Impact Pricing Podcast

Ep135: Sales and Pricing Alignment: Essential to Success, Getting Everyone on the Same Page with Jared Smith

Jared Smith is a Business Consultant at Vendavo, a world-class commercial excellence software firm that enjoys seeing clients evolve into leaders in their industry. ​He is a Ph.D. candidate at Oklahoma State University researching how companies execute strategies, pricing, and sales dynamics.

In this episode, Jared talks about salespeople’s insufficiency where business acumen is concerned. He is encouraging companies to put some training where salespeople can do value statements, challenger selling, and using whatever pricing methodologies they can have.

Why you have to check out today’s podcast:

  • Find out how to motivate salespeople to understand the target price and capture a product’s value
  • Learn how salespeople can deviate from the target price and still earn from it
  • Find out how salespeople can defend pricing from a product’s economic value and not just on discounting

Have the courage to experiment, have the courage to look at different things and approach pricing in a different way. The statement that we’re going to raise prices and our customers are going to leave us, and we live in that fear all the time, that’s not a really rational way of looking at things. 

Jared Smith

      

Topics Covered:

01:18 – Relating his first exposure to pricing

02:55 – Pricing for B2C versus B2B

04:43 – Taking a look at the whole value statements between B2C and B2B

06:45 – The disconnect between sales and pricing

08:26 – Shortfall in business acumen of most salespeople

10:06 – How to make value conversation happen

12:56 – Talking about sales discount and escalation processes

15:03 – He believes giving salespeople autonomy

16:50 – Setting compensation structures in a way that motivates salespeople not to discount but sell on value

18:24 – The compensation style that motivates most salespeople

20:35 – The challenge of getting salespeople sell above the target price

21:34 – Higher commission rate when hitting the price ceiling

22:20 – Understanding the value that customers get from the product

23:17 – Jared’s best pricing advice that greatly impacts a business

Key Takeaways: 

“The key thing that I see is, when you start to talk about price, it gets into that whole thing of the sales operations, ‘Do I go there and do I lead with that ceiling price and discount down to the target?’” – Jared Smith

“What about if we set our compensation structures in such a way that motivates them not to discount, to always sell that value, but also maybe even motivates them to go higher than that as well?” – Jared Smith

“In the psychology of salespeople, that’s what really drives a lot of the behavior and how you put your compensation system to move with those three numbers right there – the list price, ceiling, and target price.” – Jared Smith

“Have the courage to develop the capability of pricing in your company. Invest in good people, invest in good technologies, things that can support this as a discipline, much like you’ve been doing in the supply chain and all these other ones for years. So have the courage to change, have the courage to have the critical conversations.” – Jared Smith

People/Resources Mentioned: 

Connect with Jared Smith:

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.)

Jared Smith

Have the courage to experiment, have the courage to look at different things, and approach pricing in a different way. The statement that we’re going to raise the price and our customers will leave us, and we live in that fear all the time, then you know that’s not a really rational way of looking at things.

[Intro]

Mark Stiving 

Today’s podcast is sponsored by Jennings Executive Search. I had a great conversation with john Jennings about the skills needed in different pricing roles. He and I think a lot alike. If you’re looking for a new pricing role, or if you’re trying to hire just the right pricing person, I strongly suggest you reach out to Jennings Executive Search, they specialize in placing pricing people. Say that three times fast.

Mark Stiving 

Welcome to Impact Pricing. The podcast where we discuss pricing, value, and the financial relationship between them. I’m Mark Stiving; today, our guest is Jared Smith. Here are three things you want to know about Jared before we start. He went from being a finance manager at Pepsi to director of pricing at Prime Source Building Products. And I’m looking forward to hearing more about that. He’s currently a business consultant with Vendavo. So, he’s exposed to pricing a lot. And he’s a doctoral student at OSU. Unfortunately, that’s Oklahoma State, not Ohio State. Welcome, Jared.

Jared Smith 

Thank you for having me, my pleasure to be here.

Mark Stiving 

It’s going to be fun. How did you get into pricing, and I’m going to assume it has something to do with that transition from finance into pricing?

Jared Smith 

I actually did. So, my first exposure to pricing really came on the B2C side. So, I worked for Frito Lay right after I got my MBA from another big 12 School, which is TCU go frogs. So, I came in there, and I managed innovation and the existing business and the P&L there. And I quickly found out I had this knack for working in large data and understanding kind of the psychology of pricing and how that worked. And one of my co-workers said, ‘You know what, you’re pretty good with the data, you’re pretty good at putting all these things together, you should be in the pricing.’ And I’m like, yeah, whatever, it’s just surprising. And so, you know, as time went on, I became part of a team that went to Prime Source Building Products, a B2B place to transform the finance. And specifically, they saw an opportunity for pricing at a B2B business. And three of us went in and tackled it from a few different angles. And I will tell you that that was a painful transition going from B2C to B2B, right. And we put in technologies, strategies, implementing a new system, very challenging in some areas. But over time, we learned we unraveled everything. And we made a lot of headway. I think along the way that I just found that I loved pricing, I love the aspect; I was kind of bring it down to that triangle of business acumen. It contains psychology, and it contains technology. Those are three things that I really, really like. And from there, I went to work for Vendavo on a lot of other companies out there. And then I study that in my Ph.D. and my daughter right now.

Mark Stiving 

Nice. I had no idea we were going to go in this direction. But tell me the difference that you see in pricing for B2C versus B2B?

Jared Smith  

Oh, yeah, great. So, on the B2C side, one is you have a lot more access to data, right? You have what’s going on in the market out there, you’re always, it’s a lot more about trade and promotional spend, and how you manage that from a net pricing standpoint when you get it to B2B and someone told me this at one time, it’s a lot of smoke and mirrors, because it’s all negotiated prices. And that’s one of the key things that the data is very anecdotal at times. So, the assumptions that you make, how you do pricing, and the pricing models, tend to be a lot more variance than I would say on the B2C side. I think that when I looked at what would happen on the B2C side, there was just, it seemed a lot more straightforward. You knew what the market was happening. You knew that big players like Walmart, or the Kroger’s of the world, you knew that what you could give them when you get to the B2B side is just all over the place. And I think that’s one of the big things is that the prices are just hidden. And how you navigate pricing on there is a little bit; it has its own complexities that B2C doesn’t have.

Mark Stiving  

Let me toss out a thought that I have in the difference between the two. And I’d love to hear your comments on this. In the world of B2C, I agree completely that oftentimes it’s really data-driven because we have so much data, we can see elasticities and do experiments. There’s really a bunch of fun stuff we can do it, especially for quants. On the B2B side, though, we need to truly understand the value of our products, or I would almost argue in B2C you’re selling Frito Lay or his own Fritos, you don’t really know the value or how somebody values it, or you know, the way we do in the world of B2B, I’m watching when you buy this, how much more money is that going to make you and how do you really value this product? And so, I see him as two very different things from that perspective. What do you think?

Jared Smith 

Yeah, I think reconciling that whole value statement between those two, you know, it’s an interesting thought. And, you know, I kind of see it a couple of different ways. First of all, on the B2B side, I 100% with the value and agree with the value statement trying to figure out what a customer or a segment of customers really value, how you get to that economic value add, and what it really means. I think it is one of the key things that you have to get to, and honestly, Mark, one of the most difficult things overall, right. And on your podcast, you have many things in there where pricing is a mystery and pricing is this, value is a mystery, and I’m 100% sure I agree with it. When you get to the B2C side, I do believe that value goes in there. I believe that there is a value equation, but I think it’s a much different one. And I think that the reason is that you have marketing coming in there, you have brand value, you have things that are going on a little bit more in the psychology of the consumer’s mind. Is it value? I think so, you know, you value the brand, you value the dollar per ounce of a chip at any one point in time and what that means. So, I do think it comes in there. But I think the way that it’s approached is much different.

Mark Stiving  

Yeah, and there’s always this thing called customer perceived value; it doesn’t matter if it’s on the B2C side of the B2B side. What I like about B2B is that you already said the words, economic value, we can calculate economic value, we have a phrase for that. But there isn’t even a phrase for the equivalent of economic value in the consumer world, right? How much do I value a shirt? Well, the only thing I noticed is willingness to pay. Well, that’s not true in B2B.

Jared Smith 

Agree with that, I agree with that.

Mark Stiving 

Yeah, pretty interesting. So, assuming that we’re going to stick on the B2B side because you mentioned you’re pretty interested in sales issues around pricing. So, let’s just open it up in a wide-open softball question. What do you think are the biggest issues with sales and pricing, and I assume we’re talking about B2B?

Jared Smith  

The issue with sales and pricing that I come across and I see a lot of is that sometimes there’s a disconnect between the two. It gets very, very siloed. And what I mean by that is that I could be a pricing person, and I could create all the best pricing things in the world, right? I could put up stuff that I know that is sound mathematically, that brings in the value equation and the perceptions, and then I pass it over to sales. Well, sales doesn’t have a couple of key tools being the value statements, how that goes down, it just all breaks down. And I think that’s one of the key things. I’m a big person on breaking down these silos, and making sure that there’s a good dialogue and more what we call an academic, you know, more horizontal dispersion between who’s actually doing things between sales, finance, and pricing of itself. So, I think that’s one of the big breakdowns happening is that does your sales people, first of all, understand the true value statements that allow them to defend that price to go and do that price? And then I would probably say the second one comes around the authority of sales is that you know, knowing that B2B is one of those things where you’re always going to be negotiating, going up and down a little bit. What are the guidelines and the rules by which we play with salespeople that allow them to deviate from that price? And how does that really lead to profitability?

Mark Stiving 

Yeah, so there are a few different things to untangle in that conversation. First, how do you think you mentioned the triangle you’d like to use, and part of that triangle is business acumen. Do you think salespeople have the business acumen to be able to say to their buyers when you buy this product, here’s how much economic value you’re going to get from this product?

Jared Smith 

My experience is as the director of pricing and working with a lot of companies is I think there is a shortfall there. I really, really do. And I think it’s kind of one of the weaker areas that and an area of opportunity for a lot of companies to really put some training, really when it comes down to it to teach people that you can make these value statements, you can do challenger selling; you can do whatever methodology that you really want to do there. But you really kind of have to get down to where it just doesn’t need to lead with a price conversation. And that’s what happens a lot is the price. And a lot of these, what I would consider blue-collar industries, that’s what they do, they kind of lead with a price sheet. And that becomes the central part of everything that you’re doing. Without getting into the discovery of what do you really need, what can this thing value? What can we bring to the table, and I see that way more than I like to?

Mark Stiving 

Yes, and often when I think about the B2B world, I think we as pricing people don’t have near the knowledge that salespeople could or should have about how much our customers are willing to pay. Because what I often think is that we might understand our product really, really well. But we don’t understand how much value any one customer will get from that product because we don’t know their business. On the other hand, one customer knows their business, but they don’t really know our product that well. And what it really takes is a conversation between, typically it’s our salespeople and the customer and the two of them together using business acumen can then figure out how much value could we expect this one customer to get from this one product. And that’s what I would hope would be driving the pricing.

Jared Smith 

I would hope so too. And again, I think that I see it not as much as I would like to. Again, I think that a lot of salespeople lead with price a little bit too much. And instead of having that conversation, what I also see, Mark, is that in a lot of industries, where you know, if you think about customer segmentation, and a lot of these customer segments where you have these sophisticated buyers, I actually find that having that type of conversation is a little bit easier, because they’re coming in there, they’re buying a wide swath of products that usually have higher volume, they have a little bit more of that understanding of, there’s a little bit more than price, there’s service delivery, there’s inventory availability, there’s, you know, all the things that can come into play. As you start to get into these smaller segments, and if you think about a bell curve, they’re the ones with the lower lifetime value at the end of the curve there, they tend to be a lot more price-sensitive. So, it just goes right into that. And I think that when salespeople have to jump between those segments and understanding what these customers are, that’s where a lot of the difficulties come in. And you have to evolve your salesforce. And that’s a whole different conversation of how you actually make that happen.

Mark Stiving 

Let me slowly switch gears into something else you mentioned earlier. And that is price escalations or sales discount authority levels. We’ll say both of those fit along. And I just wrote a blog or just published a blog not too long ago, that Mark Hunter guy named the sales Hunter; I apologize, Mark, please forgive me. But he had this statement that he said he doesn’t think salespeople should have any discount authority. I read that. I thought that was pretty interesting. But what do you think best practices are around sales, discount authority, and escalation processes?

Jared Smith 

Yeah. So, I did read that. And I was a little taken aback by it, to tell you the truth. And when I went back, and I do a lot of research in this area, and basically, it just kind of gives a little background inside. The academic community has been following this one back and forth since 1975, right? And it really started with a lot of the academic saying, ‘Hey, you know, what, just give salespeople full authority?’ You know, they just go let them do because they know the market and what’s happening at the ground level. And then the other camp came in, which was a lot more data-driven. And he said no authority, which is, you know, you just get the price and salesperson, you do that now limited authority, which is where I give you a range. So, when I think about the no-authority thing, and I think well about what the data says, and the research says, I think that works probably pretty well when you don’t have a lot of volatility going at the ground level in the market. If you can keep something stable, I say, ‘Hey, you know what, don’t give any discounts. This is the price. And you know, hopefully, your compensation system supports that sort of behavior as well.’ But I think B2B, and especially as we’ve seen in the last two years, doesn’t really work like that. And I think that you do need that range there that happens now how you define that range and how you calculate that range, I think is a very interesting, you have to have an interesting approach to that. But the market is volatile; the salespeople know what’s going on the ground. And I think that customers are okay; they will switch if they don’t have the value and the price doesn’t reflect. So, I think you do have to give salespeople a little bit of room to work a little bit.

Mark Stiving 

Let me clarify this for just a second. I could see the argument that if we’re able to have, in the speaker world, we call this fee integrity, right? I set a price, and I never changed my price. And if you want to hire me, that’s the price, period. If we get fee integrity, so we never change prices, then that makes sense. We don’t give salespeople any discount authority. But what if we know we’re going to negotiate? We know that some customers are going to get a better price than other customers. But we still say we’re not going to give sales the authority; they have to come in-house and talk to a GM or talk to someone with P&L responsibility before we give that discount?

Jared Smith  

Well, that’s an interesting statement. So, the escalation process there that if we want to deviate from this particular price and go there, I would probably, my mind wanders to is that an efficient way of doing things, you know, is the juice really worth the squeeze to do that? Now, if maybe if you’re selling just a couple of different products, and I, you know, have X amount, a very small number of transactions per year, that wouldn’t create a lot of operational drag to me, you could probably do that. I believe in giving salespeople autonomy, and I think the research really says that that’s probably one of the better ways to go. Having that escalation process in place, I think, is a good thing. But to kind of come back on that one, I’m not a huge fan of no-authority, you know, especially if I’m doing 5-million transactions a year. Management, that’s all they would be doing is be doing authority. Give a little bit of room, and then kind of like set your escalation rules from there is kind of where I land on that.

Mark Stiving 

Yeah, I don’t want to defend no-authority, although I’m going to try to hear for just because it’s entertaining. If I give a salesperson no-discount authority, the salesperson has no choice but to sell value. If I give them any discount authority, they’ve got this easy lever; instead of selling value, let me pull this lever first and see if that closes the deal because it’s really fast and easy. And if it doesn’t, well, now I have to go sell value, or I have to escalate it. And so, what I’ve seen in companies and tell me if you’ve seen this or haven’t seen this is, if I give salespeople say a 5% discount authority, most of my prices and deals end up at a 5% discount. And that’s because that’s the authority that they were given. And the question becomes that efficiency, which I agree with you completely on, is it worth the 5% we gave up?

Jared Smith  

Yeah, that’s a kind of one of those internal questions, right, you got to go back and forth, and my response to that would be first of all, yeah, I do think that obviously would drive a lot of profitable behavior. If I just say no prize, I give no authority to discount. And again, you know, salespeople want to discount all the time because they believe that it’s all wrapped up in Prospect Theory, there’s less risk than I perceive when I do that by giving a discount, and I can go get the sale? My retort to that would be okay, but what about if we set our compensation structures in such a way that motivates them not to discount always to sell that value, but also maybe even motivate them to go higher than that as well? And so that would be kind of, you know, my link to this would be that if my compensation structure is just that hey, go forth and conquer with one price, sell value do this, yeah, I would say that’s great. But if my compensation structure is also said, to help motivate, go grab that value, with a little bit of authority, I find that, you know, maybe taking a little bit more of the site perception of the salesperson. I think, you know, you have higher quality people in there, because they have some autonomy, you can probably achieve the same objectives.

Mark Stiving 

Nice. Well, I’m glad you brought that up because that was the next place I wanted to go to. Right. And that that is, what is a sales compensation plan look like that works for this. And now to make life a little bit easier. Let’s assume that we’re going to give a salesperson a 20% discount authority level; what might we do to incentivize this person, the salesperson, to capture as much of the profit as much of revenue as we can?

Jared Smith 

Yeah, great question. So, what I have seen as a practitioner, and in the research, is that there really is two different main styles of compensation, right, you got fixed compensation, you got variable compensation. So those are where it falls; I’m going to focus on its variable compensation portion because that’s where all the motivation comes from. And you know, over time, it really evolved fallen into three or four different buckets, one of them has been I compensate you on revenue. Well, I think we know that’s not the greatest way to do things, right? It just doesn’t motivate salespeople enough to go out there and do things. A lot of, and I think historically, most B2B businesses do this as they do it off gross margin, and they say, hey, as your gross margin goes down, then you know, you don’t get paid as much as my gross margin goes up on the deal or the line item, I get paid more. I have just a fundamental problem with that because I don’t like revealing and focusing on cost, which is a massive part of gross margin. So, what I have seen is a lot of companies, I say many companies and small second companies are starting to move their compensation structures to focus on price, or as a component of it. And what I have found that we actually enacted that in one of the businesses I worked at, and what we found that there was a lot, that was a robust method where we actually saw a lot of results. So, if I’m giving you know, a 20, if I have authority for a 20% discount, maybe after I go 10%, you know, I dropped my compensation by 50%. You know, I’m just throwing numbers out there with that, that tends to motivate salespeople because at that point, you know, I start to focus on price I started to focus on capturing that and if I have that good value statement there, then I think that that really is a robust method of being able to Do that. So, seeing that happen in a lot of companies and the data shows that that’s actually a pretty robust way of doing it.

Mark Stiving  

So, I think what you just said is something that I often recommend, but let me just run this by you to make sure. If you’re in pricing, I often recommend that you really want to set three different prices: a list price, a floor price, and a target price. And then, if you have control of the sales comp, anything above the target price gets a really high commission rate. And anything below the target price gets a really low commission rate. And now we’ve at least given them incentives to hold target price or higher.

Jared Smith 

100%. So those three anchors right there. I think, you know, in the psychology of salespeople, that’s what really drives a lot of the behavior and how you put your compensation system to move with those three numbers right there. What I do see is that I know a lot of clustering around the target price, right? That’s where they kind of go; they usually at that point you get out, you know, 100% Commission, that’s where it’s at. So, I feel good. I know that’s a great price out there. As I start to, what I have found challenging is how do you get the price above the target price? How do I motivate salespeople to go towards the list? Or a ceiling? It kind of is one of those, you know, another term in there, but that using those three prices, yes, definitely. And I think that’s why it’s so important to understand what your target price is? What is that value? What does that statement that’s happening out there? And how do I teach and motivate my sales force to go out there and capture that?

Mark Stiving 

Yeah, although I don’t think I’ve ever recommended it, now that you say we could give an even higher commission rate if you hit the ceiling?

Jared Smith 

Yeah, we’ve done that with iOS, like we’ve done a plus base, we’ve done that before, to where you were at about a 100% commission rate on target, and then you were motivated to go up, you know, an extra 10%. And you would receive 115%, you know, overall. And what we did see is that instead of clustering, you know, from the target price to maybe 5% below, we actually started to see that bell curve shift up a little bit, which was really, really good for this. Because then we started to understand, I think, a little bit more of the value that we were trying to estimate mathematically quantitatively of what was happening. So, I think it’s a really powerful statement to do that.

Mark Stiving 

Yeah. And if you think about it, let’s assume it’s a 10% bump from target to list, that 10% is all profit.

Jared Smith 

100%, you probably wouldn’t get anyway; that’s really kind of a low risk, if you think about it because you’re always going to have the target there to go after. Now, Mark, I think the key thing that that I see is when you start to talk about price, it gets into that whole thing of the, you know, sales operations, do I go there? And do I lead with that ceiling price and discount down to the target? Well, we still have that whole discounting thing, the concept that’s still coming into play. So, at that point, I think it’s really incumbent upon the salespeople to go there to understand the customer to understand the strategy of what I’m going to go in there. That way, I don’t give this, you know, the whole view that I’m just discounting from whatever point I’m doing, but to come in there and lead with a price that you think will be the real willingness to pay for.

Mark Stiving 

Right. And so, we’re back to understanding the value that a customer will get from our product.

Jared Smith

Yeah, 100%.

Mark Stiving 

Always comes back to. Jared, this has just been fabulous. We are out of time, though. Final question?

Jared Smith 

Sure.

Mark Stiving 

What’s one piece of pricing advice you would give our listeners that you think could have a big impact on their business?

Jared Smith 

I believe, Mark, that one piece of advice that I would give is to have courage. And pricing is one of those things that it’s complex; it gets really complex, really, really fast. People can be scared to raise the price. You know, for instance, my advice is to have courage, have the courage to experiment, have the courage to look at different things and approach pricing in a different way, the statement that we’re going to raise prices, and our customers are going to leave us, and we live in that fear all the time, then, you know, that’s not a really rational way of looking at things. Also, have the courage to develop the capability of pricing in your company, invest in good people, invest in good technologies, things that can support this as a discipline, much like you’ve been doing in the supply chain and all these other ones for years. So have the courage to change, have courage to have critical conversations.

Mark Stiving 

And I love that. And the other place I would add courage is when a procurement guy comes and says you got to lower your price 30%. Have the courage to say no.

Jared Smith

Right? Yeah, definitely, no.

Mark Stiving

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

Jared Smith 

Please contact me through LinkedIn. You’ll find me on there, Jared Smith, and I’ll be pretty easy to recognize on the one that came from OSU and TCU in the big 12.

Mark Stiving 

All right, we’ll have his LinkedIn link in our show notes as well. Episode 135 is all done. Thank you for listening. 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 in general, feel free to email me at mark@impactpricing.com. Now, go make an impact!

Mark Stiving

Thanks again to Jennings Executive Search for sponsoring our podcasts. If you’re looking to hire someone in pricing, I suggest you contact someone who knows pricing people. Contact Jennings Executive Search.

Tags: Accelerate Your Subscription Business, ask a pricing expert, pricing metrics, pricing strategy

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