Impact Pricing Podcast

Ep163: Your Costs vs. Your Price Change Decisions with Jon Lucas

Jon Lucas started as an Accounting Manager before working as the Strategic Pricing & Business Development Manager of Cornerstone Building Brands Inc. Jon loves hiking, and he is loving it even better since he moved out of Ohio.

In this episode, Jon engages in a discussion with Mark Stiving about making price changes in relation to the importance of value and volatility of costs in the market nowadays.

Why you have to check out today’s podcast:

  • Discover the importance of differentiating your business with the general market when thinking about value and making price changes
  • Learn how you can manage cost volatility and even add value when deciding on your products’ prices
  • Find out why a safe and sound relationship with the sales team is a must when you’re doing pricing

“To experienced pricing managers, structure your department, borrow what everybody else in the organization is doing and have an org chart. Put some procedures around it. It kind of sounds like common sense, but I honestly don’t see that happening in pricing in a lot of organizations.” 

Jon Lucas

           

Topics Covered:

01:21 – How Jon got into pricing; Was it about value or cost plus at first?

03:00 – Jon discusses what Cornerstone does; Thinking about value and differentiating oneself in the market

07:19 – How Jon adds value as he manages cost volatility when making prices

11:29 – Rapid cost fluctuations in the industry as an excuse to change prices frequently

12:35 – Jon talks about Cornerstone’s sales cycle

15:35 – How SAS-based programs help Jon and the company in terms of pricing

16:43 – Does Cornerstone change prices weekly?

19:04 – Jon shares what it’s like working with salespeople

21:03 – Jon’s piece of pricing advice for today’s listeners

22:38 – Having more things to do beyond the role in pricing; the resistance to take on pricing projects

Key Takeaways: 

“When costs move, we know we need to make some kind of pricing move, and it doesn’t have to be the same as the cost index. Costs could go up 5%. That doesn’t mean we’re necessarily going to go up by 5%, because that’s where we get the value.” – Jon Lucas

“You can kind of use the cost fluctuation as the starting point, then we look at where the value is, and that’s where we set our prices.” – Jon Lucas

“If you think your competitors are only getting up: if we’re making a price decisions every week and they’re making price decisions once every six weeks, we’ve got a much better chance of capturing more margin.” – Jon Lucas

“You can put some safeguards around your cost volatility to some degree with the way that you write your contracts. You can kind of do some hedging there. But you’re predicting things out in the future, and it’s not always going to be perfect. You just got to do the best you can.” – Jon Lucas

“You could have the best pricing in the world that you want to charge, but if you can’t get it to your customers in a way that works for them, then you’re nowhere.” – Jon Lucas

People / Resources Mentioned:

Connect with Jon Lucas:

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.)

Jon Lucas

I suggest to experienced pricing managers, structure your department, borrow what everybody else in the organization is doing and have an org chart and say, ‘Hey, this is the number of people we need to serve this basis of customers. Here’s what each one is going to do.’ Put some procedures around it. And it kind of sounds like common sense, but I honestly don’t see that happening in pricing in a lot of organizations. And I think it would benefit people.

[Intro]

Mark Stiving

Welcome to Impact pricing, the podcast where we discuss pricing, value, and the volatile relationship between them so your company can win more business at higher prices. I am Mark Stiving. Today, our guest is Jon Lucas.

Here are three things you’d want to know about Jon before we start. And by the way, he’s really curious about what I’m about to say.

He’s in Strategic Pricing & Business Development Manager at Cornerstone Building Brands. He started out in accounting – oh, I’m glad he got out of that – and he loves hiking, especially since he moved away from Ohio, my home away from home.

Welcome, Jon.

Jon Lucas

Thank you. Great to be with you.

Mark Stiving

Okay. So, the easy one – how’d you get into pricing?

Jon Lucas

Well, I started in accounting, and as you say, thank God I got out of that. Because I did enjoy. You know, initially, I loved that – the whole analytical side of business, but I was kind of always looking over my shoulder and saying, “What’s going on over there in the Sales Marketing realm?” And I think my boss has kind of noticed that about me as I kind of moved up as an Accounting Manager, running the month end close, and they kind of said, hey, you look like your interest is kind of waning here. Much try setting up our pricing department and have some, you know, a small insight sales team that I would manage. And I did that and I just kind of found that I don’t have the brain to be an accountant full time or to be a salesperson full time, but pricing kind of gives you the ability to kind of do both. And that I could get passionate about, be able to use the analytical side of my brain and the sales and marketing-oriented side.

Mark Stiving

Yeah. So, you said you listen to my podcast quite a bit, which means you know I talk about value constantly.

Jon Lucas

Yeah.

Mark Stiving

So, I’m really curious. When you first moved into pricing, did you think it was going to be about value or did you think it was going to be about cost plus?

Jon Lucas

I thought academically, you’re taught, you know, the book smart people were all about value, but then I thought, once we get into the real world, this is all going to be cost plus. That’s what I thought. And then it’s kind of how our system was set up when I first started working on it, and then I said, Man, we just got to push, get away from cost plus and onto the market level pricing as much as we possibly can. So, that was kind of what I really tried to drive toward and kind of get the team on board with that concept.

Mark Stiving

Nice.

And so, just so that I have my mind set, what does Cornerstone do?

Jon Lucas

We manufacture metal buildings and metal building components. So, a typical example everybody can relate to – you driving down the highway and see your storage building. Okay? So, we buy steel coils, manufacture it into all the parts that go into that metal building, design the metal buildings then ship it to the job sites and our customer erects the building. Use also things, fancier things, schools and churches, airplane hangar would be a good example, warehouse distribution centers. So, we got that. That’s our pre-engineered metal buildings division. And then our other division is our components division where we sell individual parts of a metal building. So, that would be individual panels or structural members in the trim and that kind of thing.

So, we kind of have, you know, people think of the yachts vs. row boats analogy like our engineer buildings. Those are our yachts. Everyone’s unique. And then our row boats are components where everything coming off is identity. So, you got to handle the pricing, obviously, in two completely different ways.

Mark Stiving

Nice.

And so, tell me about value. How do you think about value for these products?

Jon Lucas

Yeah, I think about- the feedback I hear from our customers is: We prefer to do business with you. And then I say, okay, well, that’s the good indicator that we have them. Someone’s going to tell me something about value, you know. And part of it is the high level of customer service that we provide. Part of it is the quality of the physical product that they can rely on. And a lot of it has to do, honestly, with how we work with them to design the building. In a customized product, there’s a lot of complications that go into it. So certain competitors are better than others at helping the customer design that product, considering everything has to be up to very specific building codes, and there’s a lot of, you know, there’s an art and a science to it. There’s a lot of value that we bring, I think, in terms of helping our customers get to where they need to be for a complex product.

Mark Stiving

Nice. So, I love the fact that you brought up the fact that customers say “we like to do business with you because…” and then we can list these reasons and start to go through that, start to go through what those reasons are. It almost sounds like it only makes sense for repeat purchases. Can you get that value message across for new customers?

Jon Lucas

That is a challenge. When we are out, kind of soliciting new customers, we do ask them the questions of how they’re getting value from whatever competitor that they have, and we try to train that price should not be the lead we’d think to go with. We try to explain, “Hey, look, we do it a little bit of a different way.”

I think one thing that gives you a little bit of an advantage there if you’re in a highly configured product situation is that, really, competitors have to be- there has to be some difference between you and the competitors, because there is no one standard way of doing it. So, we can at least talk about our differentiation, say, “Hey, here’s something we do a little bit different than our competitors, and maybe that fits your business model a little bit better.”

So, we kind of focus on how we differentiate ourselves.

Mark Stiving

Nice. And so, I was kind of hoping you would say, “Here’s what we do differently, and here’s how that matters to you. Here’s how much value that delivers to you because we do this differently.”

Jon Lucas

One of the things could be lead times. We’re a larger player in the market. We’re one of a few national players with five regional players, and we can say, “Listen, we can physically get it to you in a faster lead time.”

Another way we add value is from a consultative selling approach. We do have some highly skilled, long tenure employees that can help out a lot. And we kind of, I think we try to paint the picture and give the perception that “Look, we’re here to kind of hold your hand through this process.” And some of our competitors, frankly, don’t have the manpower to do that.

Another differentiator, when something that’s again, highly configured. Experience of the whole customer service team is a big deal, because you can’t just get somebody. They can be the smartest person, hardest working person off the street. If they don’t have experience in this industry, you can only learn so much about it so quickly. So, 10 years is a big- that’s a big differentiator.

Mark Stiving

Alright. So, we started this out by talking about value, and I thought, I always think value is really important. But let’s get rid of that value stuff. Let’s talk about costs.

Now, one of the things that you had said to me was your passion about managing cost volatility. And I find this a really dangerous topic. I love it as a topic, but I find it really dangerous. What do you think? How do you manage cost volatility?

Jon Lucas

Yeah. So, we’ve always had, you know, what a really easy example to think of – we got basically one raw material and its steel, and steel follows an index, and it wouldn’t be uncommon to see it change by 20%. That would be a volatile situation.

In this past year, in 2020-2021, going from the low point to the high point, it was a 330% difference.

Mark Stiving

Wow.

Jon Lucas

Massive price increase. That was in September. Right now, it’s come down 142% in the last five months. So, very volatile industry. But though, the way to manage that, our primary strategy for that is to have a weekly meeting between sales, finance, and pricing, or pricing kind of takes the lead and sets the agenda, and we review a standard set of reports and we talk about several topics, you know, and cost is one of the main ones. Where our costs gone? What are the supply and demand? Factors that are going to affect our cost over the next couple of months? So, we review. This is our view of where costs are going. And we kind of combine that with what our plant manufacturing capabilities are, and then the feedback we get from the sales team as to where the market price level is. So, we kind of go through and discuss those kinds of three factors and come up with the pricing strategy that helps us manage that cost all together.

Mark Stiving

Okay. And so, how do you – I didn’t hear you say the word value in that whole conversation – so how do you add value into the cost volatility conversation?

Jon Lucas

Well, the value to me comes on when we actually make the pricing move, and we determine where we’re going to set our prices, somewhat based on our costs or not completely based on our cost, because we got a price to the market level.

So, when costs move, we know we need to make some kind of pricing move, and it doesn’t have to be the same as the cost index. Costs could go up 5%. That doesn’t mean we’re necessarily going to go up by 5%, because that’s where we get the value.

So, we may say, “Okay, in order to maintain our margins, we have to go up by 5%, but look, we are in a position where we’re providing more value than competitors at this particular point, say in this particular region.” You say, “Hey, look. We have an advantage in the west right now. Our competitor is out of product or they might doubt or something’s going on.” So, it’s like, we’ve got the value. We’re adding more value than somebody else. We have a better lead channel. I’m going to get the advantage. So instead of raising that price by 5%, we may take advantage and do a little bit more. Conversely, we may say, “Look, we’re in trouble with these other customers here, in this particular base, because we short ship them or whatever the case was. So, costs went up. We’re kind of behind the ball on the value there. So maybe catch up a little bit and then do a little bit more of dial on the pricing a little bit differently.”

So, depending on- you know, so you can kind of use the cost fluctuation as the starting point, then we look at where the value is, and that’s where we set our prices.

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Mark Stiving

You know what? I never thought about it, and I love this, because I always learned something new. What I never thought about was these rapid cost fluctuations in your industry are giving you an excuse to change prices frequently.

Jon Lucas

Absolutely right. And of course, that comes with its own challenges, though, right? Because you could want to change your prices, quickly. This is probably another, I don’t know if value is the right word; it’s a value to us but it may not make sense to the customer, but you could want to change prices, like we’d like to make a price decision every week. You can’t always administer it that quickly, right? Your customers can’t always take it that quickly. So, one thing you’ve invested in is to say, “Hey, what can we do internally to give us the ability to actually administer that price changes faster?” If you think your competitors are only getting up: if we’re making a price decisions every week and they’re making price decisions once every six weeks, we’ve got a much better chance of capturing more margin.

Mark Stiving

Yeah. So, it’s certainly true. But I got to tell you what I’m super curious about right now is what’s your sales cycle? And do you commit to a price and then go buy the steel? Or do you buy the steel and then commit to the price?

Jon Lucas

Commit to the price then buy the steel, which means our forecast of what that steel cost is going to be for when we’re going to buy it needs to be with our price. So, if we’re going to ship the building six months from now but we’re going to buy the steel four months from now, then we got to make sure that that the revenue and the cost of the P&L line up to the pricing decision makes sense. So that, obviously, that’s a challenge.

Mark Stiving

Yes. And so, if I get a customer – just talk through this with me for a second – I get a customer and they agree to pay $100, and we did that because we thought the cost of steel was going to be $50 at the time when we have to buy it, and the cost of steel goes down to $20 because it’s so volatile right now. Do we revisit the price with the customer?

Jon Lucas

We’ve had to do that during COVID, because there’s basically a shortage and such an increase in costs so quickly that we had to do some revisiting. We normally don’t do that. And you’re right. There are times when you come out ahead of it because of your forecast.

The danger there is that you really just want to make sure that you use your manufacturing assets in the most intelligent way possible. Part of the risk there is that if you can see a lot of really good business out there and you get too aggressive at it, and then scenario happens that you just said where the cost changes, you could potentially book up your plans with lower margin business than you would like to. We’ve fallen. Other pricing competitors fall into that. It’s part of it. It’s part of the chess match.

Mark Stiving

Yeah. So, if we play this back into the value, which is what always matters when we think about pricing, the moment the buyer is making the decision, the value to them is what was my alternative, right? So, I could have bought from your competitor or I could have bought from you, and assuming your competitor has some pricing forecasts for costing forecasts for steel or they’re going to buy the steel immediately as soon as they get the order so that they don’t have to hedge it or something like that. So, after that point, from that point on, it’s just a financial decision, right? When are we going to buy the steel? When are we not going to buy the steel? We’re essentially playing the markets at that point. Playing the steel market, if there’s such a thing.

Jon Lucas

Right.

Mark Stiving

It’s a fascinating business. It sounds pretty challenging.

Jon Lucas

Yeah, it definitely is. We’ve got a- you can put some safeguards around your cost volatility to some degree with the way that you write your contracts. You can kind of do some hedging there. But yeah, like you said, you’re predicting things out in the future, and it’s not always going to be perfect. You just got to do the best you can.

Mark Stiving

Yep. Always. Always.

So, you also said to me that you’ve used a bunch of the SAS-based programs like Zilliant and price effects in particular. First off, did you use them at this job? And then what do you think they got for you? What was the value that they delivered?

Jon Lucas

Yes, we use them at this job in different divisions, and over time, it kind of goes back to what I said about administering the price changes as quickly as you’d like to. They do help us make price changes more often so we can take advantage of like you said, cost volatility to be an opportunity or the excuse to change prices. These software programs to help us administer it that a little bit more quickly. They also have to get a little bit more precise so you do have the opportunity to say, “Hey, we want to go up on our low complexity buildings by different percentage than our high complexity buildings” or “We want to go up in the north different than where we want to go in the south east.” Something like that. So, you get a bit more granular with your pricing. So, I think that’s kind of the main things that those software programs help us with.

Mark Stiving

So, it enables you to change prices quickly and more granularly.

Are you guys actually changing prices weekly?

Jon Lucas

For our configured products, we don’t. We don’t actually do that. I like to think, theoretically. I like to say that we make a pricing decision every week, whether it be to go up or down, stay the same, or up somewhere and down somewhere. We’d like to think of it as like we’re making pricing decisions, at least in my mind. And then we don’t always pick market. That’s always another discussion. It’s like, where do we pull the trigger and make these changes? And how often? I think it gives you an advantage, though, if you’re at least trying to make decisions on a weekly basis and you’re putting them into the market at a reasonable amount of time, when you want to, while your competitors maybe aren’t willing or able to do that or aren’t confident that these price changes will work for them. That is one of the ways that we’ve managed 300% price cost increases.

Mark Stiving

It’s actually fascinating. I’ve worked with clients who three to six months from the time they decide to change prices until they can actually get prices change in the marketplace, because of systems and agreements and stuff like that. It’s absolutely insane that it takes that long to change a price.

Jon Lucas

I’ve seen various companies, you know, struggle with that. It’s kind of like, you could have the best pricing in the world that you want to charge, but if you can’t get it to your customers in a way that works for them, then you’re nowhere.

Mark Stiving

Yeah. Now, it’s pretty tough to increase prices the way I’m about to describe it, but I think I could decrease prices easily, and here’s how I would do it. I would have a high list price and I would tell my sales people, “Here’s the price you’re allowed to quote” or “here’s the size of the discount you’re allowed to quote.” And so now, we can change it without having a system to automatically change all that. But it’s really tough to have a list price and have sales go in and say, “Yeah, we charge 30% more than this today.”

Jon Lucas

Absolutely. Yes. Our plan B on right now is, yes, you just open up the discounting window a little, but going on the way up asking salespeople to go over the list price is just, it’s very difficult and it could potentially look odd to the customer, and it’s, yes, complicated.

Mark Stiving

Yeah.

So, what is it like working with the salespeople? Do you work closely with them?

Jon Lucas

I do. We have a great sales team here which is one of the reasons I stayed with this company as long as I had the best sales team I’ve ever worked with.

I like to travel in our sales teams in our regional offices. I like to go and participate in their regional sales meeting where they bring all the people in, and then pricing is one of 10 topics you review during the meeting. But generally, I like to go there and try to explain to them, Pricing is here. It’s is really on your side. We’re not a cop. We’re not here to name and shame and try to wrestle a lot of control away from you.”

From a salespersons perspective, you think the default position could be okay, pricing person from the corporate. You know, the ivory tower they make all right and then you know, maybe this person doesn’t understand our business and certainly isn’t meeting with the customer like I am. So, the default position can be kind of negative on pricing. But I explain to them, I say, “Look, we’re trying to be a value add here. We’re on your side. We’re looking to protect you. We’re looking to do the analysis that you don’t have time to do, because you’re getting on a plane, you’re meeting with customers, you’re dealing with back orders, you’re doing that kind of thing. When you’re in a competitive situation, and you need some price guidance, call us. Let us run some numbers. Let us come back to you with a reasonable explanation. We’ll protect you. We’ll make sure you’re not undercutting one of your other customers. We’ll make sure you’re not charging too much.”

We try to explain those kinds of things. And in more cases than not, we’re able to get the sales team get on board with what we’re doing.

Mark Stiving

Right. And so, the goal for you is to try to help them, but I could see how they would normally see you as: this is the guy who is trying to raise prices. This is the guy who’s trying to get more for a product and make my job harder. In fact, I’ve even heard of pricing people is called the sales prevention team. One of my favorites. So, alright.

Hey, Jon, this has been a fun conversation so far, but let’s see if we can make even more fun with the last question. Do you want to ask it yourself since you listen, or do you want me to ask it anyway? I’ll ask you. What’s one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?

Jon Lucas

I think, putting some processes and structure around the pricing department really help a lot of companies. We do this with every other aspect of the business we do. We have, a standard onboarding procedure, right? We have standard training that people get. We have procedures in place to say, “Hey, if something goes wrong…” You know, in an IT department, if a server goes down, we know what the backup server is, who’s going to handle it, but in pricing, we don’t always really do that, right? We just kind of have pricing people that report, some we don’t know who they certainly report to, in all cases, right? And we don’t have any standardization. And the problem with that is that it only takes a few prices to get out there in the market or that people see that don’t make sense to them or they’re a little bit too high. And then somebody can say, “Hey, this pricing organization is disorganized.” And that doesn’t necessarily have to be the case.

So, I think, just kind of borrow some- I suggest to experienced pricing managers, structure your department, borrow what everybody else in your organization is doing, and have an org chart and say, “Hey, this is the number of people we need to serve this basis of customers. Here’s what each one is going to do.” Put some procedures around it. And it kind of sounds like common sense, but I honestly don’t see that happening and pricing in a lot of organizations. And I think it would benefit people.

Mark Stiving

Yeah. I think that’s a pretty neat answer.

One of the things that I find really interesting about pricing departments is no matter what you’ve defined as your job, there’s a bigger job there, right? So, there’s always more that we could go take on, more than we could do. We could start teaching product management or marketing or salespeople about value better. We could create new pricing strategies, there’s always something we could be doing that’s above and beyond what this role is. So, I almost think of it as let’s define the day to day, this is the work we have to do, here’s how we handle price escalations, and so let’s go do our job. And then here’s the stuff that we’re going to add on top over time.

Jon Lucas

Yeah, absolutely. And if I could ask you a question about that specific thing

Mark Stiving

Of course.

Jon Lucas

Do you find that there’s a resistance in the organizations that you work with to take on a pricing project if it’s anything less than ideal on day one? In other words, instead of a continuous- defined, there’s resistance to kind of the continuous improvement goal that a lot of pricing people like to initiate.

Mark Stiving

I think there is resistance to pricing change throughout the organization, because almost always, we’re changing what somebody else has to do, and they’re reluctant to agree that it’s going to work or we’re not sure that it’s going to work, and so there’s always, always resistance. And so, the way that you told me that you deal with salespeople where I go out and I say, “Look, I’m here to help you, I want you to be successful,” we have to learn to do the exact same thing when we deal with marketing or finance or product management, right? “I’m here to help you be successful. How do we help you?” And I think as long as we always have that attitude, the resistance is less. It’s like raising somebody’s price. They’re going to hate you. Now the question is, how much are they going to hate you? Can we make them hate us a little bit less?

Jon Lucas

Yeah, absolutely.

Mark Stiving

Awesome.

Hey Jon, this has been a lot of fun. Thank you so much for being with us. If anybody wants to contact you, how can they do that?

Jon Lucas

You can find me on LinkedIn, Jon Lucas.

Mark Stiving

Okay. We’ll have a link to Jon’s profile in the show notes. Episode 163 is all done.

Thank you for listening. If you enjoyed this, would you please leave us a rating and a review? Speaking of reviews, Kunwar C. said about my book Win Keep Grow: How to Price and Package to Accelerate Your Subscription Business, he said:

“This book has great content on how to think about subscription businesses, and gives a framework to build effective subscription pricing. I was pausing throughout the book to take notes and assimilate the concepts.”

Thank you, Kunwar. The check is in the mail.

And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me: mark@impactpricing.com

Now, go make an impact.

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

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