Dale Harrison has been consulting in life sciences for seven years now, but he’s been an executive in biotech for 16 years. Dale started his career as a physicist.
In this episode, Dale shares how he’s able to not make biotech products a commodity as he tells us the stories on how he gets inside the minds of both their customers and competitors.
Why you have to check out today’s podcast:
- Understand the importance of stepping outside the product and the company when it comes to making a product stand out in the market
- Discover why it’s a must that you get inside the head of both your buyers and competitors, especially with seeing where your competitors are blind in their framework
- Find out how to get inside the mindset of your buyers and competitors through stories of tricks that worked
“Pricing has little to do with analysis. Analysis is a supporting role, but only supporting. The real issue with pricing is getting inside the head of the customer, and equally importantly, inside the head of your competitor.”
– Dale Harrison
01:02 – Dale’s work around commercial development and its relation to pricing
01:45 – Why Mark despises the word commodity + selling products in the synthetic DNA business back in the 2000s
04:28 – Not making the products a commodity by trying to get into the mindset of the buyer
09:25 – More about the story; The “Got Probes” T-shirt
13:01 – Merging the company with a larger partner and becoming the VP of Sales and Marketing
14:10 – Telling the story about getting inside the heads of the competitors
17:08 – Were they able to charge a higher price because of the red cap?
21:14 – The challenge of keeping customers continuing to reorder and focus on you and not be looking elsewhere
24:05 – Dale’s pricing advice for the listeners
“Commodity is a mindset. It’s not about the product. It’s about a failure of imagination around the product. But there are products that are much more commoditized than others.” – Dale Harrison
“Again, these are very boring products, so if you talk about the product, no one’s going to be interested because everyone already knows it. Nothing’s changed and there’s literally nothing to talk about. So, you have to talk about something different than the product and then tie it back to the product.” – Dale Harrison
“The deal is whatever market you’re in, every competitor imagines that they have some highly rational pricing process, and the fact is they don’t. What they have is a framework – a mental framework – and their framework is their blindness. And if you can understand what their framework is, you understand where they’re blind. When you know where they’re blind, you know how to work around them without them even seeing you.” – Dale Harrison
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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.)
Pricing has little to do with analysis. Analysis is a supporting role, but only supporting. The real issue with pricing is getting inside the head of the customer, and equally importantly, inside the head of your competitor.
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the organic relationship between them. I’m Mark Stiving. Today, our guest is Dale Harrison, and here are three things you’d want to know about Dale before we start.
He’s been consulting in life sciences now for seven years. He’s been an executive in biotech for 16 years. And shockingly, he started out as a physicist.
Okay. Maybe not a fair question, but how did you get into pricing? Or do you think of yourself in pricing?
I don’t really think of myself in pricing, but much of the work I do with companies these days is around commercial development, and ultimately, that’s about making enough money to survive, and ultimately, that’s about how you set your price. And certainly, my experience in the biotech industry is that companies run by scientists tend to be very horrible at setting prices. There’s a tendency to be way too cheap and way too imagined that pricing is controlled by cost, which they’re not, obviously.
Absolutely. Great first answer. I’m going to give you credit for that. But when I asked you what are you passionate about or what you want to talk about, you said selling commodity products in biotech, and every one of my listeners who listens to me very much says, “Oh, he’s now about to rip this guy a new one.” So, I’m really not, but I despise the word commodity, and I despise it because it always says to me that we haven’t thought through what the value is of our product and even differentiation between what we do and what our competitors do. So, I’m going to let you pontificate for a few minutes on commodity and we’ll see if we can come to a common understanding.
I largely agree. I mean, commodity is a mindset. It’s not about the product. It’s about a failure of imagination around the product. But there are products that are much more commoditized than others.
And so, the first probably half of my career in biotech was in what’s called the oligonucleotide business, so this is synthetic DNA. So, these are companies that manufacture custom designed DNA sequences. These are 25 to 50 base pair or 50 base sequences. These sequences are at the heart of PCR. So, every PCR run requires anywhere from two to eight of these.
So, I just have to say to my listeners, if you guys are confused, don’t worry, so am I. I don’t know what he’s talking about. But we’re going to get to pricing soon, I’m sure.
Yes. So anyway, in the synthetic DNA business, you’ve got this essentially identical molecule that any one of your competitors can make, and there are three attributes of the product – you’ve got the price, you’ve got the delivery, you’ve got the quality. And the deal was that certainly by 2000 or so, everybody – you had eight or ten companies in the industry in the U.S. – every single company had essentially identical delivery. You would place your order in the morning, we would manufacture it in the afternoon, we would put it on a FedEx delivery truck by seven, you would get it by 10:00 in the morning, which was essentially the shortest possible delivery cycle unless you drove it over.
Everybody’s pricing was rock bottom by then, and then the quality was absolutely indistinguishable. We would actually occasionally order products from our competitors where we’d order identical product from multiple competitors and then double blind test it to see if we could determine any difference, whatsoever, between the products. They’re absolutely identical. I mean, it was literally like trying to go door to door, selling a loaf of white bread. I mean, there was just nothing to distinguish the product.
Okay. So, I got to pause you for a second because you started this description off with, I thought, brilliant words, right? In that, you didn’t believe that there really was a commodity. You thought it was a lack of imagination or lack of thinking far enough. And then you just described to me identical situations, identical products. And if you truly believe what you just said, then I would agree that’s a commodity. So how did you not make it a commodity?
That’s a good question.
So, at one point in my career, I was recruited by one of our competitors, to come in and basically go in and do a reorganization and restructuring of one of the competing companies in the business that had gone bankrupt and had been acquired by a large French company. The French company brought me in to basically turn this company around and get them profitable.
So, this company was the smallest company in the market; it had 4% market share. And again, everything about the product was identical to every one of his competitors. And the thing that I struggled with coming into that role was the only way to save the company was to grow market share. And the only way to grow market share was to figure out how to sell what was essentially an identical product.
And the thinking there, eventually, after lots and lots of thinking about how we could change the product in some way, was that we couldn’t change the product, but we could change how people thought about the product. We could step outside the product and create an environment around the product that differentiated us from the competitors in the industry. Because there was no way we could sell at a different price. There was no way we could deliver it faster. There was no way we could produce higher quality. It was already as high quality as possible.
And so, a lot of this was really driven by stepping outside the product and outside the company and trying to get into the mindset of the buyer.
Our buyers were mostly people in academia, so the typical purchaser was a junior researcher or a post-doc or even a graduate student working in molecular biology. And one of the things that I came to realize was that each one of these people are working on in some area of science where there are maybe two dozen people on the planet that fully understand what they’re doing, and yet, they’re convinced they’re doing the most important work in the world. And so, the idea was, how can you tap in to that mindset? How are you able to talk to them in a way and get them to identify the company and the product with a sense of essentially being seen?
So, one of the things we did early on, on the marketing side, was we produced a poster that we would give away to customers, and the poster had, basically, a picture of a woman from the back with this sort of very elegant pose and then a picture of an ape with a very similar but quite stupid pose. And the tagline of the poster was, “What a difference a little DNA makes.” And so, the deal is, if you’re a geneticist or a molecular biologist, you understand that there’s only 4% difference in the entire genome of those two – of that woman and that ape. You also know that no one else will catch the joke. It was sort of the ultimate inside joke where only people like you, only people like us understand why this is amusing. We ended up shipping tens of thousands of those posters out. It was a huge hit.
And so, it was one step on the way of getting people to remember us, to think about the product, and to think about the company, not because we convinced them that the product was different or better, but because we convinced them that we understood, we were all sort of part of the same club; that they were understood, that we were all sort of in on the joke in a sense, at least for that poster.
Yeah. I was going to say, I think that’s a fabulous story, because what you pointed out is that it isn’t just the product and the delivery and the pricing. It’s also the marketing. It’s the mindset. It’s what people believe about us as a company. Do we understand them? Are we part of their organization? So, you found a way to differentiate your company, and I think that’s absolutely spot on. And every time someone says to me they’re selling a commodity, I think the exact same way. It isn’t about the product. Right now, I would bet you that if you go online and look at three different gold retailers for the exact same gold coin, you will find three different prices.
And so, it’s not a commodity. How do they get away with three different prices? And so, I agree with you completely. I thought that was a fabulous story.
So, is there more to that story?
There is. I mean, there is a series of these sorts of marketing pieces that we did. And again, the idea was we wanted, you know, my goal was I wanted as many researches as possible, with one of our posters in their office, one of our posters in their lab, wearing one of our T-shirts.
One of the other products we sold was what we call molecular probes, which was essentially synthetic DNA with special molecular modifications to it. And so, we ended up doing a series of T-shirts that had a giant alien head that was sort of wrapped around this black T-shirt, and it simply said “got probes”. And again, it was one of those things where we sent out probably 15,000 of those t shirts over about a six-month period.
And nine months after the last one of these went out, I was in LA with my sales rep, out in Southern California. We’re visiting UCLA campus, and there’s a big multistory building that holds most of the biology labs there. I remember walking toward the building, seeing first one and then another graduate student wearing our got probes T-shirt, and then going into the building, seeing another two or three people wearing a T-shirt. It had been six months or more since we’d sent the last one of those T-shirts out, and everybody’s walking around as a billboard for our company and our product.
And so, yeah, you’re a commodity, but the other thing about commodities is that often times, the supplier that people choose is the one that is in top of mind; the last one that they heard about. And again, these are very boring products, so if you talk about the product, no one’s going to be interested because everyone already knows it. Nothing’s changed and there’s literally nothing to talk about. So, you have to talk about something different than the product and then tie it back to the product.
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Sometimes, only one person comes to Office Hours and it’s like they got the value of $1,000 one on one private session.
So, if you want to take advantage of me, and in this case, I don’t mind, become an INSIDER. Go to http://insider.impactpricing.com.
Yeah. If you think about it, people are going to make a decision some way, and if all of the features are the same, the price is the same, delivery is the same, then what am I going to use to make a decision on? And I’ll make a decision on how does the company make me feel? Do I like this person, the salespeople I talk to? Was there a good news article this week on that company? There’s a million reasons why I might choose to make the decision in your favor or in another company’s favor, but the thing is it isn’t a commodity. So, these are great stories. I absolutely love them.
What market share did you get to? Instead of 4%, what did you get to?
Still not a lot. I mean, I think we got up to six or 7%, but the end game with the company was, because we knew it was too small to be long term viable in the market, so the acquiring company’s original strategy was get the company profitable. The charge to me by the board of directors was “Get them profitable or shut them down; we don’t care which.” And the goal was once profitable, then we would look for an acquisition partner. And so, in the end, the parent company ended up acquiring another much larger competitor in the space and then merging the two companies together, and it ended up with a much stronger company as a result because we had a much more dominant market share as a merged entity. And so that was the endgame of that company. It was the successful merger with a larger partner. And I actually went on to work with the acquiring company and stayed on as their VP of Sales and Marketing for about two and a half years and continued to do some of the same sort of things.
You were VP of Sales and Marketing because you could design amazing posters and T-shirts.
No, because I could get inside the heads of our customers and inside the heads of our competitors. And I’ll tell you the story about inside the head of the competitor, because I think that’s important, too. Because the deal is whatever market you’re in, every competitor imagines that they have some highly rational pricing process, and the fact is they don’t. What they have is a framework – a mental framework – and their framework is their blindness. And if you can understand what their framework is, you understand where they’re blind. When you know where they’re blind, you know how to work around them without them even seeing you.
And so, one of the things that was clear to me, again, having come from other companies within the industry, I had seen the inside of other companies as well, was that there was this sort of intense because these are companies run by scientists. And so, there was this intense focus on the product and on the machinery of making the product. And then everything around the product was considered even less than an afterthought. It was just whatever is the most utilitarian way to deliver the product. And so, all the products came in exactly the same tube – as a two-milliliter tube that had a very specific size and shape, and these were like just completely blank sort of translucent tubes with identical caps on them. They were all in just like cardboard envelopes. So again, thinking about how you actually distinguish the product by what holds the product. And again, anybody who’s looked at Apple understands that this is important.
So literally, what they were doing was they were shipping the product and packaging the product by default, by whatever was the most utilitarian method, with no input of thought. And so, you would walk into a lab and you would see these little tubes sitting everywhere. You had no idea what company they were from, because they were all literally, absolutely identical. They essentially commoditized the packaging for no good reason.
So, one of the things that I shifted this to – and this is going to sound very dumb – but bright red caps on the tubes. So, every time you saw one of our tubes, it stood out like a little spotlight on a lab bench because it had a bright red cap, and turns out people love the bright red cap. We had people ordering the product from us for no reason other than the fact it had a bright red cap. And the deal is none of our competitors ever picked up on this because, again, this was all utilitarian stuff that was not to be thought about. And so, if you don’t think about it, you’re blind to it, and if you’re blind to it, you literally can’t see what your competitors are doing. And I think in any industry, you see the same sort of mental framework around how you define what the product is and that defines your blindness. And if you can see that blindness, you can work around behind it.
Nice. So, you’ll really impress me if you can tell me that “We were able to charge a higher price than our competitors because of the bright red cap.”
Unfortunately, that was tough. It was really more about gaining volume and market share at a price. There were a few things, there were some more specialty products that we were able to bring into the market at probably a bit of a higher price. But certainly, this core product, the synthetic DNA product, it was so ultra competitive that it became very difficult to try to significantly increase the price on these things much above, more than maybe 10% above your competitors. But the other thing about the business was-
By the way, I’ll take 10% over competition. I think that’s a great thing.
Especially if you have such similar products.
And you had a continual downward pressure on pricing, because certainly in this period of time in the industry, all of the competitors were in this continual technological arms race where we were applying more and more robotics and automation, fewer humans into the production loop, so that we could make more and more product at lower and lower unit cost. And what most of the competitors were doing was using the reduced cost to drive down pricing to try to grab market share. So you ended up in this really tough, you know, where we were seeing the price of the product fall 30% per year. And so, a lot of the advantage you were shooting for was to slow the rate of decline in the price of the product. Now at underneath that, you also have to match that with technological advances that would drop your cost of production even faster. And if you did that, you could then open up a profit gap.
So, in many ways, it was less about charging more and it was more about resisting the rate of downward pressure on pricing due to technological change.
And how fast was that market growing per year?
For ten years during the core period I was involved, we were increasing our scale of production, we were doubling our scale of production roughly every nine months. And the market at the side is a whole, because there was a very steep price elasticity curve on the product. And so, if you could drop the price of the product by a factor of ten, you would see the demand for the product go up by a factor of a thousand. Because what would happen is it was a very universal tool that was used in molecular biology, and if you could get it cheap enough, there’d be entirely new uses that would open up. So, we were riding the steep price elasticity curve. And it wasn’t just driving your cost down; it was driving your volume up because you needed to be able to produce more and more product in a given day. And so, again, it was like this technological arms race with the competitors, which eventually weeded most of the competitors out of the business. Because basically, our entire production line had to be replaced every two years, because it was no longer economically viable, and it would take typically three years to develop a new generation of production platforms. So, we were running four or five generations of production platforms in development in a given time, and that was how I came into the business. It was on the technology side; the robotics and automation side, originally.
Yeah. So, another really interesting observation, where once again, you’re causing me to disagree even with myself, is I usually despise cost plus pricing. But in a market like this where the price elasticity of the industry was so huge, the idea is how do we drive costs out of the system? How do we drive prices down as fast as we can? In which case we probably are doing some type of cost plus, or in the semiconductor industry, we would sometimes do what we called forward pricing where we knew the costs would come down in the future so we priced it below our cost today.
Yeah, costs really do matter, especially in these really fast-growing marketplaces.
But I’ll give you one other story about sort of peering into the minds of the customer.
So, one of the unique aspects of this product is the average reorder cycle was four days, so a given customer was continuously placing orders with you. And basically, every time they place a new order, it was a new opportunity for them to be poached away by a competitor. So, one of the challenges was how do you keep people on the train? How do you keep people continuing to order from you and not be tempted to go look elsewhere to see what their options are elsewhere? And that became a real problem, because what we would see is that a random offer would come in or a random visit from a sales rep who would show up at the lab, and suddenly they would quit ordering. It was because somebody offered them literally a penny a bass less. And so, the challenge was, how do you keep them locked in place, continuing to reorder, continuing to focus on you and not be looking elsewhere?
And so, one of the things that I ended up introducing was this idea of plush toys. So, we would buy – and they were like dirt cheap, we buy from China – these sets of themed, small, plush toys that you could put on your desk. And so, they were like mammals or fish or insects, and they would come in like 12 or 15 different themed varieties that would be in a set, and you could buy these by the thousands in these sets.
And so, the deal was we would put a plush toy in every package, but then we also put a piece of paper in that showed them what the full set looked like, and we would feature that in the advertising as well. And we also had a set date, so we would do this on 90-day cycles. So, the idea is that if you want to complete your set, you have to keep ordering, which again, is just, I mean, we’re talking about Ph.D. researchers at places like Harvard and UCLA, and yet it works.
Isn’t it amazing how naïve really smart people are sometimes?
Well, there’s this sort of completionist mindset.
And we would do it with other things. We had like magnetic jigsaw puzzles. We would do a puzzle piece and they could put this up on there because there are lots of vertical magnetic surfaces in a lab. And so, we would send them the puzzle pieces one at a time. And of course, what we would do is we would not randomly select on each order. We would hold back certain ones for later in the cycle so that you needed to kind of stick with us for the 90-day cycle if you wanted to get a chance at everything. And before that cycle was over with, we would already start advertising what was going to be on the next cycle.
Nice. These are such smart ideas to keep us from being a commodity and keep people buying from us.
Dale, this has been fun. We’re going to run out of time, but I have to ask you the last question, which is really important. What’s one piece of pricing advice that you would give our listeners that you think could have a big impact on their business?
I think that pricing, I mean, I come from a very technical, analytical background obviously came out of physics. I would say pricing has little to do with analysis. Analysis is a supporting role, but only supporting. The real issue with pricing is getting inside the head of the customer, and equally importantly, inside the head of your competitor. Because you’re in an ecological landscape that you’re trying to operate in. Your competitors have weaknesses related to their mindset, the way they’re framing their thinking around the product. You really need to know what’s inside your competitors’ heads so that you understand where their blindness is. And likewise, you need to understand the full range of issues that your purchaser is looking at. And I’ll give you a quick example on this.
This is a more recent client. They were bringing to market a test for the transplant market to be able to do a very specialized sort of infectious disease testing that are associated with organ transplants; very, very valuable product. And they were going to price this thing basically cost plus 15%. And so, they were looking at could they get this down to $150 a test? And what I pointed out was you’re only going to need maybe one of these tests every two to four weeks for a six-month period after transplant. You can easily charge $2000, $5000 a test because it was the difference between living and dying for these patients.
But more fundamentally, the other thing that I think was a more non-pricing related but equally critical mistake was this was a very revolutionary technology they were using. It was well-developed, but no one had really used this sort of technology before as it was based on next generation sequencing technology. So, all of their communication to their buyers was about how revolutionary this is, how no one has ever done this before, how this is the most amazing advancement that anyone has seen and coupled with how cheap it was. And the thing I pointed out was your buyer is a clinical lab director in a major medical center. That person doesn’t care what the cost is. What they do care about is that they buy something that doesn’t work. And if you keep saying that it’s the most revolutionary thing in the world, you’re going to scare the crap out of them. You’ve got to understand that their buying decision has more to do with their social status within the organization than what their budget line items look like. Because if they make a decision to buy something and it’s a failure, their status is going to go down. And they’re already in precarious status because most of these people have a master’s or a Ph.D.; they’re not MDs. So, within those organizations, they’re already secondary status. If you can sell this as the thing that will give you an answer when everything else fails, this is the rabbit you pull out of the hat when no one expects a rabbit. Now, they see this as an opportunity to raise their social status and they’re willing to pay extra for that.
And so, the ultimate selling point was really around how do you talk about this in terms of their social status within the organization and the potential to be safe that it won’t go down and have a good opportunity of it going up. And so now you have a differentiation that you can apply a value to and you can apply a price differential to.
Yeah. That is a great story deal. And I’m going to summarize it with the following – value is always what our consumers perceive as valuable.
And so, as you said 100 times today, we need to put ourselves in the minds of our buyers. We need to understand what they’re thinking. Excellent.
Dale, we are out of time but thank you so much.
If anybody wants to contact you, how can they do that?
The best way is probably via LinkedIn. I’m just Dale W. Harrison on LinkedIn.
Okay. And we’ll have a link in the show notes so that’ll be easy for people.
Episode 181 is all done. Thank you so much for listening.
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