This is taking Stock with Kathleen Hayes and Pim Fox on Bloomberg Radio. Pricing it's crucial to business survival and success, but it's arguably the most difficult business function to get right. Occurring to our guest here in studio with us today, Tim Smith. He's the founder and CEO of Wiglaf Pricing. He's an adjunct professor at De Paul University, and importantly he's the author of the new book Pricing Done Right,
the pricing framework proven successful by the world's most profitable companies. Congratulations, Tim, and welcome to the show. Thank you for having me so. First of all, tell us about your your pricing model. What is that? What is it that you have analyzed and distilled down that a lot of companies don't really grasp. Well, I've been taking a look at pricing as an organizational challenge, not as a algorithm or a methodology challenge that was
handled in my textbook Pricing Strategy. In this book. When I'm looking at is great. We have all this technologies, methodologies. How do you implement it? If you're like ge or if you're Emerson or Abercrombie and Fitch, how do you
actually apply these questions. Well, let's talk a little bit about the details of pricing on an industry by industry basis, because just before you came on, you were talking about how sometimes the pricing strategy for one industry at one particular time in history doesn't apply to what's going on currently. Give us the sort of current state of pricing, and then what you see is a better way to do it. Look, the the past state that I'm transitioning or the industry
is transitioning, was cost plus finance. I'll go out there and say this is my margin I want you to do. We'll get Marketing would say great, I'll make products that should get that margin, and say also say yeah, nobody go buy that, give me a discount and I'll sell it.
It doesn't work. So we're throwing that paradigm away of cost plus pricing and arguments and replacing it with value based pricing, focusing on the customer and how that specific customer set sees the offering be at product or service and they're willing to pay for it. And a good example of how something works one and the other one doesn't work in the other. You take a look at Um Johnson, who worked at Apple, worked out wonderfully. You
know this single price, everybody pay this basic price. Ron Johnson, right, formerly the CEO of Apple, Yeah, Ron Johnson. And then he transfers that same concept method diality to J. C. Penny and complete disaster. He just destroys the company and he has to go after a year and a quarter. So tell us then a little bit more, because I think for a lot of people it's still sort of sounds like management speak. The culture around value based pricing, how does that work? What is it? The cultural value
based pricing is focusing on the customer. And if I had to put that in a simple paradigm, I'd say from the customer's perspective, the customers asking when they approach your company, what's my alternative? Are you offering me something better or worse? And do I care about that differential? And so the pricing comes down in prices against the competitor adjusted for the value differential. That's the new culture, the concept everything focusing on customer valuation, not something else.
Have you met chief executives who do not know the price of their products or how the prices were arrived at? Oh, I've met many chief executives who don't know the specific means at which the price has arrived at. And let's talking public news. Take a look at Granger. Granger went from four thousand products to one point six million products. Grangel went from about a four billion in revenue to about nine to ten billion in revenue. Granger quadruple its
profitability over that same time period. There's no way you can expect that CEO to know the price on one point six billion products with millions of transactions every day. Managing a customer like ge versus managing a small customer who's running a mom and pop garage doorshop, there's no way. So Tim, you know you point out, I mean, some people have to rely on discounting, others hardly discount at all. But if I'm running a company I've never done it,
hats off to everyone who does. But if I see my competitor cutting their price, I would think my knee jerk reaction is I better cut mine too. Well, that is the knee jerk reaction. You can destroy your company that way, or that's the right reaction. It's not one or the It's not a one size fits all solution. Think about two cars Porsche versus Volkswagen. Have you ever seen a Porsche discounted? Probably not unless it's already used
it on Craigslister eBay. Right, you don't discount pors but Volkswagens they compete heavily down at the bottom end of the GMS, etcetera. It depends on who your target market is and how that target market is price sensitive. Not every customer is price sensitive. You speak about the and just to correct myself, uh Ron Johnson, he was never the chief executive of Apple. He was the senior VP of retail operations and then went to J. C. Penny.
But talk about the different departments inside an organization and their responsibility for getting pricing strategy at least on the on the radar. So, as I studied in the past, we had finance setting margins, marketing going out and developing products, and sales going and discounting it away. What's changing to get in pricing right is we're adding those three in the initial all the way through to the end decisions with a new function, a pricing professional, and it's Emerson's ge.
Lots of companies have added in this new function the role of the pricing professional is to add analysis, so accuracy of decisions and diplomacy to try to get the two sides to talk together in a positive manner. Well, thank you for talking with us. Tim Smith is the founder and the chief executive of a Wiglaft Pricing, adjunct professor at DePaul University, and the author of the new book Pricing Done Right. This is Bloomberg