Impact Pricing Podcast

Ep196: How Retail and Analytics-Based Pricing Works with Kiran Gange

Kiran Gange is the CEO and Founder of RapidPricer, a company that helps automate pricing and promotions for retailers. He helps companies grow internationally, especially into India. And he was a Senior Strategy Analyst at Fry’s Electronics.

In this episode, Kiran educates us on retail and analytics-based pricing as he shares hypotheses and strategies you can practice in pricing your own products.

 

 

Why you have to check out today’s podcast:

  • Learn how to price retail products both in B2B and B2C setting
  • Understand why you should increase your price in phases and not shock your customer at once
  • Find out how important analytics-based pricing in, and discover strategies on how you can actually do it in your business

 

“Look at your past data. Use your intuition to guide the data analysis, but don’t only base your decision on intuition.”

Kiran Gange

 

Topics Covered:

01:31 – How Kiran got into pricing

02:36 – Pricing in both the environments of B2B and B2C in retail

05:07 – A hypothesis to test for foot traffic and cameras

07:13 – Talking about the work that RapidPricer does

11:15 – The strategy on how to rapidly change prices, and the difference between base price and promoted price

14:00 – The difference between AI and a strategically thought-out programming

17:06 – Discussion around analytics-based pricing frameworks, and Mark’s ‘which one’ and ‘will I’ concept

21:01 – Using AI to know which products people are price sensitive on

22:09 – Pricing table topics: “Execute price increases in phases; test the outcomes.”

24:08 – Kiran’s pricing advice

 

Key Takeaways: 

“There’s a difference between a base price and a promoted price. The base price is when you decide what is the right price to keep inside your store for a longer time. A promotion is an instant decision, typically to correct something which is a negative factor.” – Kiran Gange

“Customers don’t like prices changing up on them instantly.” – Kiran Gange

“Strategy is always the foundation behind how the prices should be done. It shouldn’t be an entirely “I have no clue what’s happening. Here’s the price. Here you go. Cancel the black box.” Ever. I believe, at least retailers are so traditional; they won’t accept a solution like that.” – Kiran Gange

“You need to know which products are people sensitive about and make sure they get the best value on those products to compete on those products. And the others can be your profit drivers.” – Kiran Gange

“Whenever you have this cost increases, have like a strategy to understand which products are going to absorb the cost over time and which products can take it immediately. That will help you both stay up to date with your latest cost and not upset your customers too much.” – Kiran Gange

 

People / Resources Mentioned:

Connect with Kiran Gange:

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.)

Kiran Gange

Look at your past data. Use your intuition to guide the data analysis, but don’t only base your decision on intuition.

[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 beneficial relationship between them. I’m Mark Stiving, and today, our guest is Kiran Gange, and here are three things you’d want to know about Kiran before we start.

He is the CEO and Founder of RapidPricer out of the Netherlands. He helps companies grow internationally, especially into India. And maybe my favorite thing about him is he was a senior strategy analyst at Fry’s Electronics. And when I was younger, I spent way too much time and money at Fry’s.

Welcome, Kiran.

Kiran Gange

That was my favorite job was as well. Thanks, Mark, for having me on.

Mark Stiving

It’s going to be fun. Hey, how did you get into pricing?

Kiran Gange

How did I get into pricing? Well, my first job was in retail; this was when I was 12 years old, probably. And it’s not common for folks in India to work at 12 years old, but my dad had this vision that you have to earn your own money, so that’s when I started working in retail. I found it interesting, and then I got into engineering, like most people are expected to become engineers in India for some reason, and then I didn’t quite enjoy it that much, so I went over to Aberdeen in California to get my MBA. And out of there again, I kind of maybe got my resume help there. My first job was with DemandTec back in 2005; it was a leader in pricing. So that’s how I got really into it. I was able to connect marketing and all of the things I learned in my MBA and also was able to connect with the engineering and the mathematical teams; thanks to my mathematical background. And fair to say, I’ve enjoyed doing it ever since.

Mark Stiving

Nice. And is it fair to say that you have spent most of your career in pricing for retail?

Kiran Gange

Absolutely. Yes.

Mark Stiving

Okay. So, I find that fascinating because I do very little retail work, but I often think about how is it that retailers can do and should do pricing, so it’s pretty fascinating in my view of the world.

So, give us a hint, those of us who spend a lot of time in B2B. How do you think about pricing in the retail world?

Kiran Gange

I believe, in a B2C environment, we are a little bit more blessed with more data points to work with, right? So, we have a much larger sample. We have the entire country of stores, we have different seasons of how people behave differently, so the data is a little bit more normalized to work with and there is more usage of putting a framework around your strategy, like who do we compete with and which products are supposed to be promoted at what price?

In a B2B environment, there is a mix of science and a lot of art required to do the B2B pricing. You need your intuition; you need to be able to read the situation based on what you think your experience is. It becomes a lot less formal in B2B.

So, I’m a little bit more comfortable in B2C, but I’m also familiar with B2B to some aspects, yes.

Mark Stiving

Yeah, sounds actually a great answer. And I hadn’t even thought that I was going to bring this up, but my dissertation was on $0.99, and I did the whole dissertation using scanner panel data out of grocery stores from Nielsen. We were using yogurt and tuna fish as our products. And it was absolutely fascinating, all the data that you have, and the fact that you can say, “Oh, I think people behave this way. This is how the math has proven out.” And now you’re testing different models against each other to see how people actually think and behave. So, I found that fascinating.

Kiran Gange

Well, you should try do it again, Mark, because now, we have so many more sources of data. There is IoT, there is camera, there is spectral imaging, right? There is how do people move inside a store; there is foot traffic data. So, all of them, along with what we always had, like point of sale and AC Nielsen inventory, it becomes a very rich mixture to play with. A lot more fun. You should try it again.

Mark Stiving

So, I’m probably too old to relearn all the math, but it does sound fabulous and fascinating. And to me, the challenge is how do you create the underlying hypothesis? So, what do we think customers are really doing?

So just for kicks, give me a hypothesis for a foot traffic and cameras. How would you use that? And give me a hypothesis that we would test.

Kiran Gange

Like say for example, really, they want to know if a promotion is working or not, right? So, let’s assume there are two stores, the exact same kind of demographics in the in the same kind of a city and everything, but one of them is working while another one is not working well. So, another layer you could check with data is how did the foot traffic in that particular aisle work already? So that is to look at what is the impact of the pass-through traffic or speaking up on a promotion, say, for example; that gives you a much richer insight. Like, you mentioned demographics, because there’s a lot more we do with my company now, which is to look at what is the age? What are the demographics of the people walking inside a store? And we can do a lot more if you have, say, for example, college aged kids and there is an event nearby at a football stadium and we have excess beer, all of them would trigger an automatic promotion while they’re inside the store. So, to give you an example, this is how you could see if it works. And in most cases, the data will tell you very quickly if it’s working or not because you have enough of a sample size.

Mark Stiving

I think both of those are fascinating. I want to go back to your first example for just a second, because in my mind, it triggered a huge aha moment.

So, we often think about web pages and people who come to our website and what’s our conversion rate for someone who comes to our website. And so, what you just said is we essentially have a conversion rate of how many people who walked down the aisle bought our products, and I just thought that was fabulous.

Kiran Gange

Yes. And like you said—Go ahead. Sorry?

Mark Stiving

I was going to say, what does RapidPricer do? What does your company do?

Kiran Gange

So, I did pricing for a long time, right? So first, I was a consultant from 2005 to 2008. Then Mr. John Fry said, “Come work for me. I love what you can do for me,” and I enjoyed. He was the president of the American Institute of Mathematics of Fry’s Electronics, and he taught me how to connect my consulting to the mathematics behind it.

So, then I started a company; we did a lot of modeling of mathematics for pricing with the teams I built. This is a consulting company which grew from 2008 all the way until 2017, but consulting was very boring. Investors wouldn’t put money in it and we couldn’t scale it fast enough and it did become a routine; every time, I do the same thing. So, we decided to do all of the things we had learned using a product in real time, because it’s the same process all retailers were following. How do you modulate how you factor all the strategy? How do you come up with the prices?

Then while we developed this product, we saw that it would work best for fresh produce, because the value of fresh produce – the opening statement you made, price and value – the value is changing continuously, but the price is not changing continuously when you talk about fresh produce and that is a reason for wastage. 50% of all bananas grown are never consumed. One third of all food is wasted, and that is the largest contributor to global warming. So now I was like, I’m going to love my Monday morning even more. We’re going to use what we learned in pricing in mathematics to reduce food wastage in retail fresh produce.

So that’s what RapidPricer does; we price dynamically to match the value to the price so that the product sells out before it goes bad. In retail stores in Europe, you have electronic bags, which is why we moved to Amsterdam from San Francisco.

Mark Stiving

And the electronic tags allow you to instantly change prices for products.

Kiran Gange

Absolutely, yes.

Mark Stiving

Nice. And so, what I just heard you say is a can of green beans, we could price it dynamically, but there may not be a great reason to. A can of beer, there may be a great reason to because I have students at a football game coming in with an event. And bananas or any type of produce, the value is going down over time and so we could adjust the price over time. So, we could dynamically adjust that price. That’s pretty fabulous.

And so, you would say that your company is really doing dynamic pricing based on product and market conditions?

Kiran Gange

Absolutely. Yes. There are many different factors which apply to different products. Just like you mentioned, Mark, you talked about can of beans; yes, we don’t need to promote it that much. Beer, yes, but there’s also umbrellas. There’s also seasonal products, which is only made for Christmas, let’s say; you need to sell it before Christmas. There are electronics which a new product is coming out and you need to get rid of the old one before the new one comes in. Fresh produce, I like because I like to do something about protecting the earth for a little longer, and it is well received in many parts of Europe – the technology, even before it could reach economies of scale, we would get the support to reduce food waste. So, yes, we could use it a little bit better for anything with changes in value rapidly.

Mark Stiving

Yes. And so, this is such an interesting issue, because what feels powerful to me is the ability to instantly change prices or really rapidly change prices.

The next question becomes, what’s the strategy, and how do we create the strategy for how to rapidly change prices?

Kiran Gange

Correct.

Mark Stiving

So, you had said, we’ve got a football game going on and if we have excess beer, we’re going to lower the price and put on a promotion. In my mind, I’m thinking, we’ve got a football game going on; we probably need to raise the prices on beer.

Kiran Gange

This is a good point. So, there’s a difference between a base price and a promoted price. The base price is when you decide what is the right price to keep inside your store for a longer time, say, for example, for the next month. For this period, this is the price at which we are going to sell it at. A promotion is an instant decision, typically to correct something which is a negative factor, like you’re carrying excess inventory or you’re seeing an opportunity to get rid of food waste. Customers don’t like prices changing up on them instantly, and we don’t do that. We always have a base price and go down and come back to the base price. To increase prices for a particular event, we have never done that, but you could if you wanted to, technically.

Mark Stiving

Well, I would say it depends on how we’re displaying price. If I have a printed sign that says a six pack is $5.99, then I can’t raise the price. But if all I have is digital signage, I could change the price any time I want. Just like at a gas station, in the U.S. at least, gas stations are probably the only place I could think of where we have the price as a digital thing on the tank, on the gas pump. And so, they could change that price every day or every hour if they wanted to.

Kiran Gange

Yes, you’re right. If you see retailers in Europe like MediaMart, is an equivalent of Fry’s Electronics in Europe. They can take their prices up dynamically also if Amazon increases its price. Amazon, by the way, changes its price on an average every 10 minutes on every product. Every 10 minutes, they change the price on every product, and these retailers don’t do that and they lose out on it. So that’s what MediaMart does; they constantly track what Amazon is doing. If Amazon goes up, they follow them; Amazon goes down, they follow them, especially on a sensitive item. So, we do an analysis on what’s sensitive and which market, which product, and then use certain rules like you went earlier, Mark. You have like a certain set of strategic guidelines. Where should we actually increase or decrease, and by how much? What are the allowed price point changes? And all of those things become constraints around your optimization.

Mark Stiving

Okay, so teach me about the difference between AI and strategically thought-out programing. And I asked that question because I don’t really know the question I’m asking, but in my mind, I think of AI as we’ve got machine learning, I step back, it tells you what to do; now I have a black box that’s answering the question on how to price. And I think of strategic as somebody saying, “Hey, there’s a football game this weekend, we should raise or lower prices.”

Kiran Gange

There’s always a strategic framework even behind an AI. And you shouldn’t let the AI just run wild and set any price at any point of time, although you could and maybe it will work. But use of AI could be more in silos, not like an entire here’s the keys to the house do whatever you want kind of in the AI. You’re more like, okay, tell me, given the mix of the environment right now, is it the right time to run a price change or not? Or even simply, is this person happy after purchase or not? It can be something that AI can address right now, right? Or through learning what is the right level of discomfort with somebody is likely to buy? That is a prediction AI would make. We’re not at the stage where cars drive automatically and I have switched on a light and say to the pricing of my entire store, well, I haven’t done it yet; maybe one day it would be done.

But to your point, Mark, strategy is always the foundation behind how the prices should be done. It shouldn’t be an entirely “I have no clue what’s happening. Here’s the price. Here you go. Cancel the black box.” Ever. I believe, at least retailers are so traditional; they won’t accept a solution like that.

Mark Stiving

Yes. I would guess that if a solution like that would work, that retailers would accept, because somebody would try it and then they would be successful and then others would copy. And so, if it would work…

Quick, interesting story. My first book, it was on Amazon and then it went out of print. And the book itself, by then, we were selling it for $20. I looked on Amazon and it was for $250.

Kiran Gange

Wow.

Mark Stiving

And I don’t think anybody ever bought it at that price, but I just think it was the AI that had worked the price up to $250, and they weren’t losing deals; they just weren’t winning deals.

Kiran Gange

Right.

Mark Stiving

And then I had some inventory in my house, so I made my own Amazon store, put it up, and watched all those prices come back down. It was just pretty fascinating to watch. But to me, that’s what AI does.

Kiran Gange

Yeah, you could fully automate it and then it is not supervised anymore, right? It’s unsupervised. And I wouldn’t let it run that wild yet. I would harness the AI in pockets and use it to sit up on top of your strategy.

Mark Stiving

And watch it closely.

Kiran Gange

Exactly.

Mark Stiving

Nice. So, you had said to me that you were interested in talking about analytics-based pricing frameworks. What does that mean to you?

Kiran Gange

Look, I’ve done pricing in the US, I’ve done pricing in Europe, in Latin America, in Asia. What I see is it doesn’t matter who the retailer is and where they’re located; it’s the same learnings, it’s the same repair, and it’s the same process. You eventually figure out what are you going to do to do your pricing.

So, we come across, say, for example, a recent implementation just last month in Mexico. So, you go to a retailer and it’s like, “This is how we have done this for three generations. Don’t tell us how to price. We have a cost in the market upfront. We’ve been successful.” But then you go ahead and measure what is it that you’ve been doing and you find out, by the way, you think Walmart is a competitor, but guess not; it is somebody else across the street who is your competitor, and it’s definitely not in the urban and suburban stores. Or you’re being very protective about the prices of these products, but however, your most important products are X, Y, Z is the data is telling you, right?

So, these kind of learnings in a step-by-step approach, when you put it together, becomes an analytics-based framework. And within that framework, then you can come back and price your product, right? You identified your competition, you identified your strategy, what are your profit drivers, what are your traffic driver, which ones need more visibility, so on and so forth, and you’ve identified which products you need to be constantly looking at the competitors for, and then you find the right price, and then you measure and monitor it to see if it’s still working or not. So, this whole thing becomes a framework. In fact, I’m speaking about it at Professional Pricing Society in Barcelona on December 9th, if anybody’s interested, but it applies both to B2B and B2C, of course, how you put this framework in the use.

Mark Stiving

Yeah, it’s actually pretty fascinating. I love the way you just describe this as in any given product could have a different competitor. It could have no competitor because people aren’t choosing between whether I’m going to go to Walmart or your store for this product. And I often teach a concept like, will I? and which one? Where ‘will I’ is am I going to buy something in the product category? And then which one is whose am I going to go buy? And I could see me making the decision between your store and Walmart based on a half dozen different products or different prices or prices I remember and I say these are making my which one decision, and once I’m in the store, I’m making a whole bunch of will I decisions. Am I going to buy this product today? Even though it looks like I might be choosing between different brands, in truth, that one retailer sets all those prices.

Kiran Gange

Absolutely, yes.

Mark Stiving

And so that strategy or that thought process gives you the ability to tweak prices, to get people to come into your store, and then to make more money once they’re in your store.

Kiran Gange

Absolutely, yeah. So, what you said – will I? – it’s driven by traffic drivers. So, people remember the price of milk and eggs, for example. They know exactly how much they paid last time. They won’t remember the price of a bottle of shampoo. And then there are various opportunities to use pricing based on that strategy. The rule each product placing their assortment. And this is the same thing in B2B. You need to know which products are people sensitive about and make sure they get the best value on those products to compete on those products. And the others can be your profit drivers.

Mark Stiving

Using AI, how do you know which products people are price sensitive on?

Kiran Gange

Basically, you do modeling; you do modeling of price sensitivity. So, one of the factors is price, but the pricing itself cannot be the only factor. For example, you change your price, but at the same time, if the competitor increases the price or decreases the price, what’s happening in the market? Maybe there was no availability of product somewhere else. There was less availability in your own store. Maybe it was a season. All of these factors need to be modelled at the same time; you can’t just model price versus volume. So that’s what you tell AI model; these are the input factors and give me a price at which you’re going to sell the most. That becomes the output of the model. And again, it can be done by regression also. It doesn’t need to be AI. AI is just a smart form of regression with a view to calculate it continuously and push back and forth. But yes, both are models you could apply.

Mark Stiving

Awesome. Kiran, this is fabulous. I’m enjoying this conversation a lot, but we have to start wrapping it up. And as we wrap up, the second to last thing we’re going to do is we’re going to play pricing table topics. I explained it to Kiran a little bit beforehand, but for our listeners, table topics comes from Toastmasters. I have a deck of cards here with the saying one of our impactful insights on each card. I’m shuffling them once for him, pulling a random card, and he’s going to talk between one and two minutes on whatever it is I’m about to say. This happens to be the five of hearts. “Execute price increases in phases; test the outcomes.”

Kiran Gange

Right, especially in these days of inflation. The cost changes are coming through all the time. You have to do this. You have to increase the prices. What I would suggest is make your most sensitive products and delay the price changes, or do them in phases if you can. Don’t do it immediately because if somebody is always buying milk at like $2 a gallon or whatever and it goes to 2.5, you’re going to remember it. But if you go from 2 to 2.1 to 2.2 and then eventually to 2.5, you’re smoothening out the shock. But on other products, you can actually do it at once. It could be like the shampoo example we’re talking about.

So, whenever you have this cost increases, have like a strategy to understand which products are going to absorb the cost over time and which products can take it immediately. That will help you both stay up to date with your latest cost and not upset your customers too much.

Yes. What was the second part of your question, Mark?

Mark Stiving

That was it; that was beautiful. Kiran, you just made a full minute.

Kiran Gange

Alright.

Mark Stiving

That was exceptionally well done. Thank you so much.

And by the way, to our listeners, if you want to buy your own Impact Pricing playing cards, you can get them at www.impactpricing.com/merch.

And then finally, for Kiran, what is one piece of pricing advice you would give our listeners that you think could have a big impact on their business?

Kiran Gange

Look at your past data. Use your intuition to guide the data analysis, but don’t only base your decision on intuition.

So, for example, if you can look at how your customers have reacted to your price changes in the past, that can be super valuable. If you’ve run a promotion, see if it was worth the discount. Did you get an incremental profit on it or not? Did you actually cannibalize your own sales from your other products or not? And also, look at the sensitivity of the prices you’re carrying already. Doing this, it’s like looking at your health records or your metrics from the past to see what you ate, what changes to your body. It’s such an important valuable insight for you. Do some data analysis to help you rely a little bit better on the strategies you’re going to make in the future. That’ll give you a lot more insights.

Mark Stiving

Alright. Awesome answer. And for our B2C customers, you have no excuse. And for our B2B customers, you should be looking to see what data you do have or could collect in the future and see how you could do better analytics. Nice.

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

Kiran Gange

Well, first of all, it’s my pleasure to be here. I love talking; I love speaking. So, if anybody wants to do more of it, I am available on LinkedIn. You can find me with my first name, Kiran, K-I-R-A-N, and last name Gange, G-A-N-G-E. Kiran Gange. I’ll be there. I’ll be happy to accept and I’ll be happy to give you thoughts on what more you could do with your own data.

Mark Stiving

Perfect. Thank you, Kiran. We’ll have your URL for your LinkedIn page in the show notes.

And episode 196 is all done. Thank you so much for listening. If you enjoyed this, would you please leave us a rating and a review? The easiest way is to go to www.ratethispodcast.com/impactpricing. 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. 

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.

 

 

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

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