Impact Pricing Podcast

Ep139: How to Effectively Implement Price Segmentation Strategies with Ayon Bhattacharyya

Ayon Bhattacharyya is an experienced business leader with significant success in revenue growth through commercial problem-solving. He is implementing innovative pricing solutions, fact-based analysis, and market research, drawing upon his stakeholder management and influencing skills to gain the support of other senior leaders.

In this episode, Ayon shares the need to understand your customers, so you can segment without merging them and you gauge their willingness to pay and set the best pricing.  

Why you have to check out today’s podcast:

  • Learn about customer segmentation and how to go about defining it to arrive at optimal pricing for a particular segment
  • Find out how customer segmentation helps articulate your value proposition to solve different problems
  • Learn how to categorize your buyers best so you lead with value and not pricing

Do your research and know your customers. Identify your customer segments and, where feasible, perform price experiments to validate willingness to pay. And don’t be afraid to experiment with subsets of your customer base and try to innovate your approach. 

Ayon Bhattacharyya

           

Topics Covered:

01:37 – What sparked his interest in pricing

03:27 – Price fencing in the airline industry

04:50 – Why do airlines have the best price offering for direct customers

05:56 – Reason why airline fare price increases as the plane nears take-off

06:30 – Differentiating between a business traveler and a leisure traveler

07:02 – How could they possibly created fare rules around business and leisure travelers

08:16 – Ayon sharing his thoughts on customer segmentation

09:09 – What are those customer attributes

11:47 – Defining customer segments

13:49 – How to find out who’s going to travel for a particular attribute to be met

14:42 – Would it be better to actually differentiate the proposition by having a premium and a cheaper price

15:53 – All about customers’ choice of greater or cheaper value

17:58 – Preventing segments from merging

20:25 – Differentiating pricing in UK, Australia, and New Zealand

22:56 – Categorizing buyers

24:21 – People’s surprising attitude on getting rich many years ago

26:20 – Reacting to Mark’s funny New Zealand experience

26:56 – Ayon’s pricing advice that would greatly impact one’s business

27:54 – Why be careful in lifting anchor when experimenting with your market

Key Takeaways: 

“It’s all about choice at the end of the day. The customer gets to choose a greater value or less value, and they pay the price based on value.” – Ayon Bhattacharyya

“The best way to counter this is differentiating your value proposition. If you’re solving different problems, then you’re able to customize that value proposition to the segment, and that helps to mitigate that risk of segments merging.” – Ayon Bhattacharyya

“One of the guests on your podcast has referred to the importance of not leading with price, and I absolutely 100% stand by that. Always lead with value.” – Ayon Bhattacharyya

“There is a fear often around raising prices. But if you’re able to support that with additional value, then usually your customers are quite receptive to that.” – Ayon Bhattacharyya

Resources / People Mentioned:

Connect with Ayon Bhattacharyya:

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.)

Ayon Bhattacharyya

Do your research and know your customers. Identify your customer segments and, where feasible perform price experiments to validate willingness to pay. And don’t be afraid to experiment with subsets of your customer base and try to innovate your approach.

[Intro]

Mark Stiving 

And 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 segmented relationship between them. I’m Mark Stiving, and today our guest is Ayon Bhattacharyya. Here are three things you want to learn about Ayon before we start, he has been in pricing for over 13 years. He currently runs his own consulting company in Auckland, New Zealand. And he’s an ex-adrenaline junkie, as am I. So, welcome, Ayon.

Ayon Bhattacharyya 

Thank you very much, a pleasure to be on the show.

Mark Stiving 

This is going to be fun. So how did you get into pricing?

Ayon Bhattacharyya 

My love affair with pricing started sort of back in school with a little bit of a side hustle, buying and selling niche products from France. And this was sort of spying and selling to other students. And one thing I realized was that I would keep increasing the price until I hit some sort of resistance, or I started to lose customers. And it turned out to be quite a savvy way to gauge willingness to pay. Fast forward ten years, and probably my first major kind of venture into the world of pricing and revenue management was at British Airways, which is obviously one of the most sophisticated industries that you can go into with regards to, you know, price and inventory management, the customer segmentation, and price fences that they have in place. So that really sort of sparks my passion. But I’ve always been sort of intrigued by the psychology behind how consumers make, you know, purchase decisions. And I love the fact that price is both an art and science, you know, it’s an art, in the sense that value isn’t always sort of easily quantifiable. And it’s a science in the sense that, you know, data and analytics and pricing research are your best friend.

Mark Stiving 

Cool. So, I’m always jealous of people who got to price in the airline industry. Because, you know, from an outsider’s point of view, we see so many weird things going on. And I would love to sit inside there one point in time and see how they make those decisions. How do they decide what they’re going to do here and there? But you mentioned price fences. Tell me about price fences in the airline industry?

Ayon Bhattacharyya 

Yeah, so, essentially, you’ve got to go through this demand forecasting. You’re looking at things like seasonality, you’re understanding the types of customers that kind of fly on those routes, you know, whether they’re more heavily skewed towards business, passengers, or leisure and passengers. And then, whether price fencing comes into place very effectively with airlines is how they use fare classes. And the way that they use rules, there are rules around that. So, depending on how and the main value driver here is flexibility and the ability to perhaps make changes to your schedule or get refunds, you know, those are the sort of key-value drivers. So, if you’re very, very flexible, and can book a year out, then you get a much, much cheaper fare. And then as you get closer to the departure date, they start to close off those cheaper fare classes, and you start moving up to the high fare class, which is the fully flexible and most expensive and premium fare class within the economy.

Mark Stiving 

Yeah, two thoughts come to mind. First off, were you around when they were doing the requirement that said you had to have a Saturday night stay to get a discounted price?

Ayon Bhattacharyya 

Oh, yes, I do, vaguely recall that. You’re really testing my memory here. By the way, we came back.

Mark Stiving 

That’s okay.

Ayon Bhattacharyya 

But yes, I do. I do vaguely remember that. And also, remember that they had weekend surcharges, as well. A really interesting thing actually, while what comes to mind is the price promise that this particular airline had around always offered the best price to its direct customers. And why that’s very interesting is that the acquisition cost of indirect business is much more expensive. And so, a lot of the sort of operators were using their commission to discount to undercut the direct price. And so, then that creates, you know, that increases your cost base.

Mark Stiving 

Yeah, that’s interesting. The other thing I wanted to ask you about, just because I find it fascinating, and it seems counterintuitive to me, is that airlines get more and more expensive as you’re getting ready to take off, right? You’ve got the why class. But if you think about it, it’s a perishable good. It really should be getting less and less expensive trying to fill that seat.

Ayon Bhattacharyya 

This is where they use sort of overbooking profiles and inventory management systems that essentially open up classes if they haven’t got to a certain level of occupancy. Yeah, that’s all very intricately managed to ensure that you do not just fill the plane but ideally, you want to overbook that flight, based on your no-show, sort of percentage.

Mark Stiving 

Nice. So how did they know the difference between a business traveler and a leisure traveler?

Ayon Bhattacharyya 

So essentially, it sort of comes down to the fair rules. So, this is where the price fences really helped to target, I guess, specific segments. So, you could have a business passenger that books a year out. And that, you know, but it’s very unlikely to be the case that they’d be that flexible.

Mark Stiving 

Right. And so, it’s, I guess, what I was really curious about is they must have done research at some point to learn what mattered to business travelers versus leisure travelers, and then they created these fare rules around that. So

Ayon Bhattacharyya 

Oh, absolutely. Customer research is absolutely fundamental. I mean, I was working for a large sort of online marketplace in New Zealand not so long ago. And we did a conjoint study, which is like a choices analysis for listeners who aren’t that familiar with. You put different combinations of features in front of customers at different price points, then that allows you to gauge two things that allow you to gauge the importance of your value drivers. But it also gives you a sense of willingness to pay as well. So, it’s really, really good when you’re looking at things like good, better, best type bundles.

Mark Stiving 

Yeah. So, what I found fascinating, we’re going to customer segments now because it all ties together, right? We’ve got leisure travelers, business travelers; we’re doing conjoint studies. And when you do enough conjoint studies, you can actually start to create segments because now I know these types of people like this type of attribute or value driver; they have this willingness to pay. Pretty fascinating. And so how do you think about customer segments? And let me just toss you that softball for a second before we dive into anything?

Ayon Bhattacharyya 

Yeah, from my personal perspective, from a less marketing and more pricing perspective, it is about the customer attributes and the value drivers specific to those segments that influence their willingness to pay. And then there are the price fences, which essentially helps you to prevent that kind of crossover between segments or revenue cannibalization, as we call it in the industry.

Mark Stiving 

Right. And so, when you think of customer attributes, just to make sure we’re on the same page, you’re thinking of things like, if I’m talking B2B, it might be company size, it might be an industry that you’re in, it might be a number of employees, things like that does that…

Ayon Bhattacharyya 

Maybe it’d be easier if I give you an example.

Mark Stiving  

Beautiful.

Ayon Bhattacharyya 

Yeah. So, I worked a few years ago in Australia for a well-known cinema chain. And essentially, they had just implemented a recliner seating strategy. I don’t know if you guys have those recliners sit on those, but they’re really comfy and…

Mark Stiving 

…so, I’m the market segment that loves those. Okay, go ahead.

Ayon Bhattacharyya 

Rich people do. It does mean that sometimes doze off during movies.

Mark Stiving 

Movies have gotten better now.

Ayon Bhattacharyya 

Yeah. So, they were the first to kind of bring that to market in Australasia. And essentially, that kind of differentiated their proposition. However, what that meant was that they had to strip out about 60% of the seats to do that. And so, supply became a constraint. And when supplies are a constraint, then yield management becomes really, really critical. Otherwise, your revenue just declines. And that’s where I sort of came in to look at the sort of, I guess, dynamic or variable pricing strategies and customer segmentation. And so, I went through an exercise to actually understand the different customer types. So, you could have, you know, you’ve got the students, you’ve got the seniors, you’ve got your shift workers. And why it’s important to identify shift workers is that they can go see a movie at different times, to perhaps you and I, who are more constrained to outside of working hours, you know. Your Monday to Friday, nine to five, is generally a challenging time to drop everything and see a movie. And so, I guess, by identifying those segments, we’re then able to understand the demand profile around sort of peak, off-peak to come up with a variable pricing strategy around the time of day and day of the week. And what we landed on was like a super saver peak types of pricing strategy, as well as geographic segmentation. So, this is also where it gets quite interesting: there’s quite a huge variation in what you could charge depending on where you live, you know, different suburbs, and different regions. And so that was quite interesting.

Mark Stiving 

Yes. So, tell me, how did you go about finding or defining those segments? So, you didn’t just wake up one morning and say, oh, I think seniors are different than adults and students and shift workers? How’d you find that?

Ayon Bhattacharyya 

Well, I think we started with the internal sort of analysis around, you know, looking at that kind of demand profile. And then it was a case of actually going into the operational side of things. I actually made quite a few site visits to talk to customers to gauge that sentiment to understand the demographics, and quite an interesting example. There was one particular suburb where there were many more retirees, and they were ex-service people. And really, really interesting thing about the suburb, and the mentality or sentiment and willingness to pay of the suburb is that they would not expect to or be willing to pay more than $10 a ticket, which was about 60% less than most other suburbs. And so, we had to create, you know, this price segment for this particular suburb, just based on that segment, and that willingness to pay. And so that was quite interesting. I think the other interesting thing was to gauge value through these site visits because not all cinemas are the same. You’ve got newer ones, you’ve got ones that are based in a Westfield, you know, that I’ve got a greater foothold and you know, you’ve got all the amenities around and everything. So that also impacts the overall experience and value proposition. And so…

Mark Stiving 

It’s pretty fascinating. How far will people travel to see a movie? And I asked that in the question that, you know, I’m going to go to the theater down the street, I don’t really care. But what if the theater 20 miles away had the recliners? Or what if the theater 20 miles away was $3 less a ticket? How do you find out who’s going to travel?

Ayon Bhattacharyya 

Yeah, I mean, that’s where your customer research sort of really helps to support those types of insights. Interestingly, we found that that varied again, quite a bit by sort of area. And certain people were quite price-sensitive to the point where they would travel sort of 20 odd cases to, you know, to save a few dollars, or to get a better experience, I guess. And in this particular context, it was more about, okay, well, they were using a competitor, but they’re now willing to travel a little bit further to use this particular cinema chain that implemented its recliner strategy just for comfort and an improved experience. So that was quite interesting.

Mark Stiving 

Yeah, in all honesty, I drive farther for a recliner.

Ayon Bhattacharyya 

I’m with you on that one, Mark. The other interesting thing here is so, and something that I sort of did warn against. Unfortunately, it was too late that already got the ball rolling. Is it really the right strategic decision to upgrade your entire auditorium or your entire cinema to recliner seating? Or would it be better to actually differentiate the proposition by having premium seats in a certain part of the cinema and having that choice? So, you have the premium pricing option, and you perhaps have a cheaper pricing option for more price-sensitive customers, but they get a slightly worse experience.

Mark Stiving 

Yes, and I can also see the same thing working if you had some theaters with recliners, and some theaters with traditional seats, assuming these are multiple screens inside the same theater complex. And so now I can show the same movie in two different theaters two different times and charge two different prices.

Ayon Bhattacharyya

It’s all about choice. At the end of the day, the customer gets to choose the greater value, or less value. And they pay a price based on value, price-value.

Mark Stiving 

Yes. So, when I think of segmentation, I often think of it in the world of pricing in two big chunks. So, we obviously have price segmentations; we have some more price-sensitive customers than other customers. But then we also have market segmentation. And I think of market segmentation as people who behave differently and have different willingness to pay get different value than other markets. Now, I’m not sure if I can apply this to theaters very well. But I’m going to take a shot at it just for kicks. So, what if we call our market segments in the world of theaters, adults versus seniors and students. So those are two different market segments. And so, I have two different prices, one for adults and one for seniors and students. And then I could say, well, I’ve got discounted pricing based on what time of day you go or discounted pricing based on whether you’re going to use a coupon or something else. And that would still apply to everybody. Right? So, seniors, you get a discount; adults, you get a discount doesn’t really matter. And so, I think of it as two different things. Now, the world of theatres, it doesn’t sound all that awesome, I have to tell you, but in the world of many other industries like LinkedIn does this amazingly well. They’ve defined four different market segments: professional salespeople, job seekers, and recruiters. And so, they actually have different market segments that they’ve created different products for, they have different pricing for, and they can do good, better, best pricing, or price segmentation inside those segments really well.

Ayon Bhattacharyya  

I think the trick, though, is to prevent those segments from merging because depending on your pricing strategy, there’s always a risk that a customer might be one segment. But they might pretend to be another segment just to get a cheaper price. And that’s where you’ve got to get quite savvy. I mean, it’s pretty straightforward in cinema, because you just asked to see an ID, right, you’re asked to see a student card or whatever it is. And that way, you’re protecting your revenue leakage or your price leakage or your cannibalization; however, you want to call it. But I think with certain other industries, you know, it becomes a bit challenging, where you’re charging different pricing to different customer segments. There’s always that risk that customers take advantage of. There’s a bit of game theory here, right? So, customers will always try and game it.

Mark Stiving 

We often see that if we’re going to make price lists across borders for countries. And so sometimes people buy in one country, and then they do the arbitrage and ship it into the other country at a lower price or multinationals shop around and figure out which country I can buy this the cheapest at? And then they just distributed from that point.

Ayon Bhattacharyya 

Exactly.

Mark Stiving 

Yep, absolutely. Right. And so, we have to be careful how we define market segments; I agree with you completely in that. In LinkedIn’s world, it’s pretty easy because they created four different products because each market segment has a different set of problems they’re trying to solve. So that’s pretty straightforward. But if you just try to take the exact same product and say, ‘Oh, I’m going to sell to this market segment at a different price in that market segment, then you’re right, we’ve got some real challenges in that respect.

Ayon Bhattacharyya 

Yep. And like you say, I think the best way to counter that is by differentiating your value proposition. So, if you’re offering, if you’re solving different problems, you’re able to customize that value proposition to the segment, and that helps mitigate that risk of segments merging.

Mark Stiving 

Yeah. Cool. So, Ayon, you are a Kiwi who doesn’t speak with a Kiwi accent. And you’ve lived in Australia. Before this, you told me you were in the UK, Australia, and New Zealand. Out of curiosity, do you see any difference in the world of pricing in those three countries?

Ayon Bhattacharyya 

Oh, absolutely, absolutely. The UK is a very different market in terms of how competitive as I think and just in terms of business maturity, as well, you know, probably similar to the US, I would expect. They have fairly established pricing functions in most major organizations. And then Australia, I think, in the last ten years, has really been growing in terms of that sort of maturity of pricing. And New Zealand, I think it’s getting there, but still in its infancy. And the really, I think the really interesting thing, or one of the biggest challenges that I’ve faced, is how pricing fits into organizations and the perception of a pricing function within different industries. And I think it’s really, really important to, I guess, have that autonomous lens as a pricing function, what often happens is, you’re part of a product team, or you’re part of a finance team, you know. Ideally, you want to sit across all of those functions, sales, product finance, you know, you’ve got to have a deep understanding of the value proposition from the product guys, you’ve got to have a deep understanding of the customer from the sales guys. You know, one of the most interesting roles that I had actually was while I worked for a company called Westpac, and the US business has recently acquired them. And it was, I think, initially the perfect opportunity to kind of sit in that kind of role in-between sort of sales and product. And product being the owners of the P&L. We’re looking to maximize profit margin and sales, obviously more customer-focused, you know, they want to protect the customer relationship. You know, the more delegation you give them around the price, the more they seem to sort of utilizing that delegation. And so pricing governance was really, really key to sort of protecting profit margin, I guess. So that was really, really interesting. And one of the core fundamental principles that we used to operate with is negotiating with backbone. Have you heard about that book?

Mark Stiving 

Yep.

Ayon Bhattacharyya 

Yeah, absolutely. So, they categorize buyers in different ways from price buyers, value buyers, and relationship buyers. There’s another one, I think, poker players.

Mark Stiving

Poker players. Yep.

Ayon Bhattacharyya 

Yeah. And that’s a great way actually to understand your customers. And you know, how you actually negotiate with those customers and how you actually position price. I think one of the guests on your podcast has made reference to the importance of not leading with price, and I absolutely 100% stand by that. Always lead with value.

Mark Stiving 

Now, I agree with that completely. So, I want to tell a quick, very quick story on New Zealand. And I want to get your reaction to if this makes sense to you or it doesn’t. I used to teach it at the university level. And I know in the US if I had asked the question, how many of you want to be rich, every single hand would go up, right, when I’m teaching a marketing class. So, I was teaching a one-on-one marketing class in Christchurch, New Zealand. And I asked that question; I don’t know what prompted me to ask it. There was some weird conversation going on. But I asked the question, how many of you want to be rich? How many hands went up?

Ayon Bhattacharyya 

Hold on? No one.

Mark Stiving 

Zero. Now, this is probably 15 or 20 years ago; maybe attitudes have changed. But in my mind, it was fascinating because it said to me that they really and truly think differently, about business about life about what’s going on? So, now your reaction. Does that make sense? Is that surprise you?

Ayon Bhattacharyya 

It is a little bit surprising. Yeah.

Mark Stiving 

Okay. So, maybe they’re changing their attitude or their attitudes modifying to be more materialistic like the rest of us.

Mark Stiving  

Nice, nice. All right. Well, you know, since we’re on New Zealand, I do have to tell one more story because it’s my all-time favorite New Zealand story. My wife and I get up at six in the morning; one day, to go to we’re going to go to Queenstown, Queenstown, or Queensland.

Ayon Bhattacharyya 

Queenstown. It’s where I did my skydiving.

Mark Stiving 

Yes, it’s the adrenaline capital of the world, isn’t it?

Ayon Bhattacharyya 

It’s 100%. Beautiful landscapes. You’ve got the lake; you’ve got the snowy mountains. It’s the perfect mix.

Mark Stiving 

Yeah, so we’re going to go to Queenstown, we’re up at six in the morning. And they’re these two guys drunk walking down the sidewalk, arms around each other. They’re staggering. They actually crossed the street in front of us because I was trying to avoid them. And they said something to me have no idea what they said. And I said something really nice being super, you know, I don’t want to cause any issues or anything. And they paused for just a second, and they said, ‘You American?’ And I said, ‘Yes, we are.’ Simultaneously, both of them threw their hands up in the air and said, ‘Don’t shoot.’

Mark Stiving 

And that got to be my all-time favorite New Zealand story because it says what New Zealanders think about Americans. Probably the rest of the world does, too. But certainly, Kiwis did.

Ayon Bhattacharyya 

Yeah. I was going to say there’s a few sorts of stereotypes, I guess that is universal. I was at a casino once, sort of sat next to the American guys. I said, ‘Oh, so where are you from?’ The guys said, ‘I’m from God’s country.’

Mark Stiving 

Must have been a Texan. Yeah. Ayon, we’re going to have to wrap this up. But the final question for you. What’s one piece of pricing advice you could give our listeners that you think could have a big impact on their business?

Ayon Bhattacharyya 

Ah, one piece of pricing advice, I would probably say the most important thing for me is, do your research and know your customers. Identify your customer segments. And where feasible, perform price experiments to validate willingness to pay. And don’t be afraid to experiment with subsets of your customer base, and try to innovate your approach. I think there is a fear often around raising prices. But if you can support that with additional value, then usually your customers are quite receptive to that.

Mark Stiving

I think it’s great. And I don’t think I’ve ever heard anybody say the words this way. But I really liked what you said. And that was an experiment with a subset of your market.

Ayon Bhattacharyya 

Absolutely.

Mark Stiving 

Totally, it should be relatively easy to do. And we’re not to risk the whole marketplace. So…

Ayon Bhattacharyya 

Yeah, I mean, it depends on the size of your customer base. Suppose you’re working for an e-commerce firm, for example, like an online marketplace. In that case, you know, you’re in cloud nine in terms of, you know, you’ve got so many customers that you can subset and experiment without lifting anchor because this is a really important part of behavioral economics, anchoring. And you have to be very, very careful about lifting anchor because it takes quite a while then to say if you do discount, and that sort of thing takes quite a while to reposition that anchor back to where you want it.

Mark Stiving 

Nice. Ayon, we’re going to have to wrap this up. Thank you so much for your time today. If anybody wants to contact you, how can they do that?

Ayon Bhattacharyya  

So, a great way to contact me is through my website www.bizgrowthspurt.com. That’s B I Z growth spurt, S P U R T dot com or through my LinkedIn profile, which I believe will be sharing.

Mark Stiving 

Yeah, that’ll certainly be on the show notes. And for all you Americans, that was B I Z. Okay, just that you want to know that.

Ayon Bhattacharyya 

Cultural pronunciation differences.

Mark Stiving 

All right, Episode 139 is all done. Thank you so much for listening. If you enjoyed this, would you please leave us a rating and a review? They’re very valuable to us. Also, check out my new book, Win Keep Grow: How to Price and Package to Accelerate Your Subscription Business. I’d love to get your reviews on Amazon for that as well. 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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