Reed Holden is an author, keynote speaker, coach and founder of Holden Advisors– a team of seasoned practitioners that provides B2B pricing and negotiating advice to clients builds go-to-market strategies.
Reed specializes in helping sales teams avoid the procurement buzz saw by implementing strategies to recognize and counter margin-reducing buying tactics.
Today’s episode steers on the definition of value and the different methods to analyze it. Know how services, products, and other differentiators will drive prices, especially if there is heavy competition. Reed will tell more of his expertise in B2B pricing through his must-read and thought-leading books – Negotiating with Backbone and Pricing with Confidence.
Why you have to check out today’s podcast:
- Learn more of the meaning of value
- Discover the two best-selling pricing and negotiation books that B2B companies are raving for
- Know the differentiators that will drive prices
“Conversations with procurement people are like playing a game of poker. And the way to win the game is by bluffing. And unless you’re prepared to play the game back, you’re going to lose each and every time.”
– Reed Holden
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02:02 – Reed’s back story as a luminary in pricing
03:34 – The definition of “value” according to Reed
04:52 – Various analysis made when value is in use
06:36 – The value in using ROI calculators
08:57 – Why focusing on the value of a product will increase the likelihood that customers will buy it
10:36 – Telling about the Negotiating with Backbone book and why you should read it
13:35 – How Reed coaches a company about value and shares the related contents in his Pricing with Confidence book
15:38 – Narrating a short story inside this book about a company selling dirt
21:10 – How other services and other differentiators will drive prices if there is substantial price competition of the product
27:12 – A piece of pricing advice from Reed – “Keep it simple.”
“In the world of B2B, we have this amazing advantage that says, if you can’t put a dollar value on a feature, on a product, as in how much money your customer is going to make or save because they bought your product, no one’s going to buy your product.” – Mark Stiving
“As we get into sales teams in organizations that had deployed Roi calculators, one of the biggest problems that organizations have is the salespeople don’t use them. And if the sales people don’t use them, then certainly customers don’t see them.” – Reed Holden
“Nobody buys a product feature. People only value of the product and so they teach their salespeople about the product and the product features. I’m talking about the product and the product features and no wonder we never capture value is this.” – Mark Stiving
- Negotiating with Backbone
- Pricing with Confidence
- The Strategy and Tactics of Pricing – Second Edition
- The Strategy and Tactics of Pricing – Third Edition
Connect with Reed Holden:
Connect with Mark Stiving
Full Interview Transcript
(Note: This transcript was created using Temi, an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Reed Holden: It’s the window organizations and everyone’s talking about value. You look at the marketing pieces and the marketing pieces say, “look at all the value we’re providing you.” That’s the wrong thing to do. What you have to do is you have to say, “look, this is why this product is going to make things better for you and you’ve done well better know what the better is. And by focusing on those reasons, it increases the likelihood that a customer’s going to buy a product.
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value and the relationship between them. I’m Mark Stiving. And today our guest is the one and only, Reed Holden. Here are three things you want to know about Reed before we start and oh, it was hard to get it down to three. He is truly a luminaria pricing. He’s been in pricing since 1987, that is 32 years. I just did the math for you. He co-authored the second and third editions of the book, The Strategy, and Tactics of Pricing, and I used that book when I taught pricing at Ohio State in the late nineties. He’s also written a couple of other fantastic pricing books, Pricing with Confidence and Negotiating with Backbone. And then number three, in 2002 he founded Holden Advisors and they are still going amazingly strong. Welcome, Reed
Reed Holden: Thanks, Mike. It’s great to be here.
Mark Stiving: Yeah, and the thing I didn’t put in that I really wanted to is, you may remember you interviewed me for a job in probably 2000, 1999 something like that.
Reed Holden: Yeah.
Mark Stiving: That was a long time ago. Oh my gosh.
Reed Holden: Well we’ve got a lot of walks around to the bridge but to the words of Robert Frost, we have miles to go before we sleep.
Mark Stiving: Yes, absolutely. Absolutely. How did you get into pricing? How did that, it’s got to be a great story.
Reed Holden: I’m not sure. It’s a great story. I went back to Boston University from my terminal degree and there was a junior faculty member there who had just started having taught at the University of Chicago and his name was Tom Nagle.
I ended up taking his class and he evaluated me because my specialty at the time was a business to business marketing and he needed someone that somewhat to write the teacher’s manual first walked onto the first edition of strategy and tactics of pricing.
And I worked with them that summer and as you know, he eventually left B.U and started Strategic Pricing Group and I went with him on a part-time basis until I got my degree and you know, eventually won and we did the whole thing full time.
Mark Stiving: Nice. And so although you never really went into marketing, pricing is really just business. It includes marketing and product and setting that price and selling.
Reed Holden: Yeah, and you know, the way we think about it is pricing really touches everything, even down to the production floor, (inaudible) would bad pricing causes problems in the factory, if you’re a services organization yet people sitting idle, certainly it touches the two most important elements of the business and that is revenue and profitability.
Mark Stiving: Yeah, absolutely. Well the topic that we’re going to discuss today, and hopefully we get really deep and understand this, this well is value. And let’s start off, what’s your definition of value? I’ll share mine with you after you share yours.
Reed Holden: Well, there are multiple definitions of value. There’s emotional value. A lot of consumer research uses emotional and/or attitudinal value for the sake of a business to a business environment. And for the sector of business to the business environment, we use as a definition what is known as a value in use. That is as a result of using my products and services. How do organizations benefit financially?
Mark Stiving: Yeah, I like that a lot, but I’m going to push back. Let me share mine. My definition is simply what is a buyer willing to pay? And I would certainly agree with the emotional piece. There are emotions involved in that. I think has a big role to play. I used the word value in use, usually, to mean if I don’t have competition, we’re just talking about the inherent value of my product. And so my willingness to pay us a percentage of what you’re going to get out of that inherent value of the product. But if I have competition, it’s that EVE analysis that we all read out a Nagle’s book, right?
Reed Holden: Yup, Yup. Yup.
Mark Stiving: And so how do you reconcile or do you still use a value in use when you’re talking about that EVE analysis?
Reed Holden: Well, EVE it has actually started out as EVA, Economic Value Analysis, and we moved to EVE in the second edition of Strategy and Tax. It’s pricing because there was a financial term economic value added. EVE stands for economic value estimation and I like a value in use because it shows, it focuses on financial value. That is, you know, how does it reduce an organization’s cost? How does it help them sell more products? How does it help them charge more for their products? It’s basically putting up, you know, a spreadsheet together, which you know, I’m sure we’ll end up talking about, but it’s having an understanding of how your customers operate and what you do improves, impacts their operation. And you know, my criteria has always been the ability to put a dollar sign and all that.
Mark Stiving: Yeah, I think in the world of B2B, we have this amazing advantage that says, if you can’t put a dollar value on a feature, on a product, as in how much money your customer is going to make or save because they bought your product, no one’s going to buy your product.
Reed Holden: But the amazing thing, Mark, is how many companies actually try to do just that? That is selling a product without having an understanding of the financial benefits of the customers.
Mark Stiving: Can I say close to zero?
Reed Holden: Yeah. I’d like to think it’s getting better, but it certainly is significantly less than it should be.
Mark Stiving: Yeah, it is. It is incredible to me. Now we see companies with ROI calculators. Would you call that value?
Reed Holden: Yeah. ROI calculators are good and number of books that we’ve written that contain allusions and specifics around ROI calculator’s big break, but it’s interesting because as you know, probably seven or eight years ago, we published the Negotiating with Backbone book and that put us very active with salespeople and as we get into sales teams in organizations that had deployed ROI calculators, one of the biggest problems that organizations have is the salespeople don’t use them. And if the sales people don’t use them, then certainly customers don’t see them. And it’s led us to really move in a direction to try to simplify the calculations as much as possible because you know, we’ve seen who are not medical device situation one time where you know, the client had spent literally millions of dollars to determine what the value was, you know, down to the number of Q tips used in the procedure and they, they, they totally missed the big value drivers. And I think that what we try to do is we try to say what are the really big value drives that everyone can look at and understand and how can you make a calculation on the back of an envelope or a Napkin so that everyone can look at it, understand it and believe in it.
Mark Stiving: Yeah. I think that’s absolutely spot on. If we understand why people buy our products. And we go out and we talk to some people who’ve already bought our product. Why did they buy it, they didn’t buy it because of the number of Q tips we saved. There was some big picture understanding of what we understand that now we can help other people understand that. So
Reed Holden: Exactly. And you know the big thing in the linkage is being able to convince salespeople. How many sales meetings have you been to where a product manager will stand up and present the new product with absolutely no calculations of value and you know the sales guys roll their eyes. If a sales guys roll their eyes, what’s the point?
Mark Stiving: We’re going to go so deep into a horrible topic here, right? Because product beloved, their product features, and nobody buys a product feature. People only value of the product and so they teach their salespeople about the product and the product features. I’m talking about a product and the product features and no wonder we never capture value, it drives me nuts.
Reed Holden: The interesting thing is, you know, Mike just came to me and asked me to do a piece on value. And the title of the article was something along the lines of, Are You Sick of Hearing About Value? If I went to an organization and everyone’s talking about value look at the marketing pieces and the marketing piece to say, look at all the value we’re providing. That’s the wrong thing to do. What you have to do, say, look, this is why this product is going to make things better for you and you’ve done well better know what the better is. By focusing on those reasons, it increases the likelihood that a customer’s going to buy your product. and it’s amazing to me.
Mark Stiving: Yeah. I think the issue that we struggle with is we use the word value and we know what that means. It means how to do, how do I get someone to put a dollar on this because we’re going to make money or save money for them and yet inside the companies they use the word value and them just kind of toss it out there without really grasping what it means. Would you buy that?
Reed Holden: Absolutely. In fact, I often talk about moving beyond the rhetoric of value.
Mark Stiving: Oh yes. That’s awesome. One of the things. Okay. You brought up The Negotiating with Backbone book and I got to say to the listeners, fantastic book. If you haven’t read that and you work with salespeople, go get the book, read it. It opens your eyes. You have these, these suspicions of this are how the world works and all of a sudden what we read in that book is, he gave you a framework and said, oh gosh, yes, that’s exactly right. It was fantastic. Now the reason I did y’all, you’re very welcome. The reason I did all of that was that let’s say that we can get our salespeople to sell value. They sell value to the buying committee, but the buying committee chose it and goes to procurement. Do you have a value conversation you have with procurement or do we just go back to that book negotiating with a backbone?
Reed Holden: Well, I’m not saying procurement people don’t like to talk about value. In fact, I will say that they do love to talk about value. But believe it or not, in recent times, the first book on value was written by a procurement person. And when he was talking about value, he was talking about cost reductions. So when procurement people talk about value, they’re thinking reduced price. When we talk about value, we think increased benefits, and it’s a disconnect that’s never reconciled. And one of the things we talked about in the backbone book was, Gee, if you’re going to send a salesperson in to talk about value with a procurement person, you have to recognize that they’re trained to sweep that discussion off the table and say, listen, all products that are, say, it’s what we call playing poker. And a big piece of what we try to do with salespeople is to get them to recognize that conversations with procurement people is like playing a game of poker. And the way they win the game is by bluffing and unless you’re prepared to play the game back, you’re going to lose each and every time.
Mark Stiving: That just makes so much sense. Yeah.
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Mark Stiving: We don’t need to talk about procurement people anymore today.
Reed Holden: Good. Let’s talk about value. That’s more fun.
Mark Stiving: Yeah, it is way more fun. Okay, so, so when you go in and coach a company about value, what are you guys doing now? How do you help them do that?
Reed Holden: Well, I mean we try to get them to the basics of what their products and services do. And those two words are very important. There’s a tendency for a lot of the value work to focus on products. What we often find is the thing that distinguishes companies is their ability to service those products. In the Pricing with Confidence book, we talked about the dirt company and they recognize it. You know, everyone sold the same type of dirt, but it was their ability to service the customers more quickly that reduce the customer’s cost and gave them a competitive advantage in their marketplace. You know, so what we try to do is get them to understand the why of how customers buy the products and the reason that they might be inclined to buy your particular products. And you know, it’s amazing the number of people to whom that is a foreign conversation. Even senior executives.
Mark Stiving: Yeah. I think we get so enraptured into our own products that we stop. We stopped looking outside the products and say what problems are we solving and are there other problems we can solve with our distribution channel, with our, with the way we support and service our products. There are tons of them created out there.
Reed Holden: Yup. That was in the Pricing with Confidence book that’s now probably 11, 12 years old. I had a chance to see the guy who brought us in there and he was talking about how a new CEO taking over that didn’t believe in value. And I clicked on the financial part of the company and while they were focusing on value, they were growing in both revenue and profitability even during the hard times. And as soon as the new CEO took over their financial performance system, it went flat in the past four years,
Mark Stiving: All of our listeners right now are saying, what’s the story? What’s the story? Could you tell the story?
Reed Holden: Oh sure. This is a bit of a disguised company, but what happened is the pricing director’s name was Dave and this was a 50 regional division company. That sold, and if you think about it in any region, there were probably eight to 10 competitors that was selling the same
Mark Stiving: I want to say the following words. Would it be fair to say it’s a commodity?
Reed Holden: t would be fair to say that dirt is a commodity. Yeah. What David did is he went out and had a conversation with the customer. So David asked a couple of questions. He said you know, what do you really need from us? And he goes, well, Geez, you know, we spent a lot of time waiting for you guys to fill up the trucks. Well, why is that important as well? Because it’s costing me a hundred bucks an hour to get through your facility. Well, how would it be valuable? Who cut it in half? So sure it would save me 45 bucks an hour, 45 bucks an hour, a 16-ton truck works out to about 253 bucks a ton. And what they did is they implemented a, what I’ll call a flanking gate strategy and when you want it to the quarries that were two gates. At gate B, there was a line of trucks. At gate a, there was no line of trucks and there was a d five dozer sitting in there ready to load up the trucks. And so a sales guy would go in and have a conversation with, you know, a cement contractor or an asphalt contractor who were the primary customers. Think about it. Cement and asphalt contractors all have to bid in order to win the business. So it’s a very price-oriented business and the sales guy would go in. Then the contract will say how much, how much is your dirt today? And the sales guy would say it’s gonna cost you 11 bucks a ton. And the guy would come in said, well you have a competitor in here at 10 50 the sales coach, oh are we can meet 10 50 in fact we can meet 10 25 but you have to go through gate B and the quarry and the contracts, what’s gate B? It just not services fast. And the contract will quickly calculate that they would save money by paying a little bit more for the dirt. And you know it’s, we use it as, I mean we’ve extended that to professional services. In fact, we’ve done a lot of global work and extremely high-value professional services and both consulting and financial, the legal business. But you know, the commodity story tells it all because it, if it works in commodity, I guarantee you it works in the high-value stuff. But hit it with a simple conversation.
Mark Stiving: Dirt. You’d think we’re selling dirt. But in truth, we’re not selling dirt. We’re selling a solution to a problem which includes using the truck as efficiently as possible as we’re delivering dirt to our customers. So I think that is such an amazing story. I’ve repeated your story, although I always give you credit. I’ve repeated your story many, many times because it is so powerful. And I often ask people, hey, go look at gold prices, right? Go to APP Max, go to Blanchard’s. They have different prices for gold, isn’t gold to come at. Why do they get to charge different prices? So it’s, it’s always about other things, not just the product itself.
Reed Holden: And sometimes you have to work hard to discover those products. You know we went to a situation one time with the client had… When I say they had several feet of research, sickness of research, and I remember just being absolutely overwhelmed and this thing about talking to customers, the official name for it is ethnic graphics research, also known as depth research. One of our people was talking to a guy and he mentioned something that was a massive driver of value that the client hadn’t even picked up on and all the research in the world. Nothing is better than going out and having discussions with customers that begins to point out that pinpoint what their real needs are.
Mark Stiving: Yeah. I had the privilege of teaching for pragmatic marketing, that pragmatic institute for the last six years, and their base concept, the most underlying thing they do and they focus more on product management and developing new products, but the thing they talk about all the time is to go out and listen to the market and I don’t get how you do any of these jobs if we’re not listening to the market.
Reed Holden: Well, you would be amazed at the number of companies they develop products and services internally. Engineer comes out of a lapses Eureka! They expect this thing to sell, but they don’t know what the application is.
Mark Stiving: Trusting, Reed. I wouldn’t be surprised. There seems to be many of those now. Unfortunately. Would you say this research that we’re doing that says, Hey, I’ve got this product and now I want to know what other services or support that I could put around it that maybe I could capture value from that. Would you say that’s more important if I’ve got heavy price competition for the product? Kind of like the dirt commodity.
Reed Holden: I think I would agree with that, Mark. Have agreed with it maybe 10 years ago, but we did a lot of work in high value consulting for one of the big global guys and they had as many problems is the dirt company did in this area and that’s extremely high-value professional services. So the point is that what we’ve learned is that procurement has invested massively in learning how to drive down prices in all high-value worries. You look at what’s happening in computers, computer services, IT services, it’s all been commoditized. It’s not because it is a commodity, it’s because procurement people have driven it to a commodity and the organizations that are selling those commodities don’t know how to get out of that trap. And the way you get out of the trap is the first rule is to understand why you are different than the competitors. And you see very different titans trying to compete with each other on price when in fact they’re very different companies. And remember going into one of those companies say, Hey, if you can’t figure out how to do this, no one can, and you know that big company has struggled to grow profits and revenue for the past five-six years.
Mark Stiving: And you think their problem was… Running it back to the topic. Do you think it was because they didn’t understand the value? They didn’t understand the way buyers perceive value? And so how they had to package and talk about their own capabilities and offerings?
Reed Holden: I think this is going to seem like I’m into an area that you don’t want to, but this is why we wrote the Backbone book because what we discovered is that the procurement tactics that had been used in the automobile industry in the 1970s and moved into manufacturing in the 1980s and moved into professional service in the 1990s had hit every supplier of everything.
And it doesn’t matter whether you’re in the United States, whether you’re in Russia or whether you’re in China, we bend all the places and companies, companies don’t understand the value, don’t understand the games procurements plays and therefore they think the only thing they can compete with this price. And the interesting thing to me is a reaction I often get is always you don’t understand our business. My reaction to those guys is no, you don’t understand your business.
Yeah, cause I used, I used to be in procurement, I’m a member of the organization and I took the advanced training and preparation for the book so that you know the thing about value is if you don’t understand that you’re toast. And even if you wanted to stand that you still have to learn how to play poker in order to get their profits for your company.
Mark Stiving: Yeah. Absolute Truth and the whole playing poker with procurement piece. So many companies don’t do that well. But if you don’t have value, you don’t have a game to play anyway. You can’t go in a procurement cause there’s nothing different.
Reed Holden: Yeah. But what we discovered is everyone has value because every company is selling something and if it’s selling it, companies are buying and there’s a reason companies are buying it.
Mark Stiving: Let me say that another way, I agree. If you can’t articulate your value and convinced the buying committee, then there’s no chance of winning.
Reed Holden: Yup
Mark Stiving: Yeah, I agree with that. I agree with that. Oh my gosh. This is just fascinating. Let me, let me talk about what we when we started this off with, you used the value of the word in use to find that word, define that phrase from it. What do you mean?
Reed Holden: If the company is going to use your product or service, studying that use should provide you with an understanding of how it creates value. It started out as an Engineering term for us in pricing. It’s understood the financial benefit of a company using your product and service.
Mark Stiving: Yup. Okay. Let’s drive back to the dirt example. What’s the value in use of dirt?
Reed Holden: There’s no value in use. That’s why I always say products and services.
Mark Stiving: Right, okay. I’m with you. What we’re really saying is what’s the value in use of the differentiators, whether that services, products, things like that.
Reed Holden: Yes.
Mark Stiving: Okay. That makes sense. And so that is very consistent with the way I think. It’s important to me that I think the same way you do, Reed.
I would say that’s not a worthy objective.
Mark Stiving: I used the value of the word in use typically when there is no competition and what I’m trying to sell to a company is here’s how much value you get out of buying my product. And then I use the value of the word in choice to say here’s how much value you get out of using my product relative to my competitor’s products or relative to the other alternatives. And that’s why (inaudible) when it got me,
Reed Holden: yeah, we automatically include competitive offerings as part of that analysis.
Mark Stiving: Yeah. Okay. And by the way, the reason I don’t is that oftentimes there’s no competitor and if we could either create products or find situations where we don’t have competition, the game is very different. The analysis. So I think that’s great. Reed, I have so enjoyed talking to you. Can we do this again sometime?
Reed Holden: I would love to do it again.
Mark Stiving: I got him, I got it on the recording. So what’s, I always end with this one question though. What’s the one piece of pricing advice you would give our listeners that you think might have a big impact on their business?
Reed Holden: Keep it simple.
Mark Stiving: Keep it simple. Nice. And the advice is simple and it’s powerful too. Reed, thank you so much for your time today. If anyone wants to contact you, how can they do that?
Reed Holden: Yeah. First of all, you’re welcome and my email address is [email protected] and I’d love to hear a few people.
Mark Stiving: Okay, great. Great. Alright, episode 23 is in the can. My favorite part of today’s podcast was when I agreed with Reed at the end. How could I not? Oh, what was your favorite part?
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Tags: pricing strategy