Below is an abridged and summarized transcript of our interview with Karan Sood. You can listen to the full interview using the embedded media player below or in your favorite podcast app (e.g., Apple Podcast, Spotify and Amazon Music).
Today's guest is Karan Sood, the Director of Sales Operations at Rakuten Kobo, a Canadian seller of ebooks, audiobooks, e-readers and tablet computers. Karan is a “Top Pricing Strategy Voice” on LinkedIn, recognized for his active contributions of insights and engaging content to the online pricing community. He has 16 years of experience in pricing, working for prominent global brands, including YellowPages, Mitsubishi and General Motors.
In this episode, Karan discusses his journey as a pricing professional working across industries and facing some of the toughest challenges in the field, including a global financial crisis and digital transformation in print advertising. In sharing his story, Karan provides practical insights for pricing professionals and businesses interesting in using their pricing capabilities to drive outcome-oriented innovation within their organizations.
Aaron: Can you start by telling us a little bit about yourself and how you found your way into a career as a pricing professional?
Karan: Sure. Like many others, I stumbled into pricing. It wasn't my first choice. Initially, I didn't even know there was a profession dedicated to pricing, such as a pricing analyst or manager, because it always seemed to be a part of marketing.
During my university years, while pursuing my MBA, pricing was just a minor topic, covered in a few pages of a textbook. It didn’t catch my attention until I needed to find an internship. That’s when I landed my first role at General Motors as a Parts Pricing Analyst. The assignment of roles for interns appeared quite random. But that's how I inadvertently entered the world of pricing. After spending a couple of years at GM, I discovered this niche's depth and potential.
From there, I moved across different industries, from automotive to publishing with Yellow Pages, experiencing transformative pricing challenges and strategies. Later, I explored pricing strategy roles in consumer packaged goods (CPG) companies and currently, I’m in the electronics hardware sector. Over the past 15 years, I’ve witnessed the evolution of pricing strategies and encountered common challenges and training hurdles in this field. Now, I’m committed to sharing my knowledge and experiences to help others understand pricing better, something I wish was available to me earlier in my career.
Aaron: Following up on that, you mentioned that your initial exposure to pricing in school was quite limited, just a few pages in a textbook. Once in the role, you realized there's much more to it. Could you elaborate on what aspects of pricing were not covered in your academic training that you learned through experience?
Karan: Certainly. Academic courses tend to address pricing at a very high level, mainly distinguishing between cost-based and value-based pricing. However, back in the early '90s and even into the 2000s, value-based pricing was scarcely practiced or understood. The nuances and strategic application of pricing concepts were largely absent from the curriculum. Terms like 'cost-plus' were thrown around, but what that actually means and how it varies across industries were not delved into. There’s something like 'smart cost-plus,' where the approach to costs and margins is more nuanced and industry-specific, influencing pricing decisions significantly.
Value-based pricing is another concept that needs unpacking. It’s about determining the value delivered to the customer and then figuring out how much of that value can be captured through pricing. These intricate details and applications were missing in the academic discourse. Moreover, pricing was taught predominantly from a marketing perspective, largely ignoring its financial and operational dimensions. In practice, pricing is multifaceted, often straddling finance, where the perspective on pricing can be vastly different from the marketing view, and integrating into sales or other organizational functions, showcasing the complexity and strategic significance of pricing in the real business world.
Aaron: You were at GM during the peak of the 2008 financial crisis, which had a significant impact on the automotive industry. What was it like working as a pricing analyst for GM at that time?
Karan: It was a challenging period. The financial and automotive meltdown in North America coincided with my graduation from the University of Windsor, known for its proximity to the Detroit automotive hub. The industry’s downturn was a significant shock, causing upheaval and uncertainty.
Working at GM during this time, I witnessed firsthand the industry’s struggles with SKU rationalization, aiming to streamline product lines to enhance profitability. The automotive market faced a paradigm shift as consumer preferences moved from larger to smaller, more fuel-efficient vehicles. This transition caught many brands off guard, leading to brand discontinuations like Saab, Pontiac, and Saturn due to inability to adapt quickly to changing market demands and profitability challenges.
My role in parts and accessory pricing across GM’s brands taught me the importance of being adaptive and strategic in pricing, especially in a market undergoing rapid changes and growing price sensitivity. This experience highlighted the need for careful pricing strategies to avoid losing market share to competitors and aftermarket brands.
Aaron: I noticed on your LinkedIn profile that you mentioned GM faced challenges with the pricing of Pontiac Vibe parts but you managed to improve part sales by over 30%. Can you elaborate on that case study?
Karan: Sure. In the automotive industry, it’s quite common for different brands to share the same platform. For example, at GM, we were manufacturing both the Toyota Matrix and the Pontiac Vibe on the same platform, meaning they were essentially similar cars with different branding and body styles. This led to customers cross-shopping, comparing prices for the same parts between these two models, like windshield wipers or even major components like transmission parts.
This created significant pricing confusion, as customers questioned why identical parts were priced differently under the two brands. To address this, we conducted a market basket analysis, examining the pricing of the most commonly shared parts between the Matrix and Vibe. Our strategy was to make these parts competitively priced to discourage cross-shopping, aiming to keep our customers within the GM dealership network. This was crucial to maintain brand loyalty, especially when customers were deciding where to buy or service their vehicles.
By aligning the prices and ensuring they were competitive, we managed to mitigate the confusion and dissatisfaction among customers. This approach not only retained our customer base but also improved the sales figures for these parts, bringing them back to expected levels.
Aaron: What key lessons did you take from your experiences at GM and Mitsubishi that shaped your approach to pricing later in your career?
Karan: There are several, but one significant concept I learned from both GM and Mitsubishi is the idea of the pricing life cycle, akin to the product life cycle, yet distinct. For instance, consider the launch of a new car like the Chevy Camaro around 2009 or 2010. There's initial excitement, and for the first year or so, many components are proprietary, allowing for higher pricing due to lack of competition. As time progresses, aftermarket parts become more prevalent, increasing competition.
Eventually, as the car model nears the end of its life cycle, pricing must become more competitive due to commoditization of parts like brake pads or windshield wipers, which can be found at significantly lower prices in retail stores compared to dealership prices.
The lesson here is the need to manage the pricing life cycle as diligently as the product life cycle. Another takeaway is the importance of product segmentation. Certain products are proprietary and offer more pricing flexibility, while others, more commoditized and widely available, require competitive pricing. For example, while you can charge more for specialized items like car doors or transmissions, common items like tires and oil filters should be priced in line with the market, especially since they are more visible and easily comparable.
Additionally, price sensitivity varies; for parts often covered by insurance, like those needed after accidents, there’s a different pricing dynamic. Understanding these nuances has been crucial in developing effective pricing strategies.
Aaron: Three years into your automotive pricing career, you shifted to a role at Yellow Pages, a vastly different industry. Could you explain how your pricing strategies varied in your roles?
Karan: Yes, the transition in 2011 to a company known for its directories raised some eyebrows, especially considering the industry's state at that time. However, I saw it as a logical move. The directory business, once a multi-billion-dollar industry, was at a crossroads, shifting from print to digital, encompassing search engine marketing (SEM), search engine optimization (SEO), and other online services like yellowpages.ca and app development.
This period was critical because we were not only transitioning our product offerings but also racing against time as competitors like Google were vying for the same market. Our strategy centered on using pricing to facilitate this transition. We had both print and online products, and our goal was to encourage customers to adopt the online offerings while maintaining some print presence.
We implemented a revenue migration strategy, offering discounts on online products if customers maintained or added them alongside their existing print services. This approach not only incentivized the adoption of digital products but also demonstrated their value. Customers began to see the tangible benefits of online services, such as increased clicks, calls, and website visits, which gradually led them to shift from exclusively print to a balanced mix and eventually to predominantly online products.
This strategy proved to be highly effective, significantly transitioning revenue from traditional to digital channels and contributing to the company's sustained presence in the market.
Aaron: What would you consider some of the greatest successes in your career?
Karan: Reflecting on it, the transformation of Yellow Pages from a primarily print-focused entity to a predominantly online organization within six years stands out. Collaborating with many others in this endeavor, we managed to reposition a business plagued by a negative public perception, striving to prove its value. This experience was notably significant from a pricing perspective, as it revolved around revenue management.
Key challenges included transitioning to the right product mix, effectively communicating our pricing strategies, articulating our value propositions, and disseminating case studies to our sales force. The transition hinged significantly on revenue management. Questions like how to transition to the right product, communicate pricing, convey value stories, and share case studies with the sales team were central. With thousands in the field, ensuring everyone understood the value was a challenge. The sales training sector played a crucial role in this. It was a cross-functional effort that significantly educated me on the interplay between pricing and sales.
Another pivotal achievement was during my tenure at Mitsubishi, where we, as a small team of four, established the entire parts distribution center from the ground up. This involved negotiating all aspects of pricing and managing the inventory for the warehouse. Essentially, we were creating the distribution framework for Mitsubishi in Canada, encompassing everything from contract negotiations to SKU management. This endeavor was crucial in maintaining profitability. These experiences are particularly meaningful to me, evoking a sense of pride in my contributions.
Aaron: The role of a pricing analyst is crucial for any organization's success, yet they often lack the influence needed to shape business strategy. Have you encountered this issue, and how have you seen individuals overcome it?
Karan: That's an excellent question, and it's the primary one I encounter. My perspective is shaped by my experiences. Initially, when my focus was solely on pricing, the role felt constrained, as the broader aspects of the business were already decided upon by the time it reached me for pricing. Back then, my task was simply to generate a price sheet based on given parameters, which limited my input and influence.
This changed when I expanded my responsibilities to include discussions on value, necessitating collaboration with marketing to illustrate this value. I've learned that engaging with sales is crucial; they are the frontline representatives who discuss price and product with customers. Sales teams often bring valuable insights into pricing, more than any other department.
I found significant influence in a sales director, not a high-ranking executive, who was keen on enhancing our pricing capabilities. Together, we made substantial improvements. This experience underscored the importance of collaborating closely with sales to understand and address pricing concerns.
To gain influence and shape strategy, I recommend starting conversations with sales immediately. They provide actionable insights into how pricing strategies are received and what improvements are necessary. It's about identifying and partnering with influential figures within the organization, regardless of their department. This approach, coupled with active networking and learning from other industries, can elevate the role of a pricing analyst and their impact on the organization.
Aaron: A few weeks ago, you shared a LinkedIn post titled "Pricing Sales Tug of War," discussing the relationship between pricing, sales, and other functions, and mentioned the term 'price police.' This suggests you've thought deeply about cross-functional collaboration. Could you elaborate on this concept? Specifically, what does 'pricing police' mean, and how can pricing professionals avoid such a perception? When issues arise, is communication with the sales team the key to resolving them?
Karan: Absolutely. In the pricing field, we're often seen as the 'no' people, primarily because we oversee pricing and discounting. Throughout my career, I've managed significant amounts of discounting, encountering various scenarios daily. Requests for discounts on different products or deals would constantly come my way. Previously, I focused on managing margins, leading to frequent rejections of these requests. This approach made me unpopular with the sales team, who viewed me as a hindrance rather than a facilitator, damaging my reputation.
This experience taught me the importance of collaboration with sales. Being collaborative doesn't mean approving every request but working together to understand the product's value and address the real issues. Sales teams focus on closing deals quickly, so it's crucial to assist them in addressing whether the pricing or perceived value is the problem, if the competition is affecting our standing, or if there's a gap in sales training.
The solution involves education on negotiation, creation of case studies, and competitive analysis. Building a strong rapport with sales can transform the perception from a 'no person' to a strategic partner. This is achieved not by title, but by influencing a subset of high-performing salespeople, or 'sales champions,' who can then advocate for effective pricing strategies within the larger team.
This shift is essential for evolving from a perceived obstacle to an integral strategic ally in the organization.
Aaron: Shifting our focus to current trends in pricing, what do you believe is the most significant trend right now?
Karan: The most critical trend currently is the impact of artificial intelligence (AI) on pricing strategies. Companies must acknowledge the value generated by AI and comprehend the associated cost structures. Unlike the software-as-a-service (SaaS) sector, where margins have historically been high due to minimal delivery costs, AI introduces significant expenses related to processors, chips, storage, and computing power, altering the cost dynamics.
Furthermore, the advent of AI is bringing about sophisticated tools that enhance pricing analysis and efficiency. These tools can transform complex data analyses, previously taking days or weeks, into swift, actionable insights. This technological advancement necessitates a strategic shift in how pricing professionals allocate their time and contribute value to their organizations.
Another trend on the horizon is the evolution of pricing models. Traditional role-based or seat-based pricing is gradually giving way to usage-based and output-based pricing models. This shift emphasizes the importance of the outcomes generated by a product or service, a trend that is likely to dominate the industry soon. Pricing professionals should prepare for this transition by considering hybrid and usage-based models while keeping an eye on the long-term move towards outcome-based pricing strategies.
Aaron: What advice would you offer to pricing professionals at the beginning of their careers?
Karan: My key advice is to be curious and invest in learning. Early in my career, I regret not reading as much as I should have. While books specifically on pricing, such as Thomas Nagel's "The
Strategy and Tactics of Pricing," are crucial, broadening your knowledge beyond pricing is equally important. Understand financial concepts by reading books like "Financial Intelligence," which clarify profit and loss statements, balance sheets, gross and net profit, and contribution margins.
Additionally, delve into marketing, supply chain, and human behavior to develop a well-rounded perspective. Books like "Thinking, Fast and Slow" can offer insights into decision-making processes. Writing skills are also vital; they enhance your ability to communicate effectively, whether in emails, presentations, or other professional communications. Improving these skills can significantly impact your career success.
Aaron: Could you recommend any resources for our pricing community?
Karan: Definitely, start with The Strategy and Tactics of Pricing by Thomas Nagel for a foundational understanding of value-based pricing. Explore works by Robert Cialdini, such as Influence: The Psychology of Persuasion, to grasp the art of persuasion. Financial Intelligence is essential for financial literacy. For those in SaaS, The 1% Windfall offers insights into pricing strategies. I have compiled a list of recommended readings on my LinkedIn profile, covering various subjects to broaden the knowledge base of pricing professionals.
