Impact Pricing Podcast

EP65: How to Functionally Manage Your Pricing During Crisis with Lydia DiLiello


Lydia DiLiello is the CEO and founder of Capital Pricing Consultants, an expert model revenue management and business consultancy dedicated to sustainably improving revenue and profitability for its clients through relevant and timely insights, strategic plans and targeted training programs. 

 

In this episode, Lydia shares her insights on how to manage your pricing during a crisis,  how to keep up with competitors to maintain market share,  and why a crisis management plan is important in such times of downturn. 

 

 

Why you have to check out today’s podcast: 

  • Learn about price gouging as a functional price management strategy 
  • Discover the importance of value differentiation relative to pricing and market segmentation in turbulent times 
  • Pricing strategies that you must consider at this time of crisis to keep up with your competitors 

 

Determine what the single most important thing is that they want out of a business every year, one thing, and then make everything else drive back to it from a strategic standpoint.” 

– Lydia DiLiello

 

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Topics Covered: 

01:17 — Lydia’s backstory how she got into Pricing 

05:53 — Price gouging as a functional price management strategy 

07:28 — Pricing advice for companies, how to keep your business going in the hard times

09:20 — How to manage manpower layoffs during the crisis: e.g. If you are a restaurant and all you’re allowed to do is a curbside delivery, would you lay off your waitresses and waiters? 

10:58 — Lydia’s thoughts on lowering your price to maintain your market share 

12:14 — Why discounting shouldn’t be your standard operating policy relative to your pricing strategy

15:50 — Thoughts about competitors lowering their prices at this turbulent economic condition 

17:21 — All about market segmentation relative to pricing and value 

18:33 — All about having a crisis management plan: How should management react, prepare, and pivoting during a crisis

22:16 — Best pricing advice Lydia has for the listeners

 

Key Takeaways: 

“Companies that are making decisions based upon the welfare of their employees are going to end up in a stronger place just to brand loyalty and recognition.” — Lydia DiLiello 

“If there are things that require labor and you have the resources to do it, get it done now, keep your people employed because it puts you in a stronger position when this finishes to come out ahead.” — Lydia DiLiello 

“I believe that’s not a good thing to do, lower your prices just to keep going. I think they should not do that, and I feel strongly about that because what it does is it devalues their brand.” — Lydia DiLiello 

“I think that brand advertising is all the more important. Continue to sell it at what it sold before the crisis or find ways to run co-specials where you’re not changing your base price. That base price remains but maybe now it’s buying one get the second half off for a short period of time, but don’t readjust that base price.” — Lydia DiLiello 

“Change your value offering as fast as you possibly can. If you change your value offering, it takes six months for the competition to keep taking that business. Less and less price. They’ll gain the market share. But eventually, your good customers will see the difference in your products. And if you really do have value and product differentiation, they’ll come back to you.” — Lydia DiLiello 

 

Resources / Links: 

 

Connect with Lydia DiLiello:

  • LinkedIn 
  • E: lydia@capitalpricingconsultants.com 

 

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 clearly sound better in real life.)  

 

Lydia DiLiello: Determine what the single most important thing is that they want out of a business every year, one thing, and then make everything else drive back to it from a strategic standpoint. 

[Intro] 

Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the profitable relationship between them. I’m Mark Stiving. And today, our guest is Lydia M. DiLiello. How I do? 

Lydia DiLiello: Really well! 

Mark Stiving: Here are three things need to know about Lydia before we start. She’s CEO and founder of Capital Pricing Consultants. She knows a lot about pricing. She has an undergraduate and master’s degree from Youngstown State University where Jim Tressel who happens to be the president of the University (Go Buckeyes) and part of her career was spent in procurement and we’re not going to hold that against her. Welcome, Lydia! 

Lydia DiLiello: Thank you, Mark. Go, Penguins! 

Mark Stiving: So how did you get into pricing? 

Lydia DiLiello: Totally by accident. I came out of school with a graduate degree and went to work for General Motors, second shift because that was the criteria for being hired. So I actually worked on the line, it was a lottery system. My brother-in-law had a lottery ticket work for Delphi and they said as long as you can pass the physical and you pass the interview you’re in. So I and two dozen other MBAs went in and started working on the line. Second shift plugging wires. 

Mark Stiving: So when you say on the line, you mean building products? Physical factory work. 

Lydia DiLiello: We were doing factory work, building harnesses for several different GM cars at the time. 

Mark Stiving: With a master’s degree. 

Lydia DiLiello: That’s correct. 

Mark Stiving: Wow! You haven’t gotten into pricing yet. But that was pretty interesting. 

Lydia DiLiello: So the way we get to pricing is, after you spent nine months doing that, you could apply for any jobs that were available in the offices. And needless to say, I applied for absolutely everything because 3:00 to 2:00 AM doesn’t really work for me. As a consultant that’s fine. But you know, plugging wires, it’s different. So I got into competitive intelligence. That was the opportunity that was open and really started to work with a small group of people on the competitive Intel. And from there we actually developed a pricing department for Packard Electric, which grew to be a global concern for them. 

Mark Stiving: Nice. Well, that sounds fun. I’ve always liked the idea of competitive intelligence and how companies do that. It’s super crucial for pricing. 

Lydia DiLiello: One lends itself to the other very easily. 

Mark Stiving: Absolutely! So here we are. I’m going to tell you the date that we’re recording everybody. It’s March 23rd which by the way happens to be my wedding anniversary. So we’re recording on March 23rd and Lydia and I decided we were going to talk a little bit about pricing in turbulent times because obviously these times right now are extremely turbulent with the virus. By the time this gets published, we have no idea what the situation’s going to look like. And with any luck it’ll be over, but highly unlikely. So Lydia, let’s talk about this. And one topic that I find so fascinating about any of these is this concept of price gouging. Most people just despise the word before I give my opinion. Do you just flat hate it or do you have an opinion? 

Lydia DiLiello: So I do. I have a strong opinion. I do flat out hate it. If it truly is price gouging. And I’m not talking Mark about premium pricing. I’m not talking about luxury pricing where you have six customers globally and you can name your price, but I’m talking about when there’s a need for a specific product. Like right now, hand sanitizer and toilet paper seem to be, you know, trading almost about gold bullion. There was a story in NPR two weeks ago about New York City by a Manhattan company that was charging $80 for hand sanitizer. Yeah. That I flat out hate. That to me is it’s predatory. 

Mark Stiving: Yeah. And so, you know, I think 90% of me hates price gouging. So don’t ever think I’m trying to defend this in any way whatsoever. But if you step back and think about price gouging, it sounds to me like there are three main constituents that we have to care about. We have to care about the business. Whoever’s selling it, we have to care about the buyer, whoever’s buying it. And we have to care about society and what’s good for society or not. And so if we think about a hand sanitizer, by the way, I don’t get the toilet paper thing at all, but let’s go with hand sanitizer. Cause that seems to make sense. 

Lydia DiLiello: Right. That is logical. 

Mark Stiving: Yes. Okay. So let’s say that I raised my price on my hand sanitizer manufacturer and I find that I can get twice the price of hand sanitizer that I used to be able to get. Maybe I would increase the number of shifts, maybe I would move some lines to making hand sanitizer that wasn’t making hand sanitizer. And so the fact that we’re able to gouge, and I say that really carefully, has the impact of increasing supply, which could be good for society while being bad for a buyer. Is that a horrible thought or is that dancing on the line? 

Lydia DiLiello: You know, Mark, I don’t even think that’s honestly dancing on the line. I think what you’ve described is good business, I don’t think to double a price and moving manufacturing to capture an opportunity and fill a market need. If hand sanitizers usually got an oh six bucks and you’re now charging 12. The majority of society can still afford that. It’s good for your business. You are giving your workforce an opportunity to earn extra money as well. So when you look at a societal gain and you look at the business opportunity, that to me is still good all the way around. When you’re talking $80 on a product that was six bucks. To me, that’s the true definition of gouging rather than I’ll say optimizing or even dramatically increase price if you want to split words. 

Mark Stiving: Yeah, and I would even say the doubling price is gouging if it doesn’t help us get more supply. 

Lydia DiLiello: I would agree with that. If you have 15 sitting on yourself and you just double it because you can and there’s a market need for that, that to me is where it really starts to walk the line. If there’s no good that comes out of it except profiteering, that’s where I start to feel uncomfortable. 

Mark Stiving: Yeah, I think I’m complete with you on that. Right. So I think that makes sense. Okay, so let’s, let’s shift this into more turbulent times because we’ve got companies now that are just suffering everywhere. What types of pricing advice would we give them in these horrible times? 

Lydia DiLiello: I think first and foremost, I’m always wanting to say be proactive, not reactive and legitimately right now, Mark, you could say to me, what else? Nice Lydia, how you’re supposed to be proactive. We don’t know what the news is going to bring this afternoon, let alone, you know, in a week. And what I mean by that is if you’ve got a strategic plan as a company, Mark, keep working towards that. What’s been your company goal? What have you set out there as the most important things for your company to achieve, for your employees to achieve? And then back into that with the reports that you’re getting on a daily basis. Companies that are making decisions based upon the welfare of their employees are, I believe, going to ultimately end up in a much stronger place just to brand loyalty and recognition. I think in times like this, we all remember the companies we hear about who don’t do the right thing, so to speak. So in addition to being proactive and sticking with what they’ve set out as their initial goals and making mindful, thoughtful decisions, don’t just say, okay, Wall Street Journal said X this afternoon, therefore by four o’clock we’re going to do Y. That I don’t think, I think that devalues everything. And so kind of staying the course is really critical. 

Mark Stiving: Okay. So I think we have to put some examples to this, but again, I think we ought to step back and say what are the constituencies thinking of? So we certainly have the firm and the long term viability or success of the firm, which is a really big deal. And then we have the short term problems of employees, customers. How are we dealing with that? That whole sales environment today? If you are a restaurant and all you’re allowed to do is a curbside delivery, would you lay off your waitresses and waiters? 

Lydia DiLiello: No, I’d try to hire them on as drivers for delivery If they were interested in doing that. Oh, you said curbside. I’m sorry. So literally if it’s just curbside, I don’t think you have a choice. Yes, I would lay them off because at that point you simply can’t use the headcount that you’ve got. You have no choice. 

Mark Stiving: Yeah, there’s just not enough demand. There’s not enough… Okay. And so if you’re a factory and you’re building products and demand slows down maybe you build a little extra inventory 

Lydia DiLiello: Maybe or maybe you repurpose for some of the projects that you’ve had on the back burner. Kind of in the same way people are doing with their households, you know, people that are in situations where they’re sheltering in place or finding all of those projects that they said they were going to take care of years ago. Any company I’ve ever worked with, his son, what we’ve got these two things that we’ll get to. Well, if there are things that require labor and you have the resources to do it, get it done now, keep your people employed because it puts you in a stronger position when this finishes to come out ahead. 

Mark Stiving: Okay. And so one of the problems that we have, and this happens whether it’s a big catastrophe like what we’re going through right now, or if we’re going through a recession, everybody wants to hold their market share or not lose their volume sales. And so we know the first thing they think of is, well, I’ve got to lower my price so that I can keep going. What do you think about that and what’s your advice to them? 

Lydia DiLiello: So I think it’s a natural reaction, but we’re right back to that reactivity again. I believe that that’s not a good thing to do. I think they should not do that. And I feel strongly about that because what it does is it devalues their brand. What they’re essentially saying is my product was worth $10 before we hit the recession. Now there’s a recession, I’m selling less volume, so now I’m going to sell it to you at eight. I think that brand advertising is all the more important. Continue to sell it at the ten or find ways to run co-specials where you’re not changing your base price. That base price remains 10 but maybe now it’s buying one get the second half off for a short period of time, but don’t readjust that base price. 

Mark Stiving: Yeah, so I tend to believe that now, especially for the situation we’re in now, cause I’m hoping that we bounce out of this relatively quickly. A long term recession, that feels much harder to do. Right. Because if I’ve, you know, it’s like going to, okay Jockey, right? I get the Jockey advertisement in my email every single day for 50% off everything that we have. So guess what, even though it’s a high list price and advertise a discount, I actually know what the price is. It’s half of whatever they’re charging. 

Lydia DiLiello: And I think that that’s part of the challenge Mark, relative to when you over discount or you make discounting your standard operating policy relative to pricing. The value has been lost on you now because as far as you’re concerned, your new jockey price is 50% off whatever they tell you, and if you don’t get that, you’re not even gonna look at it because you’ve set a norm in your mind. 

Mark Stiving: Yeah, that’s absolutely right. Absolutely right. 

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Lydia DiLiello: I especially like the different products for different market segments and I would agree with you. Most of the clients I see don’t segment at all or if they do not particularly well, and I think there’s a lot of opportunities there certainly. And just different value offerings change the product a little bit. Change the service offering around that product to meet a specific need gets you away from that comparative pricing. 

Mark Stiving: Yeah, so you could just lower your price. There were air quotes there that you guys couldn’t see by the way. You could just lower your price if you did change the product somewhat and that says, Hey, this is a different product at a different price or we’re not really hurting our value, our brand value. 

Lydia DiLiello: Agree. As long as that change is significant enough, not like we see with detergents, new and improved, which is just packaging and they’ve used that as an opportunity to raise price 10% yeah. That I think is become very transparent and very, I’ll say an irritant rather than a functional way to manage price. 

Mark Stiving: Absolutely. So what do you say to companies where their competitors have lowered the price because the competitors want to keep their share or they’re not thinking strategically as we go into recessions or any type of turbulent time. 

Lydia DiLiello: I say change your value offering as fast as you possibly can and it becomes a waiting game. If you change your value offering, it takes six months for the competition to keep taking that business. Less and less price. They’ll gain the market share. But eventually, your good customers will see the difference in your products. And if you really do have value and product differentiation, they’ll come back to you. But it’s going to take six months of the competition taking this on before it hurts them enough financially for them to stop it. 

Mark Stiving: Yeah. So we’re a, we’re kind of at the market segment conversation again. So what buyers like us more than they like our competitors. What buyers like our differentiation more than they like our competitors. Yeah. I find it really challenging because at least when I teach value-based pricing, I teach it in the sense that a customer is going to look at your competitor’s price. They’re gonna look at your price and say, Oh, you’re more expensive, are you worth it? And so they start looking at that differentiation in value and in price and comparing the two. So if my competitor lowers their price unless I can find a way to make that differentiation even bigger than it used to be, I don’t really have a choice, but to lower my price somewhat. I don’t have to match them, but I have to be in the ballpark in that competitive response area. And so that’s where I’d go back again to market segmentation and say, are there people I could keep it the higher price? 

Lydia DiLiello: And I think that goes right, it’s, it’s really full circle. It goes right back into value differentiation again. And, and how much value are you providing and what extra are you throwing in? To your point about are you adding substantially more than the competition is to offset the discount that they’ve given? How deep is the discount that they’ve given? Therefore, how much do you have to add to make up for that in value? 

Mark Stiving: Yeah. So there’s gotta be something in that equation that’s going to make customers want to buy from us again. 

Lydia DiLiello: Well. And I think to market speaks to brand value as well because. If you go in with a really strong name like a Procter and Gamble, something like that has brand equity built into it as well. So you may need less value differentiation if the person or their company drops on the price is not nearly as well known. 

Mark Stiving: Yeah. So although I agree with that, I would also say that if the brand, Procter and Gamble was worth more, why weren’t they charging more for it in the first place? 

Lydia DiLiello: My guess is they were thinking that they wanted the market share so they were going to go after stair rather than optimization 

Mark Stiving: Unfortunately that’s probably true. Okay. So, Lydia, we started this conversation out and you gave a set of words and it just struck me as weird as I’ve been processing and trying to figure out how that could have worked in this whole CoronaVirus world and you said you think firms should be proactive, not reactive. What could they have done before this virus hit so that they were better prepared for it? 

Lydia DiLiello: I believe I had plans in place and talked through crisis management. The firms that I have spoken to who have crisis management plans in place are further through their thought processes have been more proactive in general with their employees because they have talked about this as what-if scenarios already rather than firms that have never crossed this and are talking about what it is while it is live and happening. I think like anything when there is emotion, emotion does not cause clear concise decisions. It muddies the water. Right. Is that a good way of saying that things get really messed up? But if these same questions were asked when there was not an emergency when there was not a crisis, creativity, thought processes options far more than when we add emotion in. 

Mark Stiving: Yeah. So I’m going to quote you, I’m going to create a little quote card with your name on it that says emotion does not create clear, concise decisions. 

Lydia DiLiello: I should hang it on my wall too, right? 

Mark Stiving: Isn’t it though, isn’t it though? And so when I think about that, as soon as you said crisis management, it’s like, Oh gosh, yes, of course. But then you start thinking it’s only the really huge companies that have crisis management departments. Most restaurants don’t have crisis management departments and, right. So yeah, I could see that. 

Lydia DiLiello: You know, I agree with that, Mark. But what I find fascinating is some of these small independents, or in some ways I see where I’m at locally, we’re responding better than some of these large corporations who I believe would have crisis management departments. And I think it’s because what they’ve lost in planning, they’re able to gain and be very nimble and make one decision and stick with it good, bad, or indifferent. If they’ve chosen curbside only, that’s what they’re doing. And if they’ve said, we’ll deliver Andrew curbside, unless there’s a different directive, they’re staying the course where I think some of these larger companies with crisis management, as soon as you get legalities involved, that’s guaranteed to just help those decisions become all the more embroiled and difficult. 

Mark Stiving: Yeah. And, and you know what, maybe part of the answer there is it feels like smaller companies are probably closer to their customers, so they have a stronger relationship and so they personally really want to care for their customers or I can imagine really big companies, there’s so many balls in the air, there’s so many different things they’re thinking about. Their customers are not the single most important thing to them, which says a lot. And a lot of ways. 

Lydia DiLiello: I would agree with that. I think that that’s the key to it. Absolutely. 

Mark Stiving: Lydia this has been fascinating. I have not really, didn’t really think about a lot of these things ahead of time. So this was a fun conversation. Let’s wrap this up with my favorite question. Nothing to a turbulent pricing. What’s one piece of pricing advice that you would give our listeners that you think could have a big impact on their business? 

Lydia DiLiello: Determine what the single most important thing is that they want out of a business every year. One thing, and then make everything else drive back to it from a strategic standpoint. 

Mark Stiving: So can you give us a couple examples? 

Lydia DiLiello: Sure. When I work with clients, I have a client who said we want to grow. It happened to be a large publicly traded. They said we want to grow our EBIT by 12% this year. Okay. Earnings before taxes and income or income taxes. So what we looked at was from the strategic overview all the way down through the tactical application with their pricing people was everything pointed in the direction of increasing revenue and profit to achieve that goal. And what we found was, well, the overall strategy at the exact level was go get that profit. By the time it got down to the tactical level of a pricing person saying, how many discounts did we override this month? How many special price requests did we have? Oh, well that’s that one product. So that’s okay. And that was of course counterintuitive to exactly what was being asked for. So they were eroding profit while they were giving a directive to go get it. 

Mark Stiving: Yeah, I think that’s an excellent example and it’s pretty common for executives to have a strategy that doesn’t make it down to the worker level. Right. The people that are actually making things happen. 

Lydia DiLiello: Yeah, I find that very common. 

Mark Stiving: Something we have to test and push on quite a bit. Excellent! Lydia, thank you so much for your time today. If anybody wants to contact you, how can they do that? 

Lydia DiLiello: So they can do that at lydia@capitalpricingconsultants.com or they can use my mobile at (330) 283-5273. 

Mark Stiving: All right, episode 65 is all done. Let’s see, what was my favorite part? I think the conversation about price gouging at the beginning, cause I just been thinking about that way too much lately and I don’t, I’m not overly comfortable with my own thoughts yet. So that was really good. What was your favorite part? Please let us know in the comments or wherever you’ve downloaded and listened to the podcast while you’re at it, would you please give us a five star review? These are hugely valuable to us. Don’t forget we have a community where all of the things that I publish show up there. You’ll find that at community.championsofvalue.com. If you have any questions or comments about this podcast or about pricing in general, feel free to email me, mark@impactpricing.com. Now, go make an impact. 

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