the company and raised the Price by 300 percent? Pharma Bro, right. Yep. I could teach companies how to do that. And I couldn’t sleep at night if I did.

Robert Ribciuc 

It’s basically my point. So, I love when clients, right? So, like, even unless extraordinarily as life depends on its kind of industries, right? So obviously, you know, someone needs the EpiPen for their treatment, and otherwise, it’s going to go into a seizure. That’s pretty extreme. But I love when my clients, you know, I tell them, hey, you know, so you probably have value that could justify more over here. And the client says, well, yes, but this category of customers is giving this particular, you know, whatever the good is to their kid or to their pet or two, whatever. And there is a medical ethical component, you know, I got to think about how they’ve grown dependent on my product, is this going to leave some people unable to access health… You know, so I think you know where I’m going, and it’s what I would call a mission-driven client, who knows, they could go for more, but those considerations are still there. Now, when it comes to pharma, you’re reaching way back for the EpiPen. You know, we have one in the news as you and I speak, right? So, the FDA approved just this Monday this Alzheimer’s drug. That’s like the first drug in 20 years, basically everybody who’s been on the FDA panel, all these eminent scientists say, it doesn’t really work. And it puts patients at risk. And the company selling it wants to sell it for $56,000 a year, which I just did a check. And I was actually about to write the piece about these limits to value-based pricing and use this story as an example. But you can go to the University of Minnesota for four years, for basically the tuition and fees would be pretty close to $56,000. So, if you imagine a patient being on that drug for 10, 20 years, we’re saying 10, 20 kids could go to college for the same amount. And look, if the drug cured Alzheimer’s, that would be real value, right? So, then we get into a good talk. But here, it doesn’t cure anything. Even in the best-case scenario, it would slow a tiny bit, and so forth. And the pharma industry has this nonprofit institute that is thinking about these types of things, right, the relationship between value and equity, and so forth. And that institute issued a scolding condemnation of the situation. And so, it’s situations like that, where I say, as a pricing community, what can we bring to sort of rationalize that conversation and say, look, just like lawyers should be aggressive on behalf of their clients, that’s part of their mandate, like we should help our clients and so forth. But just like lawyers, we should also know there are some situations where you just don’t go into where you basically have to make claims, you know, not to be accurate.

Mark Stiving 

So, I hear everything you’re saying. And here’s what I struggle with: We, as pricing people, rarely decide what the price is; the only thing we can do is provide information to our clients. Even if I worked at a company, right? If I was the director of pricing, I’m still not the person who gets to make the pricing decision. Yeah, so one of the things I often tell my students etc. is, you have to understand the goals of the company. And the goals as you set prices. And the goals of the company can often be above and beyond just profitability or market capitalization. It could be a social good, right? One of my favorite examples, I was at a PPS conference once and I met a pricing manager from Chick-fil-A. And he said, you know, we could raise our prices pretty easily. And by the way, if you’ve ever been to a Chick-fil-A in South Carolina, you know that that’s true, right?

Robert Ribciuc 

I’m a huge Chick-fil-A. In fact, we have all these pictures from all our vacations with my daughter standing in front of Chick-fil-A and me, and I look delighted. And she’s like, oh, my gosh, dad, like, how many of these are we going to have? Right? And, yeah, so keep going. But we have some right here in my back door. And like, if you go at 7 pm, you’re going to be there for a while.

Mark Stiving 

Well, and so he said, look, we could easily raise our prices. But our CEO wants to be good community stewards. So, we hold our prices down. And I thought that was really nice. I was just wondering what he was doing at a pricing conference.

Robert Ribciuc

But that’s my point. That we should enlarge the definition of our role as pricers. Because our first role is to understand our client, right? If we were a lawyer, we should also understand our client, right? And if the client or the employer, part of their mission is not to capture as much as they could, from the value pie that’s being created, but to consistently leave more on the table than they could to, in effect, invest some of that value in their community. You know, I think that makes our work both economically satisfying and morally satisfying when we can be part of that, right. Like, I think we have too much in our society of how can we get the last dollar off the table and too little of if we keep doing that the gap between people who have things to price, people who own companies, people who own capital, whatever, and people who don’t have things to price that a best sell their labor or unemployed or disabled, you know, that gap is going to keep growing wider and wider. And I think the segmentation considerations we often bring to pricing; I think there is a room for raising these questions. So, for example, you know, when I advise someone on a price increase, I always raise the question, are there vulnerable customers, we should think about, that you should perhaps be prepared with like a special hotline or a special assistance offer or whatever, that basically not being able to afford your product or service anymore, would leave them in an untenable life situation, right? And again, here, we’re not talking about cigarettes or luxury goods or whatever. We’re talking about basics that people need, like gas and so on.

Mark Stiving

Nice. Robert, we’re going to have to start wrapping this up. But a final question. What’s the one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?

Robert Ribciuc

I think the biggest piece of advice is don’t accept inaction for too long as your standard course of action. In other words, with many of the middle market clients that I talked to, oftentimes, they come from several years of the default action being inaction. Right? And by inaction, I don’t necessarily mean not raising prices or not doing something. It’s not even looking with an act of intent and with the appropriate focus, to deploy pricing as an instrument, right? And to me, if you’re in the middle market, or even below that, that’s the place to start; form an opinion and form a plan of action or if you decide not to act, have the right rationales for that.

Mark Stiving

Nice, very nice. Robert, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Robert Ribciuc

Probably easiest on LinkedIn since that gives me the context of who you are, and I’m easy to find. Also, my email address robert@ebitdacatalyst.com. And we’d love to hear from anybody interested in these topics or beyond. And thank you so much for having me again, humbled to follow all the great guests who had, and I look forward to seeing you at the next PPS or whatever opportunity we get.

Mark Stiving

All right, Thanks, Robert. Episode 130 is all done. Thank you so much for listening. If you enjoyed this, please leave us a rating and a review. And finally, if you have any questions or comments about this podcast or pricing in general, feel free to email me at mark@impactpricing.com. Now, go make an impact!

 

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