Impact Pricing Podcast

Ep160: Managing Price Changes: Getting the Right Price for Your Products and Services with José Vela

 

José Vela is the Director of Pricing at Spandex Barcelona, known as one of the leading suppliers of graphics and digital materials worldwide.

He is a strategic and business savvy leader who empowers business development and profitability improvements for global businesses, with an expertise in directing international trade, manufacturing, and services operations. José moved into pricing after having a General Manager’s role.

In this episode, José talks about the importance of getting the right price in selling your services as he relates it to the change and value you’re providing to your customers.

Why you have to check out today’s podcast:

  • Understand why it’s a must for you to be able to price your products and services right in relation to winning more deals even at a high price
  • Discover how experience adds up to a pricing person’s credibility, therefore, resulting to high rates of success in sales
  • Find out how necessary it is for you to think like your customers in order to provide the best value in the market

              

“You have to analyze your data to identify where are your margin leakages, and then act on them.” 

José Vela

           

Topics Covered:

01:49 – Getting into the world of pricing: Winning more deals through knowing the right price

05:52 – General managers providing more credibility to the table and being able to demonstrate success through experience

09:00 – The value being present on the extended product; thinking like the customers

13:15 – Building the analytics capability to prove the impact of pricing decisions

16:49 – Why list prices matter so much

18:00 – How to effectively manage list prices in relation to the benchmarks

23:07 – José’s piece of pricing advice for today’s listeners

         

Key Takeaways: 

“Most of the time, sales people are driven by fear when discussing pricing. They are afraid of losing the deal or even losing the customer. When you provide them reliable information about price points, they feel more confident and bold.” – José Vela

“Country managers are competitive animals and love to overperform. When we see other colleagues succeeding, we want to know why and we want to replicate that success. That’s why in any pricing project you have to identify successful early adopters able to demonstrate quick wins.” – José Vela

“In B2B, pricing is mostly about managing list prices and discounts. We all know that pricing is, by far, the most important driver to improve margin value and margin rate. But the way you set up your list prices and define your discount policy, does not also sets the tone for your value proposition; it also drives organic growth.” – José Vela

“In general, managing prices is not just raising them. Pricing goes in two directions so it is legitimate to decrease prices to gain market share, but you need to do the maths and know how much you will need to grow to maintain margin value.” – José Vela

“In most pricing initiatives, the critical piece is never the technology. It is all about managing the change and how to make people comfortable so they embrace the new way of doing. That’s always the most difficult and most important part of this kind of projects. Communication and training are critical.” – José Vela

 

People / Resources Mentioned:

Connect with José Vela:

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.)

José Vela

You need to be able to analyze your own data in order to identify where your margin, your profitability is, what are the leakages, and then you need to act on them.

[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 changing relationship between them. I’m Mark Stiving, and we’re here to help your company win more business at higher prices. Helping us do that today is our guest, Jose Vela, and here are three things you’d want to know about Jose before we start.

He is currently the Director of Pricing at Spandex, and I don’t think that’s the girdle company. We’ll ask him. He moved into pricing after having a General Manager’s role – which is pretty unusual and very insightful – and he has a degree in mathematics, which means he’s probably pretty logical.

Welcome, Jose.

José Vela

Hello, Mark. Thank you very much for inviting me.

Mark Stiving

Hey, this is going to be fun. My first question is perfect for you today. How did you get into pricing?

José Vela

Yeah, that’s a good question, you know. If you are in sales, you are in pricing, right? No matter, you even know that. But if you are in sales, if you are discussing with customers, if you are making offers, closing deals, you are always managing the pricing.

So, I’ve been in pricing since the very beginning of my career, Mark. I was the Country Manager, the General Manager of a company that was acquired by Hispanics several years ago, so I was in charge of combining the two businesses, right? The business coming from my company and the business coming from the initial Spandex subsidiary. And one of the biggest challenges beyond combining the IT systems and so on, so forth, was to manage the sales team in terms of helping them to know at which price, offer, half of the portfolio, they were not aware, they didn’t have experience. Because again, it’s something that is really important, at least in our industry, but I think that’s pretty common in other industries. It takes a lot of time for a sales rep to be acquainted not only on their product portfolio but also to be acquainted and fully proficient on deciding which is the right price for each customer and each product. So, it took us a lot of time, and I thought that this was really, really nonproductive. We were not able to provide to our customers the best class service we wanted.

So, we implemented a very small project in Spain by crunching our transactional data and providing discount guidance for each product and each customer segment. As I said, based on our own transactional data. So instead of one sales rep, calling another one, more experienced, asking for a buyer. At which price would you offer this product to this customer? They were able to check all the transactional data, of course, just the guidance, right? And the side effect of that is that it not only improve our efficiency, the way we were able to go to the market, but it also improved our profitability. We were able to offer better prices and closing the deals than before.

Mark Stiving

So, I like to say we can win more deals at higher prices, and what you just described is I can win more deals if I get the price right, and when I know I have customers who are willing to pay us more, we can actually win some at higher prices.

José Vela

Absolutely. And you know, most of the time, sales people – they are driven when we are talking about pricing. They are driven by fear. They are afraid of losing the deal, losing the customer if they base off them. And if you are able to provide them data, information, reliable information, they feel more confident and they know that they can offer a right price and they know it right because other similar customers are paying, right?

So, as it was really useful for our subsidiary in Spain, then the CEO of the Spandex troop at that time strongly suggest me to implement these kinds of tools, these kinds of processes in all our subsidiaries. And that’s why I formally ended up in pricing.

Mark Stiving

And it’s kind of neat because you had this really important role, General Manager, and then you contributed so much to the company in a pricing project that they said, ‘Hey, you can contribute a ton more to the company if you take this pricing and move it across the whole company.’

José Vela

Yeah, and please, don’t take me wrong. Consultants, they do an incredible job, right? But if you’re able to go to the country managers, not only offering consultancy, but also talking from personal experience, it adds a plus. It brings some credibility into the discussion. And I think that’s why our pricing projects are quite successful in our company.

Mark Stiving

Yeah, I think that’s true. And what’s funny is country managers, general managers, everybody has this focus on we really want to improve our profitability, we really want to grow our revenue. The question is, do they believe you when you walk in the door and say, ‘Hey, we should do this’? And so, when you walk in with credibility, with experiences, say, ‘Hey, we did this over here and let’s try it over here’, we’re not arrogant or telling people what to do, but we’re making suggestions. And with the evidence, they’re much more likely to adopt it.

José Vela

You know, you’re totally right, because at the end of the day, every country manager, every sales managers, they really know their market. So, you’re there to support them, to advise them, and to guide them, but you can only persuade them. You can’t force anything.

So, I think you’ve got two allies for this task. First of all, your own credibility, right? And the second is to be able to demonstrate that you have been successful with similar projects in other company, in other areas, in other business areas, or in other countries. Because country managers – and I know, because I still feel like a country manager myself – we are really competitive. We are competitive animals and we know to overperform. We want to overachieve. And if we see that some of our colleagues are succeeding, we want to know what’s the deal, what’s going on there, because we want to replicate this, these tools, those processes, whatever they are doing to succeed. We want to make sure that we are doing the best in order to succeed too.

So, if you are able to find early adopters that are able to show and demonstrate quick wins, this also helps a lot.

Mark Stiving

I think the quick wins is a really big deal. I want to go back to something you said, but I also want to go forward in the quick wins conversation. So first, let’s go back.

I want to talk about the salespeople. Because one of the things you said, I’ve never heard it said this way but it’s so true, that salespeople are driven by fear, the fear of losing the deal. As pricing people, we know about Prospect Theory and losses loom larger than gains. And so, doesn’t that make sense when you apply that to salespeople that they’re driven by fear? The question becomes not just the price, but what about the value? What did you guys do to help salespeople understand what the value of the solutions were? How the buyers perceived value? Did you tackle that side as well?

José Vela

Yeah, we had these on tables too, right? So, when we want to position ourselves against our competitors, most of the time, we are selling exactly the same products, right?

So, let me give you an example. If you are a car dealer and you are selling Chevrolet in the States or Toyota or any other brand, and there are two or three, four, ten distributors that are selling exactly the same car, the value is not in the car itself, right? When you are competing against other Toyota distributors, the value is on what I call the extended product. Because again, the car is exactly the same, right? And what do I mean by the extended product? All the services that you can provide. In our case, in our specific industry, it’s availability. This is really key in our industry.

So, we are proud to be one of the distributors with the highest availability in Europe, but also the service, the guidance that you help in order to help the customer. And you need to value that. We train our people a lot, so they are able to answer questions, they are able to provide the guidance, they are able to suggest which is the right product for each application, and as I said, we’ve got the availability. And those are key aspects that we need to value.

In this specific situation, if you allow me to extend myself on this, due to COVID and other circumstances, we are in a huge shortage of raw materials, a lot of materials, right? So, because of our huge inventory, we are running out of materials less than our competitors. So, what we are explaining to our salespeople is that when we are offering solutions to our customers, we should put on the table that we’ve got the stock, right? And not ending the discussion with, oh, yeah, we are going to have exactly the same price as this. No, because maybe you can match the price. But if you don’t have the item, you can’t close the deal, right?

So, working with the sales team in order that they understand that this is our value proposition.

Mark Stiving

So, here’s the lesson I want to take away from the story that you just shared, which is a great story, by the way. And the lesson I want to take away is we have to put ourselves in the shoes of our buyers and ask what decision they’re making. And from your perspective, the decision your buyers are making are, am I going to buy from you or a different distributor? Because we’re essentially selling the same thing. So now we have to differentiate our distributorship more so than the individual products, which is brilliant, but the real key is we have to think that way. We always have to think about how our customers are making those decisions. So, I love that story.

José Vela

Absolutely.

Mark Stiving

Okay. I want to jump back to the low hanging fruit question that you brought up for a second. And I love the concept of low hanging fruit. Typically, I tend to think of two axes on a chart essentially. One is how much impact do I think it’s going to have on the company, whether it’s profitability or revenue, and the other is how hard do I think it is to achieve this? And so obviously, we want the things that are really easy to do that have huge impact, and that’s the true low hanging fruit. How do you find those inside the company? How do you convince country managers that this is where the low hanging fruit is?

José Vela

Well, first of all, you need to build the analytics capability to prove the case.

So, one of the first things that we implemented when I jumped into this specific role was to develop their analytical capabilities in order to prove and demonstrate which is the impact of the pricing decisions. Because a few years ago, we were managing and we were making our decisions based on top revenue and margin rate, margin value. But you are missing a few dimensions if you are already taking into consideration the revenue you’re producing and the average gross margin that you are producing, right?

So, one of the first things that we implemented was a kind of price waterfall. So, it shows you which is the impact of volume, selling more or less quantity unit, the impact of the list, not only the pricing because we soon realized that we had to split between the impact of the list price actions. Again, we are a distributor. We’ve got a list price. And from this list price, we discount to our customers, right?

So, for us, the impact of pricing is, how do we manage the list prices? And how do we manage the discounts that we are giving to our customer?  And then you also have the impact of cost and the impact of product mix. And when you’ve got these kinds of tools, it’s really, really easy to demonstrate visually that the main driver for margin value is – without any doubt – how do you manage your pricing? Without any doubt.

And if you are not able to organically growth a lot for whatever the reason, how you manage your list prices is the biggest driver to increase your revenue. No doubt about that. And if you’re able to show country managers and sales managers how much money they are leaving on the table because they are not managing the list prices or the discount in the most efficient way, they understand it.

So, the first thing you need to convince them is that they need to put the focus on that, and then the next step is how do we do that? So, how do we improve the way we manage our list prices? How do we improve the way we manage discounts?

Mark Stiving

Yeah. Before you go there, I want to ask. I can make two guesses on why list prices matter so much, but I really want to hear your answer to this. The two guesses I’d make is one, when we sell to a client, we offer a discount percentage off of list as opposed to giving the client a price, or two, we advertise list prices so it sets higher reference prices and it makes it easier for buyers to say, ‘Hey, I’m getting a good deal. When do I get a discount off of this list price?’ Are those the things that are driving?

José Vela

You’re totally right, but there is a third point here.

Mark Stiving

Please.

José Vela

There are a few customers, not a huge amount, but we are talking about small customers, customers that are cherry picking from different distributors, that they pay list price. So, if you’ve got a list price that really captures your value, they will pay for that, and that’s not a minor part of our business.

Mark Stiving

Nice. Okay. So, then tell us how you raise, how you manage your list prices.

José Vela

Yeah, there are two different topics here to consider. The first one is how do you decide which is the right list price for a new product? And once you’ve got all your list prices, how do you manage your list price increases?

So, our initial approach a few years ago, it was a cost-plus mentality. So, for our new product, we knew our costs and we just added a markup. Period. Nothing else. And most of the times, the markup was always the same – X%. Or in a broad range of products, the margin expectation – that’s the market – is very similar, right? So, at the end of the day, how do you communicate value to your customer is driven by your costs, which makes no sense, because nobody cares about your costs, right? They care about the value you are providing.

And when it comes to discuss about the list price update, we were doing exactly the same. We were receiving a cost increase from our suppliers. You pick the number. 3%. And then we were increasing 3%. Period. Without considering that maybe, for some products, we should be able to not increase as much, because there is a possibility to gain market share because we started measuring the elasticity on demand of our products and wherever to identify those kinds of products, right? And on the other hand, if we just increase our costs by 3% because our list price is by 3% because the cost is increased by a 3%, you are not taking into consideration all the cost increases or all the value that you are putting on the products.

And regarding new products, we started to do comparisons. We identify which was the benchmark product within the product range in the product category, and then decide to price the new products related to the benchmark.

So, you identify which are the key value attributes, and therefore, you decide to price a little bit above or a little bit below.

Mark Stiving

Is your benchmark, when you say the benchmark, that’s a competitor’s price?

José Vela

Most of the time, it’s our own internal data, because we are a B2B distributor, and most of the time, we really don’t know which is the real price customers are paying, right? We could take into consideration the list price, but only a fraction of customers are paying list price, right? So, we prefer to compare ourselves against ourselves, because as I said, we’ve got a really broad portfolio and we’ve got a lot of data, because we are in Europe, in Australia, and in North America. So, we are able to collect a lot of intelligence.

Mark Stiving

Nice. And you’ll find that if you can raise prices and it doesn’t cost you business, that was a really smart decision.

José Vela

But I don’t think that’s the point. The point is, how much value do we firmly believe that we are giving to our customers? How much time are we saving for them? How much troubles are we removing from their processes? And then you need to value that. And the customers. And of course, there are customers that are more pushy than others. And of course, there are big deals, big opportunities that they serve that you manage this in a different way.

But in general, it’s not just pricing the prices. It’s making the right price. And sometimes, we are very competitive. We are very, very competitive. And sometimes, we want that our customers value the service that we offer, and that’s important, because this pricing goes in two directions. It’s not only about rising prices, right? Sometimes, you decrease.

Mark Stiving

Yeah, sometimes. So, I’ll point out what you just said, which is the most important thing you said all day. By the way, you said it several times. And that is we have to understand the value that we’re delivering to our customers, and that’s what should be driving our pricing. So, absolutely right. Nice.

José, we are running out of time, so I’m going to ask you the final question. What’s one piece of pricing advice you would give our listeners that you think could have a big impact on their business?

José Vela

You need to be able to analyze your own data in order to identify where your margin, your profitability is, what are the leakages, and then you need to act on them.

And I’ll tell you from my own personal experience. It’s hard to start because you’ve got a lot of internal resistance to make changes in something as critical as the way you price your products and the way you discount to your customers, but once you start managing this stuff in a way more professional way, it really delivers value.

So, when you price, act on the insights.

Mark Stiving

I think that was really smart. And it’s fair to say that change is hard, right? Nobody wants to change. And even if we decide, as pricing people, that change should happen, now we have to go convince the rest of the company or other people. So, it’s not trivial, but I don’t think there’s anything more profitable in a company than getting pricing right.

José Vela

Yeah, absolutely. But you know, most of the pricing initiatives, the critical piece is never the technology, or at least from my point of view, because there are different ways to do stuff, different platforms, but how do you manage the change? How do you train the people? How do you make them feel comfortable and embrace the change? That’s the most difficult part. Ever. Always.

Mark Stiving

Yep. Excellent.

José, this has just been fabulous. Thank you so much for your time today. If anybody wants to contact you, how can they do that?

José Vela

Sure. Just go into LinkedIn and look for me. I would be more than happy to answer any questions or any comments. Absolutely.

Mark Stiving

Perfect. And we’ll have the link to your LinkedIn page on the show notes.

Alright. Episode 160 is all done. Thank you so much for listening. If you enjoyed this, would you please leave us a rating and a review?

And speaking of reviews, Chrissy Kane said this about my new book Win Keep Grow: How to Price and Package to Accelerate Your Subscription Business. She said:

This book provides a great perspective coupled with impactful insights. It works through material efficiently and provides a simple framework for the exploration of complex topics.

Thank you, Chrissy. That was awesome. I really appreciate it.

And finally, if you have any questions or comments about this podcast or pricing in general, feel free to email me mark@impactpricing.com. Now, go make an impact.

Mark Stiving

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

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