EP47: Two Pricing Experts Talk Pricing with Mark Stiving and Kevin Christian
Kevin Christian is a highly accomplished pricing leader with 20+ years of track record overseeing pricing strategy, pricing operations, licensing, and packaging for various technology-focused organizations. Leverages expertise in pricing strategy to maximize profits, as well as pricing operations, quoting, and capturing pricing of products inside third party systems.
He has experience at technology companies in Silicon Valley and beyond, with strong knowledge of portfolio packaging strategies for hardware, software, cloud, Web 2.0, professional services, SaaS, and IT products and services.
In this episode, Kevin deep dives into the topic of conjoint analysis, how to use it to help in pricing decisions. Though it has its own limitations, he will also discuss how it can be improved upon.
Why you have to check out today’s podcast:
- Difference between talking to customers about the value of the solution versus the price of the solution
- How do people make purchase decisions
- How to use choice-based conjoint analysis to determine consumers’ perception of value and willingness to pay
” If you’re only talking about the price of the item without talking about the value, then you’re really in the buyer’s territory.”
– Kevin Christian
Get Accelerate Your Subscription Business: Your Blueprint to Packaging & Pricing for Growth Course at https://www.championsofvalue.com
04:04 – How do people make purchase decisions
05:56 – How do businesses decide to raise the prices without affecting demand
07:41 – Kevin’s career background and making a headstart at the conjoint model of pricing
08:27 – Mark’s discussion on the difference of conjoint model between B2B versus B2C
09:47 – Kevin’s thoughts on where the conjoint model works best or less
10:51 – The interesting thing as well as the problem with B2B in using conjoint analysis
11:52 – Behavioral factors and negotiation skills involved in conjoint analysis
12:50 – Limitations of conjoint model and how it can be improved
15:28 – How conjoint analysis is done according to Kevin
19:17 – Difference between talking to customers about the value of the solution versus the price of the solution
“Seeing what that means to me in the real world is that a lot of businesses probably have an opportunity to raise prices by a little bit, which could make a huge difference to them at the end of the year in terms of their profitability and probably wouldn’t make much of a difference to their customers if it’s small-dollar item.” – Kevin Christian
“I guess what I’ve seen a lot in the B2B space is you’re typically dealing with situations where it’s a direct sales force. The deals are highly negotiated and the deal sizes are typically six figures or more and so in the B2B space, in my experience, just conjoint isn’t as obviously the right way to get your optimal price as it is in the B2C space where you’ve got lower selling prices, higher volume of items.” – Kevin Christian
“One thing that I’ve seen with conjoint is that sometimes there’s a difference between what happens in the study, which is a lab situation or an experiment when you’re doing your market research study. And then what happens in the real world, and sometimes the purchase behavior in the real world is not exactly the same as the purchase behavior inside the conjoint study itself.” – Kevin Christian
“If the bear gets in a fight with an alligator who wins. think it depends on where they’re fighting and if they’re fighting on land, the bear is more likely to win. And if they’re fighting in water, the alligator is more likely to win. And what I like about this for pricing is when you talk about the difference between talking to your customers about the value of the solution and talking to your customers about the price of the solution.” – Kevin Christian
“So I think where conjoint works well is when you’ve got a relatively low average selling price and a high number of buyers or transactions, and then where conjoint works less well is when you’re doing deals that are six figures or more, and the volume is relatively small compared to the volume of like a typical consumer product.” – Kevin Christian
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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.)
Kevin Christian: “So I think where conjoint works well is when you’ve got a relatively low average selling price and a high number of buyers or transactions, and then where conjoint works less well is when you’re doing deals that are six figures or more, and the volume is relatively small compared to the volume of like a typical consumer product. “
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the undeniable relationship between them. I’m Mark Stiving and today our guest is Kevin Christian. Here are three things you want to know about Kevin before we start. He’s been in pricing in Silicon Valley for over 20 years now. He used to program conjoint models to analyze price elasticity in the mid-1990s. What a geek and he’s worked at Netscape. Wow! Do we know anybody who’s worked at Netscape? Oh, and I’m going to give you a bonus one. He used to teach comedy traffic school. Welcome, Kevin.
Kevin Christian: Hey Mark, how are you? Thanks for having me on.
Mark Stiving: I’m doing fabulous things. I got to ask a comedy traffic school. Do they give you the jokes or do you have to make them up yourself?
Kevin Christian: Mostly, they give you the jokes. There’s, you know, you go through training and there’s kind of a script, but I did make them up as I was going along as well.
Mark Stiving: Okay. It was a fun job?
Kevin Christian: It was, you know, it was something I did in my twenties and it was just to make a little extra spending money to buy records and CDs.
Mark Stiving: Yeah, that’s just a fun job. I can’t imagine doing it. Well, today’s podcast is going to be a little bit different. It’s somewhat of an experiment. Normally, I interview the guest and then I share my opinion. But today Kevin gets to choose the topics that we’re going to talk about and we’re just going to have conversations about them. We’ll get to hear what Kevin thinks. We’ll get to hear what I think and I’m positive there’ll be lessons for everybody as we go through this. So, Kevin, what’s our first topic?
Kevin Christian: Okay. So, for the first topic, I’d like to talk about coffee and going out for coffee and getting coffee in the morning cause I’m a person who goes out to a coffee shop and gets my coffee seven days a week and I have three different places that I go to that are close to my house and I order the same drink regardless of which place I go to. It’s a double espresso with a long pole. And at Starbucks they charge 2.45, at El Piccolo, which is a small privately-owned place, they charge 2.80. And at Pete’s Coffee they charge 3.25; But for me when I wake up in the morning, which place I’m going to go to has nothing to do with the price. If El Piccolo is open. I generally like to go there first because I like to support the little guy, but they don’t open until 6:30 and usually, I’m open by 5:30, so they’re just not open yet.
And pizza. I only go to really on the weekends when I have a little more time and there’s a coffee klatch and I sit there and kind of chit chat with people while I’m having my coffee. But if I get up early and if it’s during the week when I have to go to work, I generally go to Starbucks because I don’t want to chit chat at Pete’s and he’ll pick a load as open till six 30. So, my choice of which place I buy my coffee has nothing to do with the price, even though the prices are very different. So, I was wondering what you think about that.
Mark Stiving: I think that’s hilarious. First question is, what is a long pole?
Kevin Christian: It just means they run a little bit extra water through the double espresso. So, you’re not getting more coffee grounds, you’re just getting more water and you’re double espresso.
Mark Stiving: Oh, okay. I always thought it made the coffee a little more bitter when you did that.
Mark Stiving: Maybe I don’t know, but that’s just how I like it.
Kevin Christian: Okay, no worries. No worries. So, let’s talk about the decision that you make because pricing is always fascinating when we get to see how do people make decisions and do they use price or don’t they use price. And I think you very clearly articulated how you go about making a decision but the least expensive of the three Starbucks at 2.45 and the most expensive of the three was pizza. What was it?
Mark Stiving: So, there are an 80 cents swing between the most expensive and the least expensive. And from the description that you gave me, 80 cents was totally irrelevant to you.
Kevin Christian: Correct.
Mark Stiving: So, it wasn’t, the price didn’t matter. It was really that the other attributes far outweigh the difference in price.
Kevin Christian: Yeah. The things I care about are, how much time do I have to spare wanting to support the little guy. Is the little guy open yet because he opens later than the other two. Those are kind of the things I care about. And even though there are these differences in the price, the price just doesn’t come into me selecting which place to go for the coffee.
Mark Stiving: Yup. And so there are two possible reasons. Number one, it could be that the price really didn’t matter. Or number two, it could be that you’ve already made the decision and you just don’t want to rethink it every day. Oh, here’s the process I go through. I don’t have to make that decision anymore. Let’s pretend like you’re going to make the decision every single day. What if you wake up late, it’s after 6:30, El Piccolo is open and you remember they just raised their prices to $6, you still going?
Kevin Christian: No, not at $6.
Mark Stiving: Okay, so the price does matter. It’s just that that small swing wasn’t enough to make an impact in your decision.
Kevin Christian:Seeing what that means to me in the real world is that a lot of businesses probably have an opportunity to raise prices by a little bit, which could make a huge difference to them at the end of the year in terms of their profitability and probably wouldn’t make much of a difference to their customers if it’s small-dollar item.
Mark Stiving: Oh, I think that’s so true. If you think about a coffee shop, I think it’s probably pretty rare that someone says, oh, I’m going to Starbucks instead of Pete’s, because the coffee is less expensive.
Kevin Christian: Yeah. I doubt that ever happens.
Mark Stiving: And if it does, it’s a tiny, tiny piece of the time. So, you know, and maybe that’s what Starbucks realized back when they charged a dollar fifty and now they’re up to two forty-five.
Kevin Christian: Yeah. I mean I think people pick the coffee place based on which one did they like the ambiance better, which one is closer to their home, which one can they find parking They’re in a very busy urban area, you know, those kinds of things.
Mark Stiving: Yeah. Yeah. So that’s a, I think that’s pretty fascinating. Just thinking about how people make decisions and trying to beat that up. So if you’re a coffee company, you’re going to raise price, a coffee shop, you’re going to raise prices by 10%, 10 cents probably doesn’t impact demand at all, and you just made a lot more profit. I think that was a great call on that.
Kevin Christian: Yeah. And you know, and I don’t want Starbucks or El Piccolo or Pete’s to raise their prices by 10%, but that would be my guess. My guess would be that if they did they’d be more profitable and it wouldn’t make a huge difference to the customers.
Mark Stiving: Yup. I think I agree with that. Okay. Let’s, do the next topic, but do you have one that’s on conjoint? Cause you used to work in conjoint and that would be a fun topic to talk about.
Kevin Christian: Yup. So, for five years, between ’92 and ’97, I worked for a company in Menlo Park called Applied Decision Analysis and we did a lot of different things. We did market analysis, decision analysis, risk analysis, and in the market analysis space, one of the things that we did was building conjoint models for helping companies optimize pricing. And so there was a couple of things I wanted to talk to you about or ask you about. So, one is what are the differences between conjoint in a B2B space versus a B to C space if you think there is any difference. And then the other one is what are the limitations of conjoint if any, and how do you correct for those. And I’ve got my own ideas on this from having done it for five years, but I know you have your own ideas as well.
Mark Stiving: Now I’m a little embarrassed or a little worried about this one cause I think your ideas are going to be way better than mine, but I’ll take a shot. I think in the, let’s do the B2B versus B to C first it seems to me that it’s less about am I selling to businesses or consumers and it’s more about how big is my pool of customers and do I have a direct sales force or not?
Kevin Christian: Yeah, I agree with that.
Mark Stiving: I would think that if I don’t have a direct sales force, so I’m selling through retail or I’m selling on the web, what that says is that I can only set one price. I can give a set of messages out and I’m probably, I’ve got to find a way to capture or set that optimal price for that optimal buyer in the right situation. And for that I think conjoint is almost ideal. It’s almost perfect for us saying, okay, we’re, we’re going to go do conjoint with 300 or 500 different respondents and now we can look at the different decisions each of those respondents would make and we can start to create, well how would we segment this or how would we put this product together and what prices would we charge? And suddenly we’re gathering probably the most important information you can get when you’re setting your packaging and your pricing.
Kevin Christian: Yeah, I mean, let me say the same thing maybe in a slightly different way. So, I think where conjoint works well is when you’ve got a relatively low, let’s say under 10,000 or under $1,000, I don’t know what the cutoff is, but a relatively low average selling price and a high number of buyers or transactions. And then we’re conjoint works less well is when you’re doing deals that are six figures or more and the volume is relatively small compared to the volume of like a typical consumer product. And I guess what I’ve seen a lot in the B2B space is you’re typically dealing with situations where it’s a direct sales force. The deals are highly negotiated and the deal sizes are typically six figures or more and so in the B2B space. I mean in my experience just conjoint isn’t as obviously the right way to get your optimal price as it is in the B to C space where you’ve got lower selling prices, the higher volume of items.
Mark Stiving: Yeah. What’s interesting about the B2B is if you could do conjoint for the client that you’re selling to, that would be amazing because what you’re now capturing is that one respondent, willingness to pay how much they value each of the different attributes or features in your product. That would just be the absolute perfect information for that one client for that one negotiation. The problem we have is we tend to do conjoint so that we can make decisions for markets and a single customer is not going to sit down and do a conjoint with us so that we can negotiate better with them. They’re going to play a little bit of poker and hide their cards a little bit and not give us all that information. So,I think the buyers are making decisions in the exact same ways, but we don’t get the tool that we would use. And instead, we have to rely on our salespeople to try to discern what is it that our buyers really value.
Kevin Christian: Yeah. So, you said really interesting there, which was playing poker and hiding your cards. And it’s kind of this game of the negotiation that goes on. And I think you just don’t have that in a situation where you’re buying a tube of toothpaste at Walgreens or where I’m buying my cup of coffee at Starbucks, El Piccolo or Pete’s. And so I think conjoint works great in those situations. And then when you get into these more behavioral things around, you know, procurement people and their skills in negotiation and the fact that, they’re going to make this purchase once every three to five years. And so they invest a lot of time and energy into this purchase and it’s a huge part of their budget. And also they have too many things they need to buy. If it’s an IT department, the IT department cannot buy all of the things they think they need to buy and so it just becomes a much different purchase decision.
Mark Stiving: I agree completely. All right. Next topic. Let’s go.
Kevin Christian: Oh no, no. We’re going to do something else on conjoint.
Mark Stiving: What was the other thing on conjoint?
Kevin Christian:Well, I guess so we, we’ve talked a little bit about the difference between B to B and B to C. we did that and then the other thing that I thought we could talk about is, okay, so what are the limitations of conjoint and how can you improve upon it? So I got one idea that I’ll throw out and then you can throw out any that you might have. One thing that I’ve seen with conjoint is that sometimes, there’s a difference between what happens in the study, which is a lab situation or an experiment when you’re doing your market research study. And then what happens in the real world, and sometimes the purchase behavior in the real world is not exactly the same as the purchase behavior inside the conjoint study itself.
It’s like the difference between a movie of a horse running and horse that’s actually running through the room that you’re in, right? It’s different. The actual horse is different than a movie of the horse. And so I think the conjoint study is more like a movie. And then what happens in the real world is more like the horse running through the room. And so I think one of the things that happen is when respondents overstate their willingness to pay as the vendor of the market research center, as the person doing the conjoint analysis. And this is something we used to do, is you need to do some kind of correction for willingness to pay. And so the way we would do that is the client knew what their actual market share was and what the market share was of their competitors. And so we would take the results we got from the conjoint and we would build our model and we would let the model then come up with its market share predictions and then we would say, okay, we think the willingness to pay is overstated. And then we would start to dial it down and we would take the utilities inside the conjoint model and multiply by a number 0.9, 0.8, 5.8. We multiply by this number less than one, so dial the utilities down and we would dial them down to the point where we had matched the actual market shares in the marketplace as closely as possible. And so then we said, well, that’s the right correction for willingness to pay because now we’re matching the market shares in the actual marketplace as close as we can get.
Mark Stiving: Let me ask a quick question on that. When you ask, when you were doing the conjoint, oftentimes conjoint says here are three choices, which one would you buy? And then they ask the question, what would you really buy one of those? And that way we could get the feeling that, okay, all three of them are way out of price or all three of them were horrible choices. But this was the best of the three horrible choices. And did you guys ask that question?
Kevin Christian: No. The way we did it was it was on a one to nine scales. And so think of the one to nine scales as being from left to right and there’d be an item on the left-hand side, which might’ve had less value, lower price, and an item on the right-hand side that had a higher value, higher price. And then we would ask the respondent on a scale from one to nine, what’s your preference between these two different purchase options? And so if they said one, it meant they really preferred the one with the lower value, lower price. If they said nine it meant they really preferred the one with the higher value, higher price. And then we would start to change the prices in order to try to drive the person’s, you know, number choice more toward the middle. So if they started at nine, we’re trying to get them to move from seven and then five or if they started at one, we’re trying to get them to move to three and then five or something like that. But you’re always if they start at one extreme, you’re always trying to push their soap choices to the middle.
Mark Stiving: Oh, that’s interesting. I haven’t, I’ve never seen conjoint done that way before. Normally I see conjoint done as here are two or three or maybe even four different choices. Choose which one you like the best. And then we wipe the slate clean and we say do it again. And then we slept with the sleek clean and we say do it again. And I find those to be really accurate in terms of preference, but I don’t think they’re that accurate because I did mention that they asked the question. Usually they ask the question, would you buy any of these or would you actually buy the one that you chose? And now we’re back to that preference question. And I think your horse analogy is absolutely perfect, which is what people say they’re going to do. And what they do are two very different things and there needs to be a way to massage it or adopt it and say, yeah, I get it. This is what they thought they said they were going to do. But I think in the preference side it isn’t as big a deal. I think people actually choose the right product given the right feature sets, but that may not work if we’re just tweaking price up to and down.
Kevin Christian: How about for distinguishing between different market segments? Have you seen conjoint be effective for like distinguishing between, you know, what are the preferences or what is the right price for the healthcare vertical versus manufacturing vertical versus a retail vertical or those kinds of things?
Mark Stiving: Yeah. Not only is it awesome for that capability, it’s, it’s also awesome at helping you find your market segments. Imagine for a second that we have, we’re going to go out and do 300 conjoint and we have, you know, five different features that we’re looking at and one is price. And, and when we get back our 500 different results, we find that some people value feature two a lot, and they would pay us a ton of money as long as we had feature two in it. Well, that might be a market segment all by itself, like awesome. Found a new market segment. Then we could dial back and say, well, what was common about feature two or what was common about the people who liked feature two? Oh, they were all in the medical industry. Oh, beautiful. Look at that. We’re, we’re starting to segment our marketplace.
Kevin Christian: Yeah. And then you’ve come up with a package for the medical vertical that includes that item and then your packages for the other verticals don’t. That’s exactly the right way to do your packaging.
Kevin Christian: Excellent. Excellent. Okay. Yeah, we have time for one more. Let’s make it quick.
Mark Stiving: Let’s talk about the difference between bears and alligators. If the bear gets in a fight with an alligator who wins.
Mark Stiving: Okay. Now, to be fair, we did briefly this a little bit, but I did get the answer right the first time. And that was, it depends. So what does it depend on?
Kevin Christian: I think it depends on where they’re fighting and if they’re fighting on land, the bear is more likely to win. And if they’re fighting in water, the alligator is more likely to win. And what I like about this for pricing is when you talk about the difference between talking to your customers about the value of the solution and talking to your customers about the price of the solution.
Mark Stiving: Expand on that. I think this is a brilliant point, but I want to make sure our listeners get this.
Kevin Christian: So, I think when you’re talking about the value of the solution, you’re in the seller’s territory and you’re talking about something where you know the seller is going to benefit from that conversation. If you’re only talking about the price of the item without talking about the value, then you’re really in the buyer’s territory. So that’s like the bear, you know, consenting to fight with the alligator in the water. If you’re talking about the price of the solution without talking about the value of the solution, you’re in the buyer’s territory. And I think procurement people are brilliant at this and I think they are often much better trained in negotiation than the direct salespeople are.
Mark Stiving: Oh, I think that’s absolutely true. But, but here’s what I just now pictured, a procurement guy looks like an alligator sitting in the water saying, come on in, the water’s fine. Let’s fight here. And our salespeople need to say, no, no, no, no, no, no, no come on up to land so that we can have conversations about value. It isn’t about price. Yeah, I think that’s a brilliant analogy. I like it a lot. I’m not sure, even if we trained our salespeople how to negotiate well, I’m not sure that makes a huge difference because I think the number one negotiation tactic that our salespeople have to be able to do is say, no, I’m not going to discount. Now I’m not saying that we say that all the time, don’t get me wrong. But what I am saying is if we have explained the value to the people who actually made the decision, the committee or the economic buyer and they’ve said, yes, I want your product. And then it goes to procurement. Procurement’s job is to get discounts and they’re going to tell you whatever they can to get a discount. And yet they don’t make the decision. So, if we just had the guts to say, no, I’m not going to give you a discount, then I bet you, we win 90% of the deals at 20% 30% higher prices.
Kevin Christian: Well you said something really interesting to me when you and I first met back when, I don’t know, when did we first meet? Seven or 10 years ago, somewhere around there. And I asked you how you would manage that. And what you said to me at the time was you said that for any given segment or product or you know, region or whatever, that you would look at your historical discounting and sort them from high to low and then you would try to lop off the bottom 25%
Mark Stiving: So, although I don’t remember that conversation, can I just say that I was brilliant.
Kevin Christian: With the idea, right? You don’t remember it, but you agree with the idea?
Mark Stiving: Absolutely!
Kevin Christian: I think that you need to sort your historical discounts from high to low and when deals are coming in that are in the bottom core tile, you should be working very, very hard to eliminate those and move them left at least to that second core tile.
Mark Stiving: Yes. And so that’s partly in, I’m renegotiating deals we have today. But the other way that I would look at that exact thing is all new deals that are coming in. Am I going to let any new deals in that bottom core tile? Why would I ever do that? Um, I can tell you that your salespeople are going to come to you and say, this is a strategic customer. Every customer is a strategic customer to a salesperson. So, that’s not the right answer. I would challenge pricing people, product people to count or track the number of times salespeople come in and say, this is a strategic customer. They’re going to do 10 times this amount next year and see how many times that’s true because it is practically never true. And so I think this whole negotiating thing is really complicated and challenging. It’s hard for salespeople to have the guts to say no to a discount because why would they take the risk of losing their commission?
And we as product people need some type of authority or influence to be able to say, yeah, this is the best you’re going to get. You can’t go below this point. And by the way, if you go too deep, we’re probably gonna cut your commissions and now we’re tracking commission rates. This, it really is a challenging problem to get everybody on the same page and say let’s go win these deals at high prices.
Kevin Christian: Agreed.
Mark Stiving: Kevin, I gotta say this has been fun. I haven’t talked this much in a podcast in a long time.
Kevin Christian: Yeah, I think we went a little bit over on the time cause we were a little aggressive in the number of topics we wanted to cover, but that’s okay.
Mark Stiving: Well we did, we still have a couple more we could do too if we wanted, but we’ll pull that off. Kevin, thank you so much for your time today. If anyone wants to contact you, how can they do that?
Kevin Christian: The best way is to send me an invitation to connect on LinkedIn and in the message say that they heard the podcast and I will definitely accept.
Mark Stiving: Oh, awesome, awesome. All right, episode 47 is all done. Let’s see, what was my favorite part today? I like talking about alligators and bears. Kevin, did you have a favorite part?
Kevin Christian: I like talking about coffee cause I can’t remember without it.
Mark Stiving: All right. And to our listeners, did you have a favorite part? If so, let us know in the comments or wherever you downloaded and listened to the podcast. While you’re at it, would you please give us a five-star review?
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