OS: Hello and welcome to the #Pricing_Heroes podcast by Competera, where we interview the best retail pricing experts who drive their company's bottom metrics and the retail industry as a whole. Today's guest is Zen Ore, Executive Manager of Commercial Pricing Strategy at one of the world's biggest grocery retailers.
ZO: Hi, Olena. Thank you for having me.
OS: Could you tell us about your background and experience?
ZO: I'm originally from Israel and moved to Australia nine years ago. I worked in hospitality in Israel, doing commercial analytics, business modeling, and consulting for commercial growth. In Perth, I worked in the petrol industry and grew from Operations and Commercial Manager to Head of Pricing and Commercial Strategy. When I moved to Sydney five years ago, I started my business, "Pricing Is A Thing," offering pricing as a service. I'm also a mentor of The Boosting Female Founders Initiative, which supports female founders with commercial pricing and have been teaching pricing strategy in Masterclass for General Assembly for the past two years.
OS: You have worked in various industries, so how can pricing experience in one industry be beneficial for another?
ZO: There is transferable knowledge and skill in pricing and commercial strategy, including segmentation, commercial trade-offs, and understanding customer buying decisions. The core understanding of any industry is to optimize what you are trying to achieve with pricing, such as quantity, volume, velocity, revenue, profit, or margin. An interesting story to tell is when my team and I did market research for a petrol station in Margaret River. We found a correlation between people owning dogs and those who own a muscle car or a car that uses premium diesel. We decided to introduce premium diesel, a dog wash and lowered the premium diesel price to attract customers, which resulted in a 6-cent per liter difference higher than competitors without impacting volume on premium diesel.
OS: That's fascinating. How do you approach pricing when there are multiple channels, such as online and offline?
ZO: When there are multiple channels, you need to understand the value proposition of each channel and the customer buying journey. You also need to consider the cost to serve each channel and how they affect each other. One approach is to use dynamic pricing, which adjusts prices based on demand, supply, and competitive landscape. You can also use differential pricing, which sets different prices for different channels, such as higher prices for convenience or immediacy. However, it's essential to communicate the pricing strategy clearly to customers and ensure fairness and transparency.
OS: So, what are common mistakes that you see businesses make with their approach to pricing?
ZO: Well, I work with an interesting mix of customers, from medium to large corporate, to really small businesses. Smaller businesses or new startups usually suffer from low confidence in pricing. This usually comes from a relatively low understanding of pricing and strategy. They start from being an expert in their field, such as a chef or a programmer, but pricing is not something they pick up on the way while opening their business.
OS: That makes sense. So, what are some key things they should understand?
ZO: There's a lack of understanding of the basic holy triangle of value perception, willingness to pay, and price sensitivity. If you don't understand them deeply and fundamentally, it's going to be very hard for you to break down your business into a commercial structure that can generate a good profit.
OS: I can see that. What about deal negotiation?
ZO: That's something not a lot of managers have or develop. Negotiation, whether you are in B2B or B2C, is a basic skill. You need to have the backbone to defend your price and be willing to negotiate the tradeoff between the value you provide and the price you are charging.
OS: It seems like soft skills are really important here too.
ZO: Definitely. Soft skills are crucial for business owners and pricing managers. Nobody cares how smart you are if you don't know how to communicate it and make it relevant to them.
OS: What are some other common mistakes you see when it comes to pricing?
ZO: A very common mistake is leaving pricing to the last minute and just copying competitors without understanding your own value proposition. You don't have economies of scale, and your margin is never greater than the competitor you are looking at. It's also not a good idea to copy your competitor's pricing model. You need to charge for what you do best, especially if you're a new business.
OS: What do you think are the key factors behind an effective pricing strategy and management?
ZO: I would say one of the most important factors is investing in your own business. If you don't have the budget to hire a higher-priced consultant, then look within your company for someone in marketing, commercial, or analytics who has an interest and talent in pricing. Teach them, consult with them, buy them a book or send them to a course, and have a mentor. This will help you increase your pricing power without having to pay a lot of money for outside help.
Another important factor is to calculate the cost of doing nothing. If you're not optimizing your pricing, what are you losing? Look at the cost of not taking action and see if it's worth it to save on expenses like hiring a consultant.
As for the key factors of an effective pricing strategy, it all starts with analyzing your company, your features, your users, your usage metrics, and your customers. If you can't analyze all of those, then at least analyze something to have more than just an opinion.
The three pricing questions you should ask yourself are: what am I charging for, how do I charge, and what is the price point? Many companies ignore the first two questions and only focus on the price point. But research has shown that how customers pay is far more important than how much they pay. You need to know your customers, their buying drivers beyond price, their price sensitivity, and the Holy Trinity of value, perception, willingness to pay, and price sensitivity. Spend as much time as you can on this.
OS: You mentioned subscriptions earlier. What can startups learn from big B2B and B2C companies in terms of pricing?
ZO: When you're a big corporate company, you have the incentive to invest tens or even hundreds of thousands of dollars in research and business intelligence to optimize your pricing. But as a small business, you don't necessarily need that level of accuracy in the first one or two years. If you get your pricing right by 10 or 15%, you may lose money or customers, but the impact won't be as big. As a new business, you're more agile in measuring what's happening and reacting quickly. So startups should learn from big corporations to analyze and ask all the right questions, but they should also move quickly, get a pricing model, and start measuring pricing impact, KPIs, and other metrics related to commercial success.
OS: From your experience, what do businesses ask from pricing consultants, and what do they actually need when they hire consultants for their companies?
ZO: That's a great question. In my experience, businesses often need guidance and support to avoid making costly mistakes. They may require some mentoring, tweaking of their pricing methodologies, and best practice advice to optimize their pricing strategies. To use a burger joint as an example, if someone wants to open a burger shop but is not a chef, they would hire a consultant to set up the shop, provide recipes, tools, and teach their staff. Similarly, businesses hire consultants to assist them in setting up their pricing strategy and then move forward on their own. However, I believe a new generation of pricing consultants is emerging, and they answer a different question.
The new question is, "What is the pricing solution that I should work with?" For larger companies with budgets for pricing tools, they may not have the in-depth knowledge required to understand the different pricing solutions and which tool is best for their industry. This is where the new generation of pricing consultants comes in. They are experts in various pricing tools, and pricing solutions, and can match corporate needs with the right pricing strategy and infrastructure. Infrastructure and governance are significant challenges for large corporations, and pricing consultants with the appropriate expertise can help them overcome these challenges.
OS: That's a fascinating concept. The new generation of consultants matches the offer with the demand, as businesses may not know what they need, and there may not be any pricing experts within the company.
ZO: Exactly, no one is to blame. Startups and successful corporations do not have to be pricing experts. When a large corporation buys an expensive electrical piece of equipment, they do not choose something from a catalog. Instead, they go to an expert and ask for the best solution for their needs. Similarly, businesses should approach pricing and commercial strategy with the same mindset.
OS: What advice would you give your younger self to start a career in pricing?
ZO: Initially, I found the pricing to be a bit too geeky and statistics-heavy, and I wondered whether it was science or art. Are you a statistician, a salesperson, or a cheap psychologist? However, as I delved deeper into pricing, I realized it was a combination of all these skills. Pricing is not just about formulas, but it involves understanding human behavior, psychology, and how people make buying decisions. I spent too many years in commercial before I realized that I was passionate about pricing, which gets you across almost the entire organization, from cost to revenue to profit. Pricing is not just a made-up profession, and I would advise my younger self to explore pricing with an open mind and embrace the challenge.
In conclusion, businesses hire pricing consultants to avoid making costly mistakes, receive guidance and support, and optimize their pricing strategies. The new generation of pricing consultants are experts in various pricing tools and solutions and can match corporate needs with the right pricing strategy and infrastructure. Pricing is not just about formulas, but it involves understanding human behavior, psychology, and how people make buying decisions. It is a challenging and rewarding profession that gets you across almost the entire organization, from cost to revenue to profit.
OS: Definitely. Thank you for this conversation. It was really insightful. I got so many new things to think about, even though I'm not a pricing manager. So I guess our listeners would be more than satisfied even more.
Thank you for being my guest today.
ZO: Thank you. It's been a pleasure and even though you let me talk way too much. I had an interesting conversation, so thank you!
