Craig Zawada is the Co-Author of The Price Advantage, one of the seminal books in pricing, and he is the Chief Visionary Officer at Pros. He was at McKinsey for 13 years, ended up leading their North American pricing practice.
In this episode, Craig explains volatility and how it is present in businesses. He also shares how having the right or market-relevant price for your business is important and can have a huge impact on your business and in sales.
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Why you have to check out today’s podcast:
- Learn how to know if your price is a market-relevant price
- Know more about how businesses are slowly moving towards digital, self-serving pricing instead of negotiation
- Find out how customer experience can affect your pricing
“View pricing as less of a management control issue and more of a customer experience issue.”
– Craig Zawada
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Topics Covered:
01:50 – Craig explains what is volatility and where does it come from
04:26 – How companies are leaning towards prices being delivered digitally instead of negotiated
08:01 – Craig shares the challenges of moving towards a no-touch, digital self-serving pricing
10:44 – Craig defines no-touch and low-touch
12:01 – When does it make sense to put prices no-touch or low-touch?
14:22 – Craig explains the history of pricing and the changes in the buyers
17:30 – As a buyer, when do you negotiate or trust the price on the web?
20:02 – Your perception as a buyer in the market
22:06 – The trend across B2B companies moving towards the self-serve model
23:19 – Craig explains the movement in distribution and negotiation of prices
25:21 – How to find a market-relevant price?
28:11 – His pricing advice that would have a big impact on your business
29:21 – Pros’ Annual Outperform Conference that could help you
Key Takeaways:
“If you put a market-relevant price out there, that’s easy to get, immediately available, they’ll actually pay a little bit of premium for that, versus going through this long-negotiated process, because that takes time and money.” – Craig Zawada
“You have to be collecting these signals, and then be able to interpret and build those into your actual prices in a much quicker way than, in this environment in the past that has been more static and you can take time.” – Craig Zawada
“15 to 20% maximum should be a protracted negotiation process, where these are big deals multi-year, you know, it’s meaningful to the supplier and super meaningful to the buyer, on that transaction.” – Craig Zawada
“You have to have the ability to put that market-based price to make that decision quickly because if someone else is out there, and they can give that and it’s, you know fair, seems fair, the evidence shows that they’re increasingly going to move towards those channels.” – Craig Zawada
“The future is moving towards where most businesses for most of their transactions are going to have the ability to go through the self-serve.” – Craig Zawada
“A lot of companies are going through digital transformations, but they’re not focusing on the pricing issue and relying too much on this, you know, “high list” price umbrella that’s out there. So, think of your role from a customer experience standpoint, your role of how you deliver price, and that, I think is my one piece of advice going forward.” – Craig Zawada
Connect with Craig Zawada:
- Email: mailto:[email protected]
Connect with Mark Stiving:
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Craig Zawada
Within your pricing group, your organization thinks about the customer experience and how price plays into it, and how do you innovate on that?
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the fast-moving relationship between them. I’m Mark Stiving, today our guest is Craig Zawada, once again. Here are three things you want to know about Craig before we start. He was at McKinsey for 13 years, ended up leading their North American pricing practice. He’s Co-Author of The Price Advantage, one of the seminal books in pricing, and he is the Chief Visionary Officer at Pros. One day, I want to be a Chief Visionary Officer. Welcome, Craig.
Craig Zawada
Hey, Mark. Good to see you again.
Mark Stiving
Good to see you, too. You’ve got this new white paper out titled “Winning in Turbulent Times: The Strategic Imperative for Smarter Digital Selling Amid Unprecedented Volatility”. First, did you write that title or did somebody else do it?
Craig Zawada
I think I had some help on that. I can only do a few words, so.
Mark Stiving
Last time you and I talked, we talked a lot about digitalization and, what that meant, and how we do that. We’re going to go a little bit deeper into it today based on this white paper, and by the way, we’ll post a link to the white paper in the show notes. And I’m sure we can get it on the Pros website, and things like that. Let’s start with what is volatility, and where are we seeing all this volatility coming from right now?
Craig Zawada
Yeah, Mark. Volatility is something that’s not new. I think any business has dealt with volatility in the past like maybe a new competitor came in, or there was a downturn and across the board or particular area, or there were some supply disruptions, so cost volatility that was happening. And I think when we started to talk with a number of our customers and prospects and companies out there, what we found is that what was unique to this environment is many companies are facing all three of these simultaneously. So as an example, on the demand volatility, you have different openings across regions, and so demand is variable, or across product categories. In some cases, if you’re a distributor of some product categories were increasing, like sanitation, protective equipment, and other things were going down in a spiral, so demand volatility. From competitive volatility, what we find is a lot of competitors out there, they’re in different positions so they have differential needs for cash. They have different strategies, some of our customers said, “We’re strong. We have a strong balance sheet. We’re going to use this to try to gain share.” Others are like, “We need to preserve cash.” So, you have competitive volatility. And then on the cost side, similar, a lot of these have pushed through of needing to deal with, for example, the volatility in oil are commodity prices. What we find is that a lot of companies in this environment are saying, “Well, how do we maintain our relevance? What’s our strategy in the demand fluctuation? How do we respond to competitors? Are they actually taking share from us? Or is it demand? Or is it competition?” Having visibility on all these things, and coming up with a strategy, it’s sort of like juggling multiple balls at once, really increase the need for the pricing organizations and discipline to really step up and try to get that visibility, develop the strategies and then execute those strategies very quickly, within their business.
Mark Stiving
Yeah, I have this really hard question that I want to ask you but I don’t think our listeners will understand it yet. We talked a little bit about digitalization, and this concept that you write in the paper, and we talked about last time, where companies and buyers are moving more towards, “I want my price delivered digitally instead of negotiated.” So, say that way better than I just did. Would you please?
Craig Zawada
Yeah, so and this was a trend that we saw happening in 2019. And it’s really accelerated over the last six or so months, which is if you look at a lot of the buying and selling (and I’m talking primarily on VDP) many companies that were selling and companies that were buying, relied upon this long process. I want to make sure as a buyer, I’m getting a good price. So, I’m going to put all my suppliers through this process where I’m going to do RFPs, I’m going to get quotes and I’m not going to accept that, I’m going to play them off against one another. And that was a very long process but the buyers felt that they needed to do this because they didn’t trust the sellers. And the sellers, also, wanted to maintain the ability to price differentiate between different situations. It was this process that has grown from over the years, and what we find is that many companies, they have just too much of their business in that high touch negotiation that’s happening. And we’ve seen this trend happen in 2019, where buyers know that algorithms are out there, they’re assessing these things automatically. And they’re saying, “Hey, instead of going through this long process, can you just give me a market-relevant price, and I’ll determine whether that’s fair or not, and decide to buy from you.” This is a trend that’s been happening, totally accelerated due to COVID-19, we’re now, “You know, I don’t have time to go through this process.” As a supplier, you have to have the ability to deliver a market-relevant price immediately, not just putting a list price out there, it has to be a market-relevant price. And on the buyer side, they don’t want to go through this long process. And I’m not saying it’s across the board (everything) but a larger percentage of the transactions we see are going to move to that no-touch, self-serve environment. And unfortunately, a lot of pricing organizations aren’t ready for that. They’ll go through a digital process, and they’ll say, “What’s our price? Oh, let’s put the list price on because we want to maintain this price umbrella.” But buyers are saying, “Okay, if it’s unrealistic, I’m not even going to call you because I have another supplier that I can get a market rattled price that’s out there.” Now the good news is they’re willing to pay a premium for that. And we’ve researched this through surveys, as well as through our empirical evidence with our customers. If you put a market-relevant price out there, that’s easy to get, immediately available, they’ll actually pay a little bit of premium for that, versus going through this long-negotiated process, because that takes time and money. Does that make sense?
Mark Stiving
Okay. It makes a ton of sense. And that’s actually what I want to spend a bunch of time talking about today is when does it make sense? When doesn’t it make sense? But now I want to come back to the really hard question. You talked about three areas of variability, volatility, and now we’re talking about taking out the manual process of talking to customers and negotiating prices. It almost seems like that’s backward, where the more volatility there is, the more I need to be talking to my customers, and I can only do digitalization when it’s more stable. So, go ahead and correct my thinking on that.
Craig Zawada
All right, Mark, it’s a good question. But I think the challenge now is moving towards a no-touch, digital self-serve pricing doesn’t mean you do that without a read on the market. The challenge, though, is you have to have that read on the market before you touch the customer or you have to determine, “Okay, if I’m selling server hardware in France, what’s the demand-supply situation? What’s the competitive price? I have a good idea of what that winning price is.” What that requires is you have to have the tentacles out there with the data to be able to make those decisions without necessarily talking to the customer. Now, of course, when you talk getting feedback, and that is useful, but often it’s too late. What I’m saying is, it doesn’t necessarily mean that you don’t have a read on what’s happening but increasingly, you have to be able to interpret those signals. First of all, you have to be collecting these signals, and then be able to interpret and build those into your actual prices in a much quicker way than in this environment in the past that has been more static and you can take time. The customers are used to that, it’s much more static environment in the past, so you increasingly have to have the ability to do that before you ever talk to the customer.
Mark Stiving
So, then the volatility has less to do with the digitalization or the self-serve pricing, and it has more to do with having the data and awareness of what’s going on in these three different areas and making adjustments as quickly as possible on our side, on the seller side.
Craig Zawada
Yeah. I think that’s right. And you know, these things happen together, but they’re not necessarily related. All the volatility on-demand, cost, and competition, a lot of that was affected by COVID. But the digital aspect of it that was a trend that was happening and now that’s just been accelerated. So really, I call it “the volatility trifecta” but four things are happening. You have the volatility trifecta plus this movement in digital and self-service.
Mark Stiving
Okay, awesome. Let’s talk about this movement, the digital and self-service then. And I want to look at it from both the buyer’s perspective and the seller’s perspective. Let’s start with the seller side for a second. And to make my life easy, I’m going to assume digitalization means I’m selling on Amazon to consumers. Now I get it, you guys do B2B but that’s just a nice analogy that helps me think through what we’re talking about. Is that fair?
Craig Zawada
Yeah, that’s fair. Although I would define it in two ways. There’s one we call it ‘no-touch’ and then ‘low-touch. ‘No-touch’ means, “I don’t know who you are. I’m putting a price that’s out there. I don’t know who you are.” From a B2B perspective, ‘low touch’ means you come to the website; say I’m an Office products distributor, you’ve bought from me from the past. I have your agreement loaded in, I know something about you, and now I want to buy something off-agreement. So that’s more common in the B2B environment, which is a little bit different than Amazon, wherein a lot of cases, it’s a purely anonymous price. So, I wanted to because there is an important distinction here.
Mark Stiving
I think that’s totally fair, although it wouldn’t surprise me if Amazon knows who I am. And every time I go shop there, they charge me more than they charge anybody else. But besides that, let’s talk about the seller side for a second. When does it make sense for a seller to want to put prices ‘no-touch’ or ‘low-touch’ prices out versus having a salesperson negotiate directly? Now, I certainly have some thoughts, but let’s just open up to you, and what do you think?
Craig Zawada
Yeah, I want to make a generalization here, Mark, which is: in most businesses, I would say 15 to 20% maximum should be a protracted negotiation process, where these are big deals multi-year. It’s meaningful to the supplier and super meaningful to the buyer, on that transaction. Most B2B companies, there’s always going to be this portion of the business, the big deals that happen. And then you have the category of repeat purchases. They’re already a customer, they’re purchasing, I’m updating prices, or they’re buying something that I haven’t negotiated, they want to buy something else, a lot of that can be automated to self-serve. New customers coming in registering. An example of waste management services: you have a new customer, why do I have to call someone, I can configure the size of the bin, and how often, give me a market-based price. A lot of the things that are not the huge transactions, they’re not everyday purchases, but they’re meaningful enough that someone’s going to do some searching. You have to have the ability to put that market-based price to make that decision quickly because if someone else is out there, and they can give that and it seems fair, the evidence shows that they’re increasingly going to move towards those channels. I think the future is moving towards where most businesses for most of their transactions are going to have the ability to go through the self-serve. Now, that doesn’t mean that you don’t want the ability to talk to a salesperson, and that’s often the challenge. When they call, does the salesperson know what they saw on the website? So that omnichannel experience, we don’t think everything’s going to move purely to ‘no-touch’ cell service, but it’s going to be more core to how buyers interact with the sellers going forward.
Mark Stiving
So on the positive note (the definitely positive note) the more I can push off to the buyer, meaning they’re going to do their own research, they’re going to figure out what it is that’s going to go on. They don’t need to talk to my salespeople, which are really expensive people to me, the more I can push that off to the buyer, the better off we’re going to be as a seller.
Craig Zawada
Yeah, and, this is driven, Mark, by the changes in the buyers. For example, McKinsey and Company did a survey on the purchasing process of B2B buyers, and there was a 79% increase in the importance of self-serve in the research and evaluation phase for B2B buyers. So, a huge increase in the importance of that self-serve. I think this gets to the fundamental change that we’re seeing in the pricing profession, if you think of you’ve been in pricing for a while, I’ve been doing it for 27 years. A lot of the work we did on pricing historically has been to gain control over a messy process. There were no courses in pricing, no frameworks, tools; for 20 plus years, companies have tried to control the process. And if you think about it, that’s a management control problem that you’re trying to solve but the fundamental change here is pricing is now core to the customer experience. And customer experience is increasingly a basis of competition. So as a pricer, you need to be able to solve that and figure out, “Okay, what do the customers expect as part of their buying experience?” and recognize that in the past, they were willing to put up with this long drawn out process, they’re no longer willing to put up for that, particularly for these repeat purchases, and items that are not critically important as part of their cost of materials going forward is to research and get that market level and market-relevant prices immediately without going through this long process.
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Mark Stiving
Yeah, I think that makes sense. But let’s jump to the buyer side for a second and put ourselves in their shoes. As a buyer, when do I want to negotiate, and when do I want to trust that whatever price you gave me on your web page is a good price?
Craig Zawada
Yeah, and I think it’s a great question, Mark, a lot of that comes from the confidence that the seller has in targeting that market-relevant price. And the buyers, all the information that they’re bringing in how much agreement or how much they believe that that’s true. I get the question from some companies, our customers put us through this long negotiation process, and they have purchasing groups, and they do online bidding and all this. And the question I would ask them and the statement I’d make is, “Usually they do that because they don’t trust you.” But if you’re more transparent, (and we’ve seen this from our research that you can explain) “Our prices are set by an algorithm. We assess demand or supply competitive price, and that sets it” and increasingly buyers are okay with that. There’s actually more objectivity in that than saying, “Okay, well, I think I can give you a discount.” If you do that, then they’re always thinking, “Okay, could I’ve gotten a better discount?” or “What if I push them harder?” There’s this lack of trust in a negotiation that happens that’s fundamental to many of the buyer and seller interaction. I think from a bot to answer your question, from a buyer standpoint, I think it’s doing the research and saying, “Okay, is this a market-relevant price?” And maybe even probing this pie, “What is this price based on?” And I think one of the changes that are going to happen is the sellers will have to be more transparent about how this price comes up. And what is the basis of the algorithm? Historically, on the B2B optimization side, the algorithms were more opaque. Now, there’s a need for those to be more transparent, and actually sharing what’s the basis of how these prices are being developed.
Mark Stiving
Okay, so I’m still not clear on this, though, I like everything you’re saying but it’s not overly clear. If I, as a buyer, am going to buy something that’s $100, I’m going to buy it at whatever the price is on the website, and I’m not going to care about it because I just want to get it off my plate and it’s not worth any of my time. I’m going to go buy something that we’re going to spend a million dollars on this year, and you’ve given me a web price. And it says if I buy the quantity I want it’s going to be a million dollars. Why wouldn’t I say, “Oh, that’s the starting point of the negotiation? Now I’m going to give the vendor a call.”
Craig Zawada
Yeah. And you may do that. And I guess the question would be that million dollars. Are you a multibillion-dollar company and you’ve researched the price and the other price you see is close to that? I think it comes down to your perception, as a buyer, of how much disparity there is in the market. And I think that will happen, they will call the supplier and the supplier has to be in a position to say, “Okay, under what circumstances are we going to have the ability to go further than that?” And I think that’s the trade-off of when you do that, are you going to open it up, where now this is the starting point that goes? Or do you have enough confidence in that price that you can justify? “It’s a million dollars because we know what the competitive price is, we know the supply is what it is and the cost of delivering that service, and that’s the price.” I think the art comes into it, of where do you set those boundaries? At what level, are you willing to negotiate? And when you do negotiate, what are you going to negotiate from? Are you going to say, “Yes, I can give you a lower price if you do X, Y, and Z” or other avenues? I think that’s where the art is going to come into it. I put out the statement of 15 to 20% should be in that ‘high touch’ negotiation. I can tell you, the companies that we’re working with and are talking to, they have too much, they have 80 to 90% in this negotiation process, and they want to aggressively move that. So, it’s going to shift, but it’s going to take time. And I think that’s going to be part of the strategic decisions and the art that’s going to come into how you do that.
Mark Stiving
Yeah, I could see how there are probably some types of companies that could move this way pretty well. And then there are other companies, McKinsey is a great example. I don’t know how they would ever do digitalize pricing.
Craig Zawada
Yeah, probably not.
Mark Stiving
Because every project is custom, and every project is really expensive.
Craig Zawada
Yeah. And we’re talking generalizations but of course, there are some cases where the big deals have 10 major customers and their five-year deals, and they’re very complicated and custom. I’m making a generalization but we know some companies that are moving more towards 90 to 100% of those self-serve, non-negotiated prices, and some are trying to just inch that up over time. But in general, we’re seeing this trend across most B2B companies of trying to move towards the self-serve model more effectively.
Mark Stiving
I used to work in the semiconductor industry, and obviously, some people could call a distributor and buy it, whatever the price is that the distributor selling it at, and so there was no negotiation, and that was awesome. But it was pretty common for them to ask the distributor for discounts, distributors to call our deal desks to ask for discounts. They had guidance on when they could or couldn’t give discounts. But a ton of the business was transacted because people were negotiating prices even if it wasn’t a long drawn-out negotiation. It was stuff that could have and should have been automated.
Craig Zawada
Yeah. And I agree in a lot of that, and we see a lot of movement in distribution to try to change that in those low invoice level, high-velocity environments, where they’re trying to automate that and saying, “Why do we have this complicated process? Why can’t we just have more confidence?” And part of it comes into if you look at most B2B companies, and you do a scatterplot of price and volume of transactions, a lot of those companies still have those customers that walk in, “Okay, that’s the list price. Okay, I’m in a hurry, I need to get it.” There’s this perceived risk that I don’t want to lose that. I think this strategic decision comes into, “Okay, how much does that actually represent?” And what are you going to gain by having a more market-relevant price out there, and maybe lose that umbrella price that you’ve had in the past? I think that’s the experience that we have of the customers that have made that leap to say, “Okay, we’re going to get much more benefit by being very targeted and relevant, maybe more dynamic. We’re going to move price more over time, but we’re not going to rely on that high price and roll out there” have seen tremendous benefit in doing that just due to the velocity, this more simplified process that it provides.
Mark Stiving
Okay, I’m going to completely drink the Kool-Aid with you, Craig. And I think that really high-end deals are going to be negotiated, low-end deals, they’re going to be automated, and in the middle, that’s where it’s kind of questionable. We’re trying to figure it all out, and that price level should be moving up and up and up over time where we get more and more of those deals, (let’s say automated as opposed to negotiated) and so I’ll buy that Kool-Aid completely. You’ve used the words market-relevant price a lot. How do I find a market-relevant price?
Craig Zawada
Yeah. I think that relates to the question you asked before about the volatility that’s happening. We see all of the traditional things you think about as influencing price of your- the competitive price that’s out there, the supply-demand situation. Do you have supply and competitors don’t? Or is it trending towards you’re going to run out of supply? What’s your cost? Obviously. Is that moving up and down? And then what’s the behavior of customers in the past? When all of those things taken together, what have they paid in the past? How do you interpret that information? All of those things are still relevant. And the reason I use that term a lot is because (like I said) a lot of B2B companies rely on this. A huge band of prices that are out there, and the list price, that’s the starting point. And then we’re trying to capture every piece of the demand curve out there. And I think market-relevant means that you need to figure out how you want to capture that in a more systematic way using data, a priori, to figure out that price, as opposed to a lot of that scattered that’s happened in the past. When you look at it empirically, a lot of it was a result of things you couldn’t explain it was some salespeople were better negotiators than others: some made mistakes. You want to try to get rid of all that stuff and make it more clear on what’s determining the price and having confidence that that’s a market-relevant price, as opposed to relying on this widely varying differences in negotiation ability that’s happening. I would say all the traditional things that most pricers know that influence those prices, all of those things are the same. The challenge often is how do you systematize that? How do you get that information? How do you build the models to say how you’re going to react to it? How do you determine different levels of aggressiveness? You don’t have perfect data, so sometimes you’re exploring how much of a premium, how much of a margin over costs should I be getting if you’re a distributor. And you may be testing those different levels over time. I would say all the traditional things that you think about apply; it’s a question of how you make that more systematic and in determining those prices?
Mark Stiving
I don’t know about you, but I would find that absolutely fun to try to figure that out. What data do we have? How can we predict what people are willing to pay?
Craig Zawada
That’s what we do.
Mark Stiving
That’s where the game is played. So, Craig, I think we’re almost out of time today but I’ll ask you to give us a different answer than last time, what’s one piece of pricing advice you’d give our listeners that you think would have a big impact on their business?
Craig Zawada
The big piece of price advice that I would give is, I think it relates to my comment around viewing pricing as less of a management control issue and more of a customer experience issue. The advice that I would give is within your pricing group, your organization, think about the customer experience and how price plays into it, and how do you innovate on that? How do you deliver prices more quickly, more relevant to the market? How do you move towards this no-touch self-service more aggressively? Because our belief and we see it is those companies that do that, that’s going to be a basis of competition. And a lot of companies are going through digital transformations, but they’re not focusing on the pricing issue and relying too much on this high list price umbrella that’s out there. Think of your role from a customer experience standpoint, your role of how you deliver price, and that, I think is my one piece of advice going forward.
Mark Stiving
Nice, nice. And you guys just put on a conference, actually, you’re going to in the future, but we’re going to play this after it’s been on. So, could you mention it for the listeners, please?
Craig Zawada
Sure. Pros, we’re putting on our Annual Outperform Conference. We have 60 plus speakers, and the theme of the conference is around “self-serve, digital selling, the role of price in there” We have over 60 speakers talking about various topics. We will have the sessions available to view after the fact. So, I encourage you to look at the agenda, we’ll put a link to that, and any of the sessions that are of interest to you. Hopefully, it will help in the knowledge building in that area. So, appreciate the time!
Mark Stiving
Excellent. And, Craig, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Craig Zawada
My email address is [email protected]. I think you’ll provide a link in there and be happy to answer any questions and be in contact with any of the listeners.
Mark Stiving
Appreciate it. Thank you!
Craig Zawada
Thank you!
Mark Stiving
Oh, I appreciate it. It’s fun. Episode 95 all done! To our listeners, would you please leave us a review? These are very, very valuable to us. And I promise I’m going to read them online if you do. ChrisMc said, “Provocative and insightful.”
This is not an area I fully get – this cast helped me understand more about dynamic pricing – which is surely the future.
And Craig would probably agree with that too. Please join the community of championsofvalue.com. That’s where we publish all of the content I put out for free, the memes, the blogs, the videos, the podcasts, you’ll find that at community.championsofvalue.com. If you have any questions or comments about the podcast or pricing in general, feel free to email me at [email protected]. Now, go make an impact!
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