Ep79: Gaining Pricing Advantage Through Digital Transformation with Craig Zawada
Craig Zawada is a Sales Growth and Pricing Strategy Expert.
He joined PROS in 2010 and serves as its Chief Visionary Officer. He is responsible for creating and articulating the vision for how PROS uses big data and the latest technology, to help companies drive incremental sales growth and profit improvement.
In this episode, Craig shares how relevant market prices can be created with less human intervention.
Why you have to check out today’s podcast:
- Learn about the concept of digital transformation and its relevance in this evolving world of pricing
- Find out how better pricing is achieved through artificial intelligence with less human intervention
- Discover the need to integrate digital transformation with customer experience to create an impact in pricing
“View pricing from that customer experience perspective, not from the management perspective of trying to protect margin and all those things.”
– Craig Sawada
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01:09 – What paved his entry into the world of Pricing
02:26 – Moving from consulting to technology – his entry into Pros
04:02 – His thoughts about the concept of digital transformation
06:38 – Taking a look at the concept of digital transformation in B2C versus B2B companies
09:37 – How to gauge willingness to pay accurately
12:35 – Setting market-relevant price without human intervention
16:59 – Why we cannot do away with negotiating the price
19:39 – Tradeoff of the price for benefits
20:22 – When is the use of AI in pricing applicable
21:38 – His best pricing advice to impact businesses
24:00 – Factors to help understand customer’s willingness to pay and why it’s important to integrate into the pricing system
“Digital transformation to me is how you transform your process in pricing, such that you can deliver on this new customer’s need of getting a fair market price immediately, without having to go through this management problem of pricing that companies try to control.” – Craig Zawada
“The interesting part and where AI is incredibly applicable and really important in this environment in the future environment is being able to make those decisions without human intervention to set the market-relevant price.” – Craig Zawada
“A lot of this back and forth negotiation is due to a lack of confidence in knowing what the market price is.” – Craig Zawada
“People want choices, right? So they want to be able to configure their choices and understand what are the implications of that, so you can know ways of reducing the price.” – Craig Zawada
“From a pricing perspective, you have a tremendous opportunity to have an impact by integrating price into that digital transformation, because it’s one of the most fundamental things that is part of that customer experience in buying.” – Craig Zawada
People / Resources Mentioned:
Connect with Craig Zawada:
Connect with Mark Stiving:
- Email: firstname.lastname@example.org
Full Interview Transcript
(Note: This transcript was created an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
View pricing from that customer experience perspective, not from the management perspective of trying to protect margin and all those things.
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the digital relationship between them. I’m Mark Stiving. Today, our guest is Craig Zawada. Here are three things you have to learn about Craig before we start. He was at McKinsey for 13 years, and he ended up leading their North American pricing practice. He is co-author of The Price Advantage, one of the seminal books in pricing, fabulous book if you don’t have it, and he is currently Chief Visionary Officer at Pros. Welcome, Craig.
Thanks, Mark. Thanks for having me.
This is gonna be so much fun. I love talking to you. Quick question, how did you get into the pricing in the first place?
Oh, how do I get into pricing? Well, that was 27 years ago, and I was doing an internship for Ernst and Young in Toronto. And I didn’t really mind consulting that much. I thought it was a bit long term strategy, kind of pie in the sky stuff, until I did a pricing engagement for a door skin manufacturer in Quebec. And when we did the work, it was like, recommendations to raise prices on some products, lower prices or hold the price on other products. And I remember doing what every consultant is worried about when you call a client six months afterward and say, ‘Did it have any impact?’ And they said, well, their profits were up by 30%. And they were having great success and I thought, wow, this is an exciting area. I’d never learned pricing in school and seems to be directly oriented to the bottom line, is very strategic. And I decided at that time that this is an area that was ripe for innovation and for thinking, and decided to go into pricing and never looked back since.
I gotta say, that’s a pretty common story where someone gets involved in a pricing project, they have such a huge impact. And nobody really understands pricing. So it’s like, wow, why wouldn’t we go do this?
Yeah, exactly. And then I was in consulting for a number of years. And then 10 years ago, I saw the world changing, the opportunities, a lot of the best practices became known on methodologies and approaches to use. And I know, when I was working with clients, there was always a technology aspect. And I saw innovations that were happening – Pros, in particular, that was making some really practical innovations to apply technology to pricing and I thought, now this is the next future of applying technology to pricing. And that’s why I moved from consulting to technology, 10 years. There’s still tons of opportunity and consulting problems that do require, you can’t really put a technology against it. But, there is this huge opportunity for a whole lot of pricing problems to use technology to help execute embedded strategy within that. So that’s my story of how I got into Pros.
Yeah, I think that’s a very true smart statement. And I want to push on that a little bit later in the conversation we’re about to have. But I recently saw your webinar titled Winning in Turbulent Times. Now, I don’t know about you, I personally am kind of tired of talking about COVID. But you had a couple of pretty major points in there. And one of them was about digital transformation. And I just want to talk about the concept of digital transformation. It doesn’t have to be related to COVID. It could be… first off when you think of those words, how do you define it? What does that mean to you?
So digital transformation in my mind, I think it’s a seismic shift in pricing. And what I mean by that is, in my 27 years in pricing, most of my time in pricing has approached pricing as a management problem. So we have a whole bunch of people out there making pricing decisions without tools, and prices are all over the map. And so, therefore, I need to apply people, processes, and technology to solve that management problem. I think the seismic shift that you’re seeing right now, and it’s related to your question Mark on digital transformation, is pricing now is primarily a customer problem. And what I mean by that is, that the demands for frictionless buying are increasing dramatically. So the management approach to pricing historically took a lot of time, and was inward focused, as opposed to outward focused on the customer. And so digital transformation from my lens, and admittedly, I’m kind of like a hammer looking for nails focused on pricing, is that – pricing is integral to that customer experience. And so, digital transformation to me is, how do you transform your process in pricing, such that you can deliver on this new customer need, of getting a fair market price immediately, without having to go through this management problem of pricing that companies try to control. And so that’s why I think digital transformation and pricing is so integral and have to work together to meet that new customer need – because those companies that still focus on a management problem are going to be outmanoeuvred by those companies that view it from a customer problem. Does that make sense?
Absolutely, makes all the sense in the world. Now I have to say, I was hoping that you were going to give me the big generic definition of digital transformation, because I see it used over and over and in so many different industries. But I think you and I can just stick to talk about pricing if that’s okay.
Yeah, that’s good.
So if we think about this concept of digital transformation, let’s start with a B2C versus B2B conversation. It seems really obvious to me that B2C companies have made this type of transition a long time ago, because there’s so much data, there are so many transactions and we know how to do that. So what is it about B2B that’s helping us make – get the data, or help us get to that transition at this point in time?
Yeah, and Mark, I think you’ve touched on a few things. The data is definitely one element of it. But I think coming back to, again, your question of digital transformation, it’s really being driven by the customer. Right? That’s what’s pushing the need to it. And I know you didn’t want to speak about the pandemic and all this. That was a trend that was happening. And now it’s just been accelerated dramatically based upon a need, as opposed to, you know, a slow transition, it’s really been accelerated, but it’s a need for speed. So you have new buyers that are coming in that are used to buying in a certain way, younger generation buyers. You have the, I think, experiences in B2C that are transitioning over to B2B. And I think that’s a trend that you’re seeing. You expect the same experience in your B2C as you do in B2B. So I think those lines are being blurred. And I think in a few years, we’re not going to talk about B2C or B2B. It’s just going to be one approach to buying and selling goods which is in the demands. And I think what’s interesting is the basis of competition is absolutely changing. And there was some research done by the conference executive board that said that the sales experience now accounts for 50% or more of the attributes that people base their decision to buy from one supplier or another. And I think that’s dramatic, you know, historically we’ve dealt with, okay, our product has to be good, we have to be able to service it and our price has to be right. But now it’s the actual experience in buying that product that is a major attribute. So that’s where I think, is really pushing it, and the data, the availability of data, is absolutely an important part of it, but the customer is driving it. And I think also the technology of doing it. So a lot of the early innovators in pricing technology, for example, try to apply a B2C pricing model to B2B. So I change price, I see what happens to volume, I get a price elasticity. And the fact is even in B2C that’s very difficult to do. So I did at McKinsey and razor blade pricing, and we had retail data down to a store level and even accounting for the shelf of where it was, competitive price, you needed an enormous amount of data to get at that. But the innovation that I think you’ve seen recently is a practical way of getting at willingness to pay and market-relevant pricing without that simplified price elasticity calculation. So you have the customer need, as well as the technology that I think has really allowed this ability to apply some of those principles that are universal to the B2B context.
What’s the technology? How do I get to that willingness to pay more accurately?
Well, what it is, is it’s not a pure price elasticity. So I changed price, and here’s what happens to volume – it’s getting at, what are the indicators of willingness to pay? So for example, what the technology does is it searches for attributes that give me an indication of whether I’m close to the market price. So in a digital context, it may not be whether I won that sale and get the sale, maybe if someone looked at it, and whether they bought it or not, well, that’s closer – if I get enough of those data points, I know what the response rate is to that. Or it could be what’s my inventory level that’s out there. If I have inventory and competitors don’t? Well, I get a sense that there must be a higher willingness to pay because I have availability. So things like that you try to get attributes that get at willingness to pay, and then it’s a ‘test and learn’ over time. So you’re continually – and that’s one of the unique aspects of AI is you improve that over time, it’s a learning algorithm, which improves over time. So the availability of those attributes has become much greater than it was 10 years ago.
Yeah, so now we have the data around all those attributes, essentially, so we can see what’s going on – where we may not have been able to do that before.
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I’ve always thought about the difference between B2B and B2C, almost always I jumped in my mind to, well a B2B has a direct sales force. And not always, of course, but oftentimes they do. And as soon as we put a direct sales force in the way, doesn’t that mess up our ability to use AI or ability to – or the need to respond instantly?
Yeah, and I think that’s the thing Mark that’s changing. If you look at most of the pricing models in B2B, too much of it is high touch, right? So it’s based on the salesperson interaction. So in answer to your question, first off on, can you still apply AI in those circumstances? The answer is yes, you can. So where you’re having a negotiation, you can still capture attributes. Okay, is this a bundled sale? What other products are involved in it? What is the history of this customer? What have they bought historically? What’s the trend? All of that data is incredibly predictive of willingness to pay. So we have a solution, a technology that, what it does in that situation is it presents an envelope, it’s a floor, target, and stretch price. And that varies by customer depending upon all of those attributes. And so we know, we know that that improves that decision and judgment that that salesperson needs and requires at that point of time, and it’s kind of like when a salesperson is negotiating, they’re coming alone. And what AI does is it brings the collective experience of hundreds or even thousands of salespeople together to say, well, this is what the market price is, and this is what you should target. So it’s like being armed and it gives salespeople much more confidence in those circumstances. So absolutely, it’s applied in that situation. But I mentioned that what’s happening now is companies are realizing that they can’t have 80% of the transactions as high touch, that all the things that I’ve talked about previously, the customers are demanding. They don’t want to go through that negotiation process. And we’ve seen this, we’ve done some research with Hanover, an external firm, and B2B buyers hate that process. Right? And yes, there are going to be big deals that are long drawn out in negotiations. But there’s a huge percentage of deals that should be moving towards more of a self-serve model, where the challenge from a pricing standpoint is, you have to get all that information beforehand, you have to deliver that market-relevant price immediately. And most pricing organizations aren’t built to do that, but that’s where the world is going. And so, that really is, you know, we see the big change and where AI is absolutely applicable, because now you only have the technology to make those decisions, it can’t be a back and forth negotiation. And the other thing is, what’s interesting in our research, over two-thirds of buyers actually trust an algorithm more than an in-person salesperson to negotiate price, because there’s objectivity around that. And if you think about this of ride-sharing service, right, if there’s, you went into a cab and there was no meter, and you sort of negotiated price, you wouldn’t feel very comfortable. But with ride-sharing services, yes, it’s variable, but you know what those variables are based on, and you may not be happy about paying a higher price, but you know, okay, it’s going to bring more drivers on board. So there’s transparency and objectivity to that. And that’s the interesting part and where AI is incredibly applicable and really important in this environment in the future environment, is being able to make those decisions without human intervention to set the market-relevant price.
That’s very interesting. Obviously, we know that you can’t trust a salesperson. And so doesn’t that just make sense? I’m going to trust my algorithm more than I’m going to trust the salesperson. Salespeople, you know, I’m joking, right?
But I think it drives them to higher-value activities. Right? And I think this personal back and forth, it’s always, you know, am I a bad negotiator, am I paying a higher price than other people? I mean, it makes a lot of sense of, you know, inherent in the process, there’s a lack of trust.
Yeah. So really interesting. You’re older like me, do you remember when Saturn came out and said, we’re not going to negotiate for prices, and that worked for a few years, and then all of a sudden they started negotiating prices again. How, what’s the analogy there? Because it seems like they – in the B2C world, they were trying to say, let’s get away from negotiating. But we can’t get away from negotiating cars. Why is that? And why do we think it’s going to work in the B2B world?
Well, again, I think it’s not a question of, you know, zero or one, whether it’ll happen or not. I think it’s the situations where it applies, number one. And number two, it’s the confidence level that you have in the prices that you’re setting. So, a lot of this back and forth negotiation is due to a lack of confidence in knowing what the market price is. So if you have a high degree of confidence, if you know you have it, and no one else does, and you know what the competitive prices are, then you could say, the price is the price. I have confidence in that pricing. So I think it requires, you know, first of all, what are the – what is the occasion where you’re selling the product? And, what is the confidence level that you can get to, to set that market-relevant price? And I think what’s happening is the occasions are growing where people, they want self-serve, they don’t want this long-drawn-out process. I mean, Gartner just did a research – 70 plus percent of B2B buyers were frustrated with their last purchase, because it took too long, you know, wasn’t responsive enough. And so, the question is, if you have the ability to deal with that, you’re going to be at an advantage. And I’ll give you an example of this. We have a customer in the Saint Gobain glass, so they sell glass into construction designers, contractors. And if you think about it, if you’re specking out a shower, and you’re a contractor, you have to measure it. And you have to get the width and there are certain options and then you call someone, you send in the sheet, and it takes a few days, and then ‘Oh, we don’t have availability on the 10 millimeters, you have to go to eight millimeters, and the price.’ Well, they put everything in an app, that, you’re on the job site, you can spec it in, you could see the price and availability. Prior to COVID, they had 10 to 15% of their volume. Now in 45 days, that moved to 80% of their volume through that process, and it’s because they’ve had to, but they believe they’re capturing a disproportionate share of the market, because they have a frictionless way of buying. So that’s really what’s driving. It’s more of those occasions for this frictionless buying. Now, Saint Gobain Glass is negotiating a multimillion-dollar deal. Yes, you know, that’s probably not applicable. But for those occasions, there was no reason why it had to go through this long drawn-out process
Makes all the sense in the world. And I think I love the answer that it’s not a zero or a one. And as soon as you said that, it suddenly hit me in the car industry. Nowadays, I can go buy a car online, and the price is just given to me and there’s no negotiating and so it’s my choice as a buyer how I want to do that.
Right. Yeah. And I think the other thing is people want choices, right? So they want to be able to configure their choices and understand, what are the implications of that, so you know, (there are) ways of reducing price, right if you take options away or you do other things, so that’s where it’s, there’s a trade off of price for benefits that you’re getting there.
Yeah. Cool. Okay, now my company, I don’t do very many transactions a year. So I’m guessing it doesn’t make sense to have Pros AI quoting my deals for me. But, how many deals does it take? How many transactions does it take? How big of a company? How do you say this is where it starts to make sense to use some kind of AI to figure this out?
Yeah, and Mark what I would say: whenever you have complexity on customers, products, and sales people, right, that’s a great fit. So if you have all three of those, that’s an incredible fit. So for example, in distribution companies, you have, you know, tens of thousands of products, tens of thousands of customers, and usually hundreds of salespeople, perfect fit for AI because you can take all that information and find, in that complexity, opportunity. You know, if you have – I was talking to a company today, they had six customers that they sell to and very complex. Well, probably is not applicable there. So usually you need a few hundred or a few thousand transactions in order for the technology to be helpful. And, you need a complexity on those three dimensions, preferably two of those dimensions for that to really be applicable.
Yeah. And so the more complex it becomes, the more valuable having somebody reduce that complexity for us becomes
Nice. Craig, we are running out of time, but I have to ask the final question. What’s one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Yeah, the one piece of advice related to this topic that I would say Mark is, what I found in talking to a lot of companies and pricing organizations is a disconnect between the digital transformation and the pricing groups. And it’s interesting, you’ll talk, you know, there’ll be a project going on, I want to improve pricing discipline. I want to apply technology, and then what’s going on in digital transformation? Oh, they’re trying to, you know, transform the customer experience: well, are these two connected? And almost always, they’re not. And so, the one piece of advice I’d have relevant to this topic is absolutely, those need to be integrated together.
Because I think if you’re going through a digital transformation, and you’re creating this awesome frictionless experience, and then you’re putting your list price, which you know, is not market based, it’s static, you know, you might have two customers that buy on it, you’re not going to get the benefit out of those digital transformation initiatives. So, from a pricing perspective, you have a tremendous opportunity to have impact by integrating price into that digital transformation because it’s, you know, one of the most fundamental things that is part of that customer experience and buying. And so my one piece of advice is, from my observation and talking and working with a lot of companies is, make those initiatives much more integrated together in order to have that impact. And to your question earlier, is, view pricing from that customer experience perspective, not from the management perspective of trying to protect margin and all of those things. So, that’s, I think it’s a huge opportunity. Now is the time more than ever, where pricing organizations can have a huge impact on their companies. And that would be my advice, I think, immediately for companies to help make that transition.
Nice. And I want to try to restate what you said to see if I understand it, or this has the right value. But I think what you just said to us was, when I’m doing a digital transformation in, say, marketing, or the buyers experience, I’m gathering tons and tons of data in that area. This is information that could help us understand customer’s willingness to pay, why aren’t we integrating that into our pricing systems?
Well that Mark, and, being able to deliver those market relevant prices to the digital channels. So I see that not being done enough right now – again, it’s they’re handing it off to pricing, we’ll send over list prices, and then the digital channels don’t grow in volume, because the prices are unrealistic. So I think what the pricing groups need to get comfortable with, is taking that 80% high-touch negotiation, you know, review, deal desk, and pushing that out there, to their digital transformation with market relevant prices, to get out there without this deal desk and negotiation protection mechanism that most pricing organizations take. And that’s where pricing groups need to be comfortable. How do you do that? How do you deliver on that customer experience? So I think it’s not only getting the data, it’s delivering those market-based prices comfortably through the digital channels.
So it almost sounds like digital transformation and pricing means negotiate less.
Yes, I think that’s a great part of it. It’s getting – instead of 80%, 20%. And only 20% is a deal through the deal desk, negotiation back and forth. That’s the challenge, but the the companies that will do it, they’re gonna win a disproportionate share.
Nice, nice. Craig, thank you so much for your time today. If anybody wants to contact you, how can they do that?
You can contact us at Pros.com is the website, and my email is email@example.com. So feel free to reach out to me, I’m on LinkedIn as well.
Excellent. Thank you. Episode 79. All done. And would you please leave us a review, you know that they’re very, very valuable to us. They help other people find the show. So please do that. And also, don’t forget to join our community at championsofvalue.com. Everything I publish, that’s free, shows up there. It’s an easy place for you to find the things that I publish. If you just follow me on LinkedIn, you probably don’t see everything. So please join us there. If you have any questions or comments about the podcast, or about pricing in general, feel free to email me firstname.lastname@example.org. Now, go make an impact!
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.