Digital Transformation is the Way to Pricing Excellence
In this two-parter episode, we focus on digital transformation and the impacts on businesses. We, of course, focus in on the quote to order process and pricing, which is arguably the area where digital transformation can have the highest return on investment. This time, I’m joined by two Partners from Bain Consulting who are digital transformation leaders and pricing experts: Chuck Davenport and (Paco) Juan Francisco Jimenez.
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Gabe Smith 0:00
Hello everyone and welcome to Pricing Matters. This is the fourth of a series of discussions we plan for 2020 around various topics we think are under discussed in pricing and how it’s changing with technology. This time, we’re going to focus on digital transformation and the impacts on business and of course, focusing on the quote to order process and pricing, which is arguably the area where digital transformation could have the highest return on investment. I’m joined today by two partners from Bain Consulting, who are transformation leaders and pricing experts Chuck Davenport and Paco Jimenez.
Chuck Davenport 0:29
Thanks for having us, Gabe.
Unlocking Potential in the Minds and Excel Sheets of Organizations
Gabe Smith 0:31
Well, thanks for joining guys. I wrote an article on digital transformation last year that compared the process of going from potential energy to kinetic energy and physics. Is that new territory combining pricing nerd with physics nerd? I know a few actually pricing professionals that do have physics degrees, so maybe not. But, anyway, the point of the article, I think that is germane here is that businesses that haven’t transformed digitally, have a huge potential locked up in the minds and Excel sheets in their organization that they can really unleash to gain or regain a competitive advantage. Do you agree with that?
Chuck Davenport 1:02
Yeah, Gabe, I think that’s spot on. First of all, you know, I’m not a physicist, but I took many, many physics classes on the way to my Double-E degree. And so, and as everyone knows, you can’t spell geek without double Es. But I absolutely agree with the analogy. You know, I would say my throwaway line is always that still the most popular pricing software on the planet is Excel. And the problem with that is it’s not connected. There’s no way to really share wisdom. And so many of my clients when we start a transformation like this have just troves of wisdom locked up in Excel spreadsheets and on hard drives and things like that. And it’s this massive pile of insights that they have, but there’s no way to deploy those at scale, pulling that out, getting it into a form where they can actually analyze it collectively. And, and then getting them to a point where they can process it and use it as a part of a process. It unlocks so much freedom for them and the value that accrues because of that is just, it’s unbelievable.
Gabe Smith 2:21
It’s pretty crazy. I was reading some statistics on digital transformation, and there’s somewhere in the neighborhood of, I think, $1.3 trillion that got spent on digital transformation initiatives, last year. We’re actually doing a survey right now of pricing professionals. And we asked what do you use for pricing? Do you use cloud-based software, do you use ERP, do you to use Excel? 54% said their primary pricing tool’s Excel. So, you know, there’s all this money being spent. This is an area where I think it’s not getting enough attention because you and I and all of us have seen that the power that can come from this both in terms of hard ROI in pricing better, but also some of the other stuff. So, I’m excited to talk more about it and hopefully raise some awareness here.
Chuck Davenport 3:00
Totally agree. I mean, I’ve been doing this for 23 plus years at this point, and we’ve been talking about the Cambrian explosion of pricing is coming for all of those 23 years. And the beauty of it is right now we’re on the cusp of that, mainly because we’re finally to the point where we’ve been through a couple of waves of ERP, we’ve been through the connectedness in the cloud, and it’s opened everything up. So that data are actually accessible, you know, better data cleanliness, better completeness, we don’t have the issue of people are capturing and forming it into weekly numbers and aggregated numbers, which in pricing is what we hate, right? We finally have the processing power, the storage power and the access to be able to get into data at a granular-enough level that we can actually operationalize it. I see that in the market right now. It’s just it’s literally exploding the number of companies that are finally waking up and investing in the commercial side of their business in general, and then specifically in pricing.
Gabe Smith 4:09
Yeah, for sure. I think I read a little LinkedIn post by G2 the other day that said the search for pricing software is up like 75% in the last couple of months. So COVID is causing a lot of different disruption. But I think this digital transformation and the understanding that you have to be nimble and agile with your pricing is really one of the areas that seems to be highlighting for people.
Chuck Davenport 4:33
Real-Life Impact of Digital Transformation on Pricing
Gabe Smith 4:34
You guys. You’ve worked with tons of different companies and driven all these types of digital transformation initiatives. I’d love to hear about some case studies, some examples, where you’ve seen you know, the good impact and kind of share some of the insight and the impact that that those have had.
Chuck Davenport 4:49
Yeah, one comes to mind immediately. I was working with a major publisher. And when we talk about pricing, so often we talk about pricing of hard goods and we do a lot of work in process industries and those types of things. And then of course, people think about airlines and hotels and all the good yield management industries. One that I think gets overlooked often is advertising. And advertising is a yield management discipline, just like airlines or hotels. It’s just with eyeballs. And every eyeball that passes an advertising opportunity that’s not monetized, is gone forever. So, it’s a perishable asset as well. So, I was working with a major publishing company. Obviously, they fund their profits through advertising. They actually had a reasonably disciplined process through which they reviewed especially large deals, their account managers were compensated actually reasonably well in terms of motivating them to get pricing and to get profitability in there.
The challenge was over time, the evolution of a given account wasn’t always given the same amount of attention. And they didn’t always have the great follow up on the backside and an example, they had a large automotive manufacturer that at one point in time used to put 50 pages in their various magazines, 50 pages of advertising… a premium, kind of inside the front cover back cover kind of advertising, which is the highest revenue dollar pages that they had. Over a period of about six years, that 50 pages went down to one, and they were still paying the same price. And so, this is just one example.
And so essentially, as we help them transform digitally, all of these things started popping up as places where they would never approve that kind of pricing, the kind of pricing that these guys got Ð one page of one advertisement. And so, they actually went and renegotiated and surprisingly, the customer knew that was coming at some point and they were able to successfully renegotiate, they actually got some increased volume out of it. And they got significant increases in the pricing. Take that and, you know, hundreds of other stories like it, they were able to put 2% to their bottom line in the first quarter of implementation after that. And that was through some really simple digital analysis and some tools that helped them drive workflow but also helped their front line drive decision making from a pricing standpoint, and it was, you know, it was a very quick implementation, it worked integrated into their existing back end and made a very quick impact for them.
Measuring Success in Digital Transformation
Gabe Smith 7:42
That’s sort of hard pure profit return out of prices is why a lot of us do what we do, right? They’re trying to educate more people on that and that is part of what we’re trying to do here as well. What about some of the softer metrics or qualitative impacts that you’ve seen? Like win rates or cycle time, things like that or other benefits?
Chuck Davenport 8:05
Well, oftentimes, I mean, win rate is always hard to measure because I don’t think I’ve seen yet a client that has what I would call pristine win/loss data. So, we generally, we start measuring that. And that’s a part of the data model that we prescribe as they’re digitally transforming. But some of the other things that really work well, and in my experience are things like what is your cycle time on quotes?
And we saw with one client, I can think of, that we saw a 200% increase in the speed of their quoting process. Another good one is, you know, and this really goes to how well do you define your pricing policies and allow execution as close to the point of impact with the customer as possible? We’ve seen a typical exception process. 80% of deals might flow through a typical process are leading companies, we keep a continual survey going of clients and non-clients around pricing issues. The best in class examples really are about 20% or less go through that exception process. And I would say best in class is less than 10%.
So, seeing those kinds of gains, and, by the way, I’ve seen that flip almost on a dime with the addition of digital tools. And as that digital transformation, it’s not all about the tools. It’s also about having the logic because you’re not going to get the adoption of the digital tools if the salespeople don’t believe what the tool is telling them. Driving that logic in that process and making sure that there’s confidence in the data and in what’s flowing through to the recommendations to the front line is really the key there. But the tool is truly the enabler that reduces that cycle time and makes the presentation of the right information at the right time, for the right customer, for the right deal, it makes that possible.
Gabe Smith 10:12
Yeah. And obviously that’s powerful stuff. I’ve seen a couple of studies where they’ve, they’ve showed the correlation between response times and win rates. There was a gentleman named Dick Braun that worked for Parker Hannifin, that speaks of PPS. I always laugh at that name, because it sounds like it should be a linebacker from the 50s or something. But he’s a good guy. And he actually had done one of the studies that showed the correlation between especially the initial response time with a price to their win rates, right.
But obviously, the more that you can reduce the overall cycle times and automate the process, the better off you are. And then one of the things that we always try to do is we spent a lot of time and effort on embedding our tool into CRM systems that the salespeople are already using. And we always try to encourage our pricing teams as they engage with a sales organization to really give them a sense of ownership and get that buy in upfront because they’re going to be changing the way even if it’s in the CRM system, it’s going to change the way that they’re doing what they do, right. And there’s things about the current process that they don’t like that can be remarkably improved in addition to getting better pricing and better guidance and all the goodness that comes with that. Right. Can you talk a little bit about your experience there? I know that you’ve both done a lot of work with regards to change management, Paco, maybe do you want to share some insight there from your experience as well?
Applying a Change Management Perspective
(Paco) Juan Francisco Jimenez 11:34
Thank you for the question. Gabe, I think this is one of the most critical areas because at the end of the day, this is still a human activity, right and mainly driven by interactions, some of them have been happening for a long period of time. So, we have found that the change management part of it is very critical. There are like three things that we think are very important.
One is you have to build these together with the salesforce right? There is not a single system that out of the box can actually show and be totally adapted to what the salesforce is thinking. Right. And I think that’s one of the reasons why this has not been widely adopted because in previous generations, the systems were not allowed to have that level of adaptability and flexibility. So, we have seen that you’ve seen agile methodology. Together with the salesforce and the IT areas of the organization. We can actually create a UI interface that reproduces and mimics what the organization knows and how the salesforce actually behaves, and how they want to use the digital version, if you will, of the current process. So that is one.
The second one is, it is very critical that this is not an IT project, I think part of the previous era mistakes were because we were talking about IT as an objective rather than a means, right. And I think that we have successfully positioned this kind of projects in terms of “this is not an IT project, this is a new way to capture and use the knowledge of the current sales force actually deliver.” Right? IT is the last part of the puzzle. The most important thing is to position this as something that will enable the sales force to reduce time and offer some processes to focus on the actual sale, to focus on closing the deal. And that is going to be a process of we’ll capture the logic of the best salespeople so they can sell more right.
And that leads me to kind of the third thing that we have learned which is, at the end of the day, this is also about consent, right? And we have proved several occasions that by following, you know, this approach, I do think digital at the end of the day, the sales force has more time to sell and actually they sell more, right? Of course, you can always discover, you know, different levels of performance. But we have seen in several occasions that the best salesforce actually are the ones that do the system in the best way, are actually getting a big bang for the ball?
Chuck Davenport 14:34
No, I think that covers it really well. But I think the really important salient point there is that, you know, what you started off with Paco, which is that that pricing at the end of the day is a human activity and instant interaction between humans, especially thinking about B2b pricing. Oh, it’s still often a very personal business. And if we can find a way to add science to that personal business and present that science in a way that the salesperson can consume it quickly. It drives additional discipline, it absolutely drives win rate, it drives confidence in the salesperson in the marketplace. And it drives the credibility in the marketplace for the company itself. So that over time, we actually observe that they get fewer pricing challenges back from their customers, when they’re consistent in the marketplace about their pricing. And so that’s why that change management piece is so important because the salesperson absolutely has to have confidence in the data, but they also have to have confidence in front of the customer that they are delivering the value that they’re charging for and that value exchange makes sense.
Gabe Smith 15:52
Yeah, for sure. I kind of feel like a lot of times change management is a bit of an afterthought in these types of projects. Not the ones where you’re involved but from like when they’re implementing our system, and they haven’t hired a Bain to get in front of it and actually think this through, and it just becomes almost like, now we’re just training the users after we’ve already implemented a system on how to use it. And that’s totally the wrong way to go about it.
Right? I mean, as you mentioned, right, it’s all about, you know, changing their behavior. I always think about the software side of things is like creating better arms and munitions for the salespeople to go out and use in their job. It has to be the right tool for the job, right? And then they have to learn how to use it. And the combination of those things is what makes it effective. So, if you go design a tool for a job that is a different job than the one they’re actually doing to your point Paco, that’s where you really need to understand how we’re going to make it better. With regards to training. I’ve also seen especially with Bain or other management consulting firms, when they come in, a lot of times they’re reexamining sales compensation models, either at the management level or all the way down to the rep level as well. Have you guys have some experience doing that? And can you talk a little bit about that where you’ve seen success?
Training and Re-examining Sales Compensation Levels
Chuck Davenport 16:37
Paco, do you want to talk a little bit more about that? Because you mentioned that here, your last thought?
(Paco) Juan Francisco Jimenez 17:05
Sure, happy to. So, I mean, this is another critical point, as you were talking, Gabe, I was reflecting on a couple of things. This is such an opportunity for companies to actually put the most important person in the center of the discussion, which is the actual salesman or salesperson, right. And what we have found is that this process also allows you to discover several opportunities that otherwise you wouldn’t even notice, for example, compensation, right?
Sometimes, you just come up very, either very complex compensation or very simple way of compensation and without clarity of what really can be driven by the sales force versus what is actually coming from corporate versus where it’s actually coming from the market right? And when you have the right data and you have the level of granularity that a tool like Pricefx helps you to get, what you end up doing is developing more violence incentives as teams, right? Where you can actually differentiate what is the decision the corporate has made? And what is the actual level of flexibility that the salesperson has and therefore, you can compensate them. So that is one of the key things. Because that the other thing that you’ll discover is just start getting data to have clarity on big decisions like regional, discounts or promotional discounts, that sometimes will leave very few levels of flexibility to the sales force or the otherwise. So, data allows you to systematically become more effective, a more granular in how to deploy different resources, whether they are discounts or base price or promotion, or specific incentive by volume.
Chuck Davenport 19:11
Yeah, and getting back to the digital point. I think having that end to end pricing solution in addition to compensation like you were talking about and the granularity of being able to measure different things, we can also see not only outcome measures, but because we have a tracking and an ability to see what happens in the transaction from all the way through the funnel until close or until loss hopefully not but until loss.
We can actually see did they take guidance?
Did they want to drive things like approvals and did they ask for certain things and did we have a reason for the approval that was given?
Oftentimes, that chart of authority, all it does is kick the can upstairs and make that decision upstairs so that somebody further away from the customer can make the decision instead of really driving a reason, instead of bringing a bigger perspective in, which is what it’s supposed to do, it ends up taking it further from the customer. And so, you know, I had one client that had that chart of authority go all the way up to the global SVP of sales. And, we just did a quick check to see how many deals that global SVP of sales had denied in the last year. And guess what the number was?
Gabe Smith 20:35
Chuck Davenport 20:36
Zero. Exactly. So, it’s like, why have that step? But first of all, why bother him with a $25,000 deal? He doesn’t care and he has no reason to say no nor motivation to say no. So really, as you get an end to end solution, and like that, and you’re thinking about digital transformation, thinking about how do I capture data, not only what I traditionally capture in terms of what was the pricing on a one deal, I need to capture what was my proposed pricing on the lost deal? That’s the simplest. But if I follow that trail all the way back, I can start to have activity measures that helped me understand productivity, that helped me understand compliance, that helped me understand decision making and allows me to provide significant coaching and really, fundamentally improve my salesforce performance by looking at everything that they’re doing in the transaction process.
Gabe Smith 21:35
Yeah, absolutely. So, things like deal touches. I mean, we talked about cycle time and win rates and those are obviously key but you know, some smaller ones like deal touches or price in versus price out right, what was requested versus what’s been approved. And you can kind of measure the effectiveness of the, of the process and the tools that way as well. That’s a great point.
I mean, it’s not just about that in digital transformation is also about what you can measure and improve going forward. Because when you get all these actions that you’re seeing and you can build reports around them and see the behavior and kind of point the arrow in the right direction with regards to how many people should be touching the deal. And how many people are actually doing anything about it, or is it just checking a box? Right. We talked a lot about sales. And obviously, that’s really important here.
But what about other roles, we’ve seen pushback, in some cases from IT, pricing, finance, they’re afraid of this digital transformation because they think that it might automate their job out of existence, for example. And there’s some truth to that, right, there are certain jobs that are done and that are pricing analysts that are just moving data from one thing to another and maintaining this massive spreadsheet, but a lot of their job is data wrangling. And I understand that that could be a reality, but in a lot of cases, it’s more about giving them the tools to do their job more effectively and make better decisions.
The Impact of Digital Transformation on Other Departments and Jobs
Chuck Davenport 22:46
And that’s always a hard discussion. And it’s something that we have to work through. I mean, it’s a super important point and one that we always have to consider because the throwaway line is that pricing touches everything and everything touches pricing, right? I mean, even HR, I mean, things you don’t think about. This is probably best illustrated with an example. So thinking about when we help a client install dynamic pricing, you know, typically that means it’s a very data intensive, even if it’s not real time, like an airline or something like that, it’s going to be data intensive is going to require internal data is probably going to require some external data.
And oftentimes, the pricing team, I’ll use them as an example, views that as a threat because they say, hey, we’re going to install this black box that’s going to take my take my job away. And what we have to help them understand is, it’s not going to take your job away, it’s going to help you move from the role of analyst to the role of strategist because now you can take all of that crunching you used to do, take an initial input that gets you 80%. Because I’m not a fan of blackbox pricing, let’s say it gets you to 80%. And then that’s when the real strategic decision making starts to happen. We start to apply our industry wisdom and our experience in the marketplace and our understanding of competitors and things like that. And it takes that what we used to spend five to 10% on and expands that to 70/80% of my job, which allows me to refine and make better pricing decisions and drive significant value for the organization. And once they start to understand that this isn’t about cost reduction, it’s not… because we’re on the commercial side of the business.
One reason I like working on the commercial side is it’s very rare that we’re looking to reduce costs. We’re looking to increase efficiency, increase effectiveness, increase win rates, increase the value we get out of a given transaction. And so, once they start to realize that, they start to get on board, and start to understand that actually this enhances my stature and my position in the organization instead of reducing my role.
(Paco) Juan Francisco Jimenez 25:17
And I would like to add something there. This is a very important point. I think that when you digitize an end to end process, pricing process, everybody gets something that is better for them. Right? So let me put an example. All the way from the CEO can actually see in real time the prices and discounts and how the overall sales is responding with specific strategies, something that he couldn’t do, right before. The CFO gave a very clear division on what he’s counting, the flow. But it’s actually the discount that commercial is pushing and it has that clarity about what is the overall commercial strategy versus what is actually being executed on the floor. And that’s, that’s good for him because it gives them transparency, right? Even the IT people that it bothered every single time with reports.
So, to understand, you know, the pricing and the ERP has to do all these and they cannot build, finally has a system that can actually help them to deliver on all those data and analysis that they can. And the pricing people sometimes are struggling every day trying to give the right recommendation for a discount, and they have a 100 of those and they cannot think about and at some point they basically lose track of what was the strategy versus what is the discount that I am doing today. And are supposed to be thinking, as Chuck was saying, strategically about that 20% of a critical decision that matters and basically to get rid of all that by digitizing, right? So, try to do it the right way, and everybody becomes really happy and a fan of the process.
COVID-19 and the Pressure to Transform
Gabe Smith 27:14
And I think you guys are dealing with a lot of companies right now that are getting this additional pressure of this COVID-19 situation. So, can you talk about some of what you seen there?
Chuck Davenport 27:25
I think it’s a great point. It’s obviously top of mind for everybody. And there’s, I think, two pieces to this. Number one is pretty straightforward. Obviously, most of us haven’t been going into our places of business. And a lot of what we’ve had to do has been done virtually. And my clients that I’m still active with through this whole crisis, the ones that have full digital capabilities, haven’t missed a beat at all. The ones that have relied more on the manual process and the one-off analysis and the deeper level of exception processing and those types of things have struggled because their deal velocity has gone down by necessity. It’s harder to get those things done. And so, as I think about that, you know, a lot of companies, they are where they are right now, and a lot of times it’s hard to think about investment during a downturn.
But one of the things that I like to think about, I actually wrote an article about this a couple of years ago for Forbes, it’s really thinking about when do you fix the roof of your pricing house? And the crux of the article was about if you’ve ever heard Arkansas Traveler, the little ditty Arkansas Traveler, about a guy who comes upon a guy fiddling and his roof is got a big hole in it and it’s raining. He was like, well, why don’t you fix the roof? Well, the reason is because I can’t fix it. While it’s raining. Well want to fix it when it’s sun shining? Well, when it’s sunshine, I don’t need to fix my roof. And so, you end up with this constant dilemma, right? I think anytime is the right time to start this digital transformation in pricing. But if you do it right now, it’s a special time because we were all hoping for a pretty shallow trough on this downturn. But however deep it is, if you get that transformation even going because time to value is really quick in this area, when the economy is starting to come out of the trough, your acceleration is that much better and you’re going to be that much stronger in that, and you’re going to be able to take advantage of that upturn better than your competitors.
(Paco) Juan Francisco Jimenez 29:42
Yeah, let me illustrate that with an example. A recent example, there is a client of ours. We have been working for them for a couple of years in their digital transformation, strategy and execution. And they just finalized the deployment of Pricefx to digitize their process just before COVID killed it, right? And, this was unexpected. I mean, we knew all the benefits that we were going to bring because of implementation. But, you know, during these days, I’ve been talking to them. And they abruptly said, “Well, now we’re seeing other benefits, right? We didn’t even realize how important they were. First of all, we are able to work remotely, we don’t need the sales force in the headquarters. We don’t need interactions, we just can use the system, and we feel as confident not even more confident to be able to execute a work plan.” And two, they said, “Now we’re able to see in real time, what is the volatility and the variability of the demand and, therefore, the pricing pressures we have in the different categories, something that we never had real-time information, all the way from, even defining where we’re losing demand because COVID is affecting some of our retailers, to where the demand is moving.”
Some of their supermarkets now are selling more home appliances just because the other channels are closed, right. “And now, we feel very comfortable using this data to increase or reduce prices in a more certain way in the future. And we will know that this is going to be important in the next year because this volatility will remain. And now we have a way to actually see it in real time and act upon it.” Right? So, I think if you see the differences versus a client that still works manually, they should be having a lot of pain during this crisis because they are basically flying blind or as they’re playing with a delay of weeks, if not months, on the reaction of the market.
Gabe Smith 31:47
I mean, that’s the way we oftentimes talk about what Pricefx can help enable is this kind of command and control center where you have the visibility to what’s going on in the business, and then the ability to react to that and make changes and adjust as things change, but then have the right control over the salespeople and what they’re actually doing by putting in the right approval processes and integrating with the different systems. So that’s definitely, I think, key to getting the power out of these kind of transformation initiatives. I think we’ve talked a lot about a lot of the benefits. And obviously, there’s some really hard ROI type of metrics, but also some of these softer, more qualitative type benefits as well. But the amount of companies that have invested in digital transformation around pricing and quote to cash is still fairly low. So why don’t you think more companies have done this? Why do you think it’s still kind of lagging behind other areas where companies have invested like procurement or supply chain or cost reduction and things like that?
Why Don’t Companies Invest in Digital Transformation in Pricing?
Chuck Davenport 32:43
I think it’s scary, Gabe. Honestly, I think the commercial side of the business, first of all, as a professional discipline, is less mature than, like supply chain and those types of things. But for so many years, we on the commercial side of the business, it was mad men, right? It was three Martini lunches. And, hey, I’ve been doing business with this guy for this long. And therefore, of course he’s gonna call me with the business and I’m going to take him to play golf and blah, blah, blah, all of that 1960s macho culture sale stuff, even though we’re way beyond the macho culture and all of that, hopefully. A lot of that mindset took a really, really long time to change.
And I think the other thing that makes it scary is that the commercial side of the business is the engine of the business. Everything else is always about, “Hey, let’s refine and let’s be more efficient, all of that”. But if we mess with our revenue, that’s when we get in more trouble than any other lever. And so, I think it’s taken a long time to get people comfortable with the fact that this science can be applied to industries outside of the traditional yield management industries. And then the second thing, I think, is that it has taken a long time, once that recognition started to take hold, then the difficulty, and I think about the struggles we had through the early 2000s, was really around data access, even though the vast majority of the companies by year 2000, thanks to Y2K, had some sort of ERP infrastructure in place because they felt like they had to. The data that were in that were not sufficient to drive true commercial decisions. And so, it’s been an evolution and drive over, it’s been decades, right? I mean, it’s been slow coming. But really, as I said before, I really do believe now we’re at that tipping point where the data are good, the access is good, the processing power is good. We know what types of people we need to be able to do the right types of analytics to be able to provide fully formed guidance for our frontline salespeople. And now that we have that, I don’t know what you are feeling Gabe, but I feel an acceleration of the, I mean, the number of conversations I have about digital transformation in the commercial side of the business and pricing are greatly accelerated in the last two years.
Gabe Smith 35:23
Yeah, I’ve seen a lot more traction as well. And I would say, the one thing that I would add to that kind of alignment that you’re talking about, we sometimes say the stars are aligned right now because it is, you know, the data, absolutely. But also, the computing power and the advent of real-world applications of AI and machine learning in this, in order to augment the process, make it even better and more valuable and faster, right?
(Paco) Juan Francisco Jimenez 35:50
What I always say to my clients about why should we do this, or I mean, we’ve been working like this for 10s of years. We’re a good business. I mean, we have our pricing practices like say, “Okay, what do you think? How do you think that the fintechs have been born?” Right? I mean, they have been born with these capabilities. They don’t even think about using artificial intelligence or algorithms to price. That’s how they do it. And they can do it 10 times faster. And you they can do it with 10 experts less than you. And they can use a digital channel, right? I mean, this shouldn’t be a question, right? I mean, the longer it takes, the worse is going to be for you. Because these guys, they are just working like that. That’s kind of their standard way of operating. Right? So, I guess that’s one of the big reflections and factors that was not present 10 years ago, that today, they are there. Right, and they are pricing in this way.
Gabe Smith 36:51
Absolutely. Yeah. And it’s becoming more prevalent in more and more industries, right. It happened in B2C. But now, you know, you get Amazon moving into B2B and disrupting. They hit 10 billion in three years in sales, right? And they’re just gonna keep on eating up more and more of that market. And obviously, they’re pretty good at pricing. Although you see some pretty funny things on there. Sometimes they do a lot of experimentation, sometimes it doesn’t work out. But that’s part of what you need to be able to do as well as use that data, have that kind of that mindset of trying out new things, seeing if it works, being able to make those adjustments. And if you’re not doing that, you’re the type of company that you’re talking about, like, “Oh, it’s always worked for us in the past.”
Okay, how much longer is it going to work for though because someone else is going to come in and disrupt your industry, right? And they’re going to use these techniques to be able to do more faster and you’re not going to be able to keep up? I mean, one of our retail clients in Europe, they’re like the best buy of Europe, right? So, they have over 1000 stores about 25 billion or they were did do about 25 billion last year, euros. We’ll see how it works out this year. But when Amazon came into that market, they just couldn’t keep up. I mean, it was just like what you were saying, you know, their head was spinning. Because they had this kind of very decentralized pricing organization at first where all of the GMs of all the stores were making the decisions, and they put the stores in strategic locations where there wasn’t a ton of competition. And then they had to start reacting to this digital native competitor that was putting one price out there for the whole country.
And they didn’t even know how to deal with it at first. And so, they had to centralize their pricing organization and then put in the tools and get the data flowing in order to be able to respond to that. And when they did, that, they uncovered so much just by tracking what the competitors were doing and being able to do the analysis on it, not to mention responding in an automated way. We’re doing over 100,000 price changes for them in every store every day. And like 99.9% of its automated, right. They just set up the rules in the data flows. And so, they put a ton of time in the in the strategy and what those rules are, and how the organization should be structured. But they’ve gotten to the point now where they’re really able to effectively compete. And you know, it’s happened in retail, and it’s just increasing now with COVID. It’s happening now. And more and more. I was talking to a distributor the other day, and they referred to Amazon as the boogeyman. They haven’t quite come into their industry, yet.
There are certain areas of distribution that are still untouched, but they’re all worried about it. It seems like right? It’d be interesting to see how things shape up here. Okay, well, you know, let’s wrap there. I think what we want to do is come back to this and kind of break this into two parts. So next time, let’s get into some of the similarities and differences, what you’re seeing with executives, some of the regional and cultural differences that play into this as well. I think that’s been a great conversation today. Thank you so much for your time, and we’ll look forward to continuing the conversation in the next episode here. Thanks a lot, guys.
Click here to listen to part two of the digital transformation podcast with Chuck and Paco.