The Benefits of Flexible, Simple and Transparent Pricing Software Part 02
Flexible, Simple and Transparent Pricing Software is becoming essential to enabling profit growth in today’s modern business world. What’s more, pricing can assist you through the negotiation process and add transparency and simplicity to your pricing procedures.
Join Gabe Smith from Pricefx and Stephen Haggett Vice President, Pricing, Revenue Management, and Sales Operations at Iron Mountain, as they return for the second part of The Benefits of Flexible, Simple and Transparent Pricing Software.
In this episode, they discuss handling large deal negotiations with pricing and overcoming bias in the negotiation process. You’ll also learn about the role of procurement and technology in negotiations, adopting B2C lessons in the B2B environment and the role of building transparency and simplicity into your business with technology.
Listen to the podcast with the embedded player below or read along with the transcript. You can listen to the podcast on Apple Podcasts, Spotify, Stitcher, or wherever else podcasts are hosted. Want to see the conversation and not just listen? Watch on YouTube.
Using Pricing to Handle Large Deal Negotiations
Gabe Smith (00:41):
Hi everyone. And welcome to Pricing Matters.
One of the things I want to talk about also is, so we talked a, a little bit about kind of applying some of these price optimization techniques to, to guide, to, you know, remove bias to guide pricing guidance to the field. And I think a lot of those tech techniques work really well, where you have a lot of data, you have a lot of variation and, and in your environment you certainly do, but where a lot of companies, I think, struggle to implement pricing optimization or conceptualize how some of these techniques can be used is on their larger accounts. Right? So, you know, at the, you know, what you might think of as the snowflake accounts or the know would sometimes refer to the 64, 4 or the 80 20 and the 80 20, right? So you get this large kind of long tail fragmented mix of, of, you know, medium and smaller accounts, price optimization, and the data driven approach that we’re kind of referring to works really well there.
But then when you get these huge accounts that make up, you know, a, a really low, large percentage of your revenue, it’s a different game. It’s a different type of analysis that you want to do. It’s a different negotiation process. It’s a different level of, of team that you’re dealing with. It’s a different level of procurement professional that you’re dealing with and, and the level of professionalism and process and technology that’s being employed there. So, I know that you are a proponent of some of those techniques around value, estimation, large account negotiation. Can you talk a little bit about, about that and the differences that you see there versus the fragmented mix or the kind of smaller and medium accounts?
Steve Haggett (02:16):
The pure methodology that we’ve been using? Yeah. As you said, with a large population of similar customers is terrific for the, the large unique customers is it’s not as great because you can talk to a very large customer and say, well, you’re like this. And they’ll say, I’m not like that I’m, I’m different. And those large accounts are much more different from each other than the small accounts are from each other. And that’s where going into a discuss with procurement with objective data becomes so powerful. You know, if you’ve got dashboards that are tracking, you know, which, which we do, customer behavior, customer performance, customer trends, you can point to things and say, well, look, you were paying us a dollar when you had a million units and now you only have half a million units. And so our half a million unit price is different than our million unit customer price, or look, you’re receiving services from us, these dashboards document in 50 different location.
And you would have to, if you weren’t working with, with this company that has the differentiation of being global, you have to stitch together all of these different vendors, and this is the cost of, of using different vendors. And so we’re giving the procurement team evidence of their cost savings from working with us through using objective data. And so we’ve got a series of customer dashboards that track these trends and relate to things that are going on in the marketplace. We’ll also relate to peer companies, the company that I work for, you know, one of our core services is we will come to your site, pick up a car, a cardboard of documents, move it to a warehouse. And when you need it again, we’ll take it back. So truck warehouse, cardboard box sounds like FedEx and FedEx has a public website that, that will tell you what their price increase was this year.
And we can point to peers, you know, Amazon big warehouses, they, or things for their third party sellers. And we can point to public data like that to show what’s going on objectively with trends in, in a similar industry. Here’s the trend in warehouse cost. Here’s a trend in driver cost. So it’s not simply arm wrestling. And we’re constantly trying to bring objective market data, both as a reference point. And to show if, if you pay us a dollar, are you making $3 back? And that’s, you know, where we’re trying to marry some of the, the, the price optimization methodology with value pricing strategy.
Overcoming Bias in Negotiations
Gabe Smith (04:56):
Yeah, I think that makes a lot of sense. Let’s come back to bias for a second and think about it in the context of these large account negotiations, because the bias and noise both, right. So many times what happens in those accounts is that you’ve got very senior executives involved in, you know, even up to the CEO, a lot of times involved in the, in the largest account negotiations and part of the procurement strategy and tactics is, Hey, get that person involved, especially at the 11th hour, because they’ll come in on the white horse and, you know, drop the price and they have the authority to do it. And when you think about their perspective, it would be very biased if they were doing that again and again and again, and, and closing these deals, right? Say, oh, I just dropped 10, 10% discount and we close the deal.
Right. And I go into the next one and I gave him a 5% discount and I close the deal. And the next one, right. So when, think about the bias that would form in the executive’s mind, you know, I, I could see that definitely influencing, you know, providing some noise and, or, and, or bias into the, into the mix there. I think the, the way around that is by, you know, doing a good job at the value estimation front, like you were talking about it and showing objectively where they’re gaining value and, and giving the procurement team something to hang their hat on, to say, Hey, I’m actually getting this much value for the organization. And here’s why this is fair and all these things, but there’s also the matter of just kind of having a structured process in place and an agreement. And, and it comes back to confidence as well.
When we’re talking about having, you know, the, the sales person with the confidence that here’s what I’m gonna go in at, here’s my walk away. And, and we’ve all agreed on this upfront, including the executives and really avoiding that kind of, you know, bias and, and, and the ability to influence the decision at the last minute, I think is part of the value of those kind of techniques, right? Is, you know, when you look at, I think the numbers are something like 96 or 98% of large companies have a structured procurement process and team, and most of them are pointing some kind of technology and they’re spending upwards of $5 billion a year on that technology versus on the price optimization, CPQ side, only 15 to 20% of those have any kind of process or technology or analytics, you know, that where you can use and objectively come back to them and say, actually, here’s, here’s what we’re seeing objectively.
Right. And so you think about that. And it’s like, and the crazy thing is it’s the same companies, right? It’s the same companies that are spending 5 billion on the procurement side that are only spending 500 million on the price optimization and CPU side. And so, you know, I kind of liken it to playing a pickup game of really talented individuals playing against an NFL team that NFL team’s gonna win every single time, no matter how good, you know, how talented the other players are, a well-coached NFL team is gonna beat that other team every single time, because they have the process, they have the coaching, they have the strategy, they know how to play as a team. Right. So I don’t know how much of that you have kind of visibility into and on the commercial side of, of what you’re doing or kind of how much control you have over that. I’m curious to get your take on that. And as, particularly with regards to how is influenced by bias or noise at, at the senior levels.
Steve Haggett (08:03):
Sure. A lot to impact there. First a shout out to Reed, Holden, I believe was chapter three of pricing with confidence, talks about the white horse syndrome. I think that the, the chapter title and he outlines exactly the, the challenge that you raised. And I think a good CEO is trying to understand customer need and make connections with his or her company capabilities and influence emerging capabilities at the company based on what he or she is hearing from the customer base and is staying out of into visual price negotiations. That’s not a good use of the CEO role. And there are people on both sides that should be in there trying to come to an, an optimal agreement on that, that price between procurement and the sales team in terms of sales resources versus procurement resources.
I think that pricing argument is overplayed. If you look at a company’s total compensation structure and the average dollar per sales person versus average dollar per procurement person, or the total dollar spent in sales compared to the total dollars spent on procurement team or the investment in it for sales or the investment of it for procurement, all of that goes to the sales side. There is no chairman’s club for procurement. There are no $500,000 commission for a big deal for procurement sales wins on all of those. You know, I think sales is the David to the procurement Goliath. Goliath may be big, but David’s got the artillery. He may be a small sheep herd, or, but, you know, has the ammunition to, to take on a much larger at least purportedly a larger fo. So I think sales has got all of the advantages going into that. I think they’re better trained, better prepared, better paid, better resourced.
The Role of Procurement and Technology in Negotiations
Gabe Smith (10:04):
I would say that’s I mean, I, I see your point. I, I would, you know, I was kind of pointing out specifically about the use of technology, which I think is becoming increasingly important, you know, when you look at me like Coupa, for example, I think their market cap is something like 16 billion, right? When you look at all of the price optimization providers, our market cap is collectively much less than that, right? The biggest market cap, the biggest player in our space is probably 2 billion, right. And they’ve been around for or 30 years and coup has been around for 10, maybe more like 40 actually at this point. So, you know, I think about it from the technology standpoint, but you’re right in that the, the level of investment organizationally and the talent level is certainly not even from a playing field perspective,
Steve Haggett (10:53):
Well, different talent. I don’t wanna integrate my procurement partners. I feel, think we overplay the, the perceived advantages of procurement. And there’s certainly more pure procurement technology spend. But if you, if you talk in terms of sales spend versus procurement spend, you know, I would assume that the market capitalization of salesforce.com always all of the procurement tools, they could eat coop and still look for more appetizers.
Adopting B2C Lessons in B2B Organizations
Gabe Smith (11:25):
Yeah, it’s true. Fair enough. So let let’s, let’s since we’re talking a little bit about trends and technology I was interested to get your take, you know, I speak a fair amount on the future of pricing, the future of teams, the future of commerce. And I’d like to get some of your perspective on that, because I think you’re a very forward looking person. And, and also you know, you’re at the forefront of the subscription pricing, you know, in B2B, right. And I think iron mountain is one of the largest subscription B2B subscription companies in the world. Right. I’m curious as to get your, your take on what trends you’re seeing there either from a subscription standpoint or you know, a CPQ and commerce standpoint, or just kind of pricing optimization be interesting to get your, your perspective on that
Steve Haggett (12:10):
Business buyers buy and law are humans. And as humans, we’re all exposed to business to consumer technology. That’s amazing. You know, if I order a car, now I can see where in the world that car currently is, and at what red light their there’s stopping at, and our customers say, how come you can’t tell me where our box is on its way to us. I’ll have someone meet you at the gate. If you can do the same thing that Uber or Lyft can do. And how come it’s so complicated to order things from you. I can go on Amazon and order something from China, and it’s here in three days. And why is, is your process so complicated? And so I think, you know, the human that we bring to work with us has expectations that are changing because of this, this wonderful world, you know, of, of consumer technology that has exploded so much faster than B2B know my company, you know, like a lot of companies has an employee engagement survey, and it’s fascinating to, for me to look at the responses on agility and decision making broken down by age segment and the 50 year olds at my company say, you know, we’re, we’re okay.
And the 30 year olds at my company say, you guys are dinosaurs, you know, the processes that you use. So I think the major change, certainly in B to B commerce and go to market methodology is learning to adopt things from B to C like online commerce when I was working in energy and the internet was exploding and Amazon and eBay and so forth were, were being launched. Companies were trying to launch online services to buy well equipment. And that totally failed because it was so customized. And I think the same thing with the most recent industry I worked in, which was medical technology, is that how hospitals were not at that time purchasing x-ray systems online, that it was a very custom process, but I think those worlds are really merging and that B2B is going to have to better harness the B to C consumer technology that we just haven’t exercise yet. How can we use augmented reality to customize offerings for our customers? You know, the advent of very simple product modeling, 3d printing to send a prototype to a customer so they can hold and, and feel it that whole go to market approach of adopting the technology of the consumer world. B2B is lagging well behind. But there are great opportunities for us to use.
Gabe Smith (15:05):
Yeah, I, I agree with you. I think, you know, I gave a, a talk at one of PPS is about some of that, those concepts. And when you think about the implications to, to pricing and to, you know, the lead to order space right in B2B, what that means is that you really have to get the price right. The first time, right? Like, especially as Amazon moves into more markets and they’re able to offer price, that’s better than lot of the contractual pricing that, you know, historically has been negotiated and you get, you know, a turnover of individuals and you get a bunch of millennials coming in in these procurement positions. They don’t want to have to call up a phone and place an order with a salesperson or go through this really convoluted process. They want Amazon bam, bam, I’m done right. And I’m getting what I need, but it, the it’s really incumbent on pricing teams to be able to leverage the data that they have, the technology that they have and the understanding of the customer and, and the, and the drivers of value for them to offer and what, you know, similar customers are paying and what, you know, competitors might be charging and factoring all that in to getting that price.
Right. So you do just, you know, click the buy button rather than having to go through this negotiation process, which is, you know, still in a lot of businesses, a, a large percentage of, of the, the deals are negotiated. And actually there’s, you know, we get exposure to a lot of different industries and I’ve been actually amazed in some industries how, how far along certain industries have come like in food service distribution. And some, some of these big players are actually doing 70 to 80% of their business digitally now. Right. And in that situation, it makes more sense because it’s more commoditized and it’s a simpler process. Right. But, but at the same time, you know what that means is the nature of the sales people has to change, right? The order taker sales reps are going away. You have to be, be value oriented.
You have to be, you know, consulting oriented, right. And, and challenger kind of sales you know, people and solution selling is really, it’s, it’s really all about understanding, you know, the customer, those value drivers and putting together a solution that is uniquely differentiated and well-priced for considering all of those things. Right. So I, I think it, there’s gonna be less salespeople going forward, but those, the salespeople are gonna have to up their game with regards to the understanding of the customers and those, those value drivers. And at the same time, I think pricing and revenue management teams are gonna have to up their game and the use of technology to get the price. Right. You know, when they’re putting it out the first time, cuz there’s not gonna be patience for this kind of, you know, back and forth negotiation cycle that happens in except in larger, more complex, you know, you know, large accounts, like what we’re talking about, where of course it’s gonna take time when you’re spending millions or even hundreds of millions of dollars with someone. Right.
Building Transparency in Your Pricing
Steve Haggett (17:47):
Yeah. And I think in, you know, one of the things that you see with platforms like Amazon is a lot more price transparency, and you can see a comparison of 10 products that look very, very similar. And you can understand the price difference and, you know, coming back to questions of bias, that raises the question. Can you continue to utilize price discrimination where you’re charging two different customers, a different price for the same thing, which as consumers, we accept every time we go to the movies, right? You know, there’s a child price, there’s an adult price, there’s a senior price. There’s a Saturday night, right. And a Tuesday afternoon price. And we, we accept that it’s the same offering. We’re gonna charge different customers at different price, that’s price discrimination. And I think there is still a world for price discrimination, but it, it can’t be opaque.
It has to be transparent. And we as pricing, people need to be able to build that objective database argument. This is why you should be willing to pay a higher price, cuz you’re gaining so much more value than someone else for the same offering. So if you’re selling hotel management software, if you’re selling it to Marriot corporation, they’re gain a lot more value than Susie’s bed and breakfast and it can be the same tool, but there’s, there’s a massive difference in value. And we need to be able to quantify that and articulate that. And I think that that’s a lot of the pricing technology that we’ve seen has been built based on internal data and allowing us to employ methodologies like the one that iron mountain uses for pure pricing, which is, you know, terrific leap forward. But it’s not really integrating customer based data, which is harder. And I know that price effects among other folks is working on that. And you’ve got the, I believe the Villa of offering that, that starts to look at value economics and customer quantified value. We have come a long way with our ability to set a rational price and build salesperson confidence and customer confidence that that’s a fair price. We have a long way go to be able to deliver a customized value articulation to say, I understand your economics and this is how you’re gonna make $3 for every $1 you pay me.
Gabe Smith (20:25):
Yeah. And I think, you know, to do that is gonna require, like we said, you know, different skill sets and different kind of ways of, of thinking about it, but it’s also gonna think require yeah. You to leverage, you know, outside data and technology to be able to do it at speed. Right. Because right. The that’s the other thing we’ve talked a lot of, you know, we talked about simplicity and flexibility. I think speed is, is also really important in especially moving to this environment that we’re talking about, where you have to get the price right. To begin with and you have to, it needs to be transparent and, and explainable. So I, I think, you know, you, you’ve had a lot of experience in pricing technology and kind of how it’s evolved over time and you speak to kind of some of the, your experiences there and, and what you’ve seen kind of on how, how things have changed and a, maybe enabled more speed as time progressed.
The Role of Technology in Building Simplicity
Steve Haggett (21:15):
Yeah. That’s interesting, Gabe I think that, yeah, price optimization technology, all sorts of pricing technologies certainly have evolved, but we’ve got this horse race between complexity and speed and you know, I’m sure a number of your listeners you’ve referenced CPQ a couple of times are in CPQ implementations. And there’s a lot more of us in implementation than implemented. I am in year seven of our current CPQ implement. And that has to do with not, not
Gabe Smith (21:50):
With price, not with Pricefx just
Steve Haggett (21:52):
With, not with Pricefx.
Steve Haggett (21:56):
But that has to do with, I think two factors. One is the complexity of the tools compared to the simplicity you and I were talking about earlier with the, the pricing platform that we’re using with you guys and the other is the continued customization and complexity of companies, data architecture. And at least my company has really not reached a stage where we’re willing to invest enough money to standardize and simplify our data architecture as opposed to consistently each local business to what we’re, what we’re trying to do is optimize for every business unit and every geography, which leads then to, you know, differential evolution of that system. So we’ve got multiple ERPs, multiple billing tools when I speak to our it team and talk about our billing technology, my description of our strategy is Noah are find every billing tool that’s out there and then buy two of them.
And, you know, that’s sort of the opposite approach of, of driving to simplicity. And I think that our function is so cross-functional, we touch a lot of things and, and companies just naturally silo. And then we make decisions within our silo. And you end up with, with this mix of not just systems but data standards. And it’s really getting companies like mine to demand a much simpler data standard for our product catalog, for our HR data, for our customer hierarchy and so forth, all these technical things. But in my world, if I’m selling to Boeing, they’ve got a different billing system for every product we’ve got for every geography we’ve got and they will have a different customer ID. I think that’s, what’s really challenging us. And we as pricing people, certainly, you know, part of my role and part of my job description is fixing global customer master data. It impacts every organization. And I don’t know anything about master data, but I’m at this point, the, the executive sponsor for that initiative, because my role is so cross-functional that at least I can point to all of my pain and say, yeah, these are the things that cause us pain that then complicate the pricing tools.
Gabe Smith (24:23):
I’d say one, one thing though, you, in that environment that I think I was pretty impressed with is the ability to, you know, think through a model and, and boil it down to kind of, you know, a, a level that can actually be employed quite quickly and effectively to capture value even in that type of environment. Right. That you’re talking about. So I think our initial go live with you is like, in something like 13 weeks in, I think one day, right? Always like to point out that one day your previous go round with, with a gen one provider was something like, I think, 18 months, something like this
Steve Haggett (24:59):
Replace months with the years, not quite, it was, yeah, it was a couple of years to, to implement the first time. And that was on premise and it was employing a very complex micro segmentation methodology that was very robust, but I don’t think it was statistically smart. We over segmented. And then we had statistical sparsity problems, which simply means we are trying to do correlations in populations of two. And so you just didn’t have a relevant, you know, your end, wasn’t big enough to run real statistical analysis. But, you know, choosing simplicity means that every time there’s an update and in this case, you know, with our price of X tool, I don’t even know what happens. It just goes on. Whereas in the past, when we had an on-prem tool that we just customized to death, almost literally for me, you know, that we couldn’t do any updates because we had to unwind all of the customization.
Steve Haggett (26:03):
And I faced the same challenge with our Salesforce tool and my sales op we have different instances of Salesforce because we have customized differently in different geographies. And that’s really hard to unwind, you know, which brings us back to the discussion that we had on choosing simplicity over complexity, a rules based approach that is easy to explain both to a customer and a salesperson over a proprietary black box. You know, you and I have talked about the glass box methodology that my company uses. And I’ve, I’ve spoken at your conference about a glass box strategy that has a whole lot of benefits in terms of execution over a much more robust proprietary model.
Closing Remarks: Podcast and Book Recommendations
Gabe Smith (26:57):
Actually. So you, you may or may not know this, but we, we started using that glass box, you know, know we used to say clear box, and then I kind of adopted your term of, of glass box. Cause I, I, I like it. And since then actually I think two or three other providers in our space have started using that terminology, which we think is kind of funny because they’re not inherently clear box, but they know that it’s appealing to customers and, and we’re winning deals because of it. It, and it’s, it’s kind of interesting. So your, your glass box is it’s definitely been kind of widely adopted in the price optimization industry. And and I think rightfully so, because you’re a thought leader in this space and I’ve really enjoyed the conversation. Steve always interesting, you know, wanna wrap this up here? I know you, you read a lot and I just wanted to get outside of the, the conman, you know, noise and, and some of that stuff that we were talking about, any other books, blogs websites that you like to go to, that you can recommend for the listeners?
Steve Haggett (27:55):
Sure. I recently finished Adam Grant. “Think Again”, and that’s, that’s a really interesting read it’s, it’s similar to the Oman influenced how we make decisions and his work talks about training yourself to be open-minded and to constantly reconsider your decisions and techniques to encourage yourself to do that such that you’ll face new situations with a fresh approach, as opposed to some way of thinking that worked for you 10 years ago. And so I think that, you know, the last year or two Adam Grant’s book was very influential. There are two academics out of Stanford who have been writing about how important it is to effectively use humor in workplace. And I think that that’s great because now you have to be careful using humor in the workplace, but they point to statistics about comparing the number of times that a four year old laughs in a day to the number of times that a 30 year old laughs in three years. And, you know, we, we can all use you know, a little more fun in our lives. And I think that that, that work is equally important that this isn’t all about numbers and it, it isn’t all about performance like that. It’s you’ve gotta help the people around you enjoy their day. I think that, that, I mean, there’s, there’s nothing provocative in that, but no, it’s,
Gabe Smith (29:32):
It’s good. It’s good food for thought though. Cuz I think a lot of people don’t really consider that in their day to day and some people just naturally are kind of those types of people. And I think, I think you and I are actually those type of people. I remember we were after the the socks won the world series and, and you came in the conference room and opened up your shirt with the red Sox. That was pretty funny. And, and you know, we’ve had some fun throughout the years. I think about that a lot because I think it it’s disarming, right? It, it, it creates more of a, a, a sense of, of familiarity and a familial sense at work I think is really important for teams to work well together. And I think the more natural we can be in our, in our professional environment the, the better off that everyone is. But also I think being, you know, vulnerable and authentic and, you know, having real conversations with people in a work setting, you do have to be careful, right. There are lines that you can’t cross, but I think, you know, the Boston Jersey and Boston, I think you’re pretty safe there. Right.
Steve Haggett (30:32):
And in terms of podcasts you know, other, other non-pricing focus, you know, and many people say that this is at absolutely the best free internet pricing focused podcast, that there is. I feel safe in saying that no stupid questions is a, you know, a very enjoyable podcast it’s by the author of grit, Angela Duckworth, and Steve Dubner from freak and they just field listener questions mostly about social science. And it’s always listen interesting to listen to the dialogue between to people in the economic slash social science world. Talk about human behavior.
Gabe Smith (31:20):
Yeah. That’s a great one. And yeah, I love the title of that, that one. And, and actually coming back to, you know, simple things that people could do to improve their professional life. Right. Ask the question, don’t be afraid. Right. Of there’s so many I’ve seen, I’ve been in so many meetings where I can tell from the look on someone’s face, they don’t have any idea what I’m talking about or what someone else is talking about, but they don’t ask the question, right. Because they don’t wanna look bad. And I think those are the people that have a hard time growing and, and evolving. Right. And, and we always have to be learning and growing and evolving. Otherwise the world’s gonna pass us by right. Things are gonna change. We’re gonna be set in our ways. And you know, so that’s, that’s another key message. And it just kind of is so nicely encapsulated in, in the, in the title of that podcast. Right. Of the, thanks a lot. Steve really has been a good time. I think this is probably one of my favorite ones that I’ve recorded. And I’m, I’m not just saying that. So thank you. And yeah, we
Steve Haggett (32:11):
Always have fascinating conversations whether it’s recorded or not. That’s right. All right, Gabe. Good afternoon. Thanks lot.
Gabe Smith (32:18):
All right. You too. Cheers. And thank you for tuning in to pricing matters.