Well, all right. Hello and thank you all for tuning into yet another episode of the Professional Pricing Society podcast. Once again, my name is Terrance, and we have a great friend of PPS joining us today. His name is Barrett Thompson. Barrett actually leads the business Solutions consultant team at Zillion and has built and delivered optimization and pricing solutions for Fortune 500 businesses in diverse vertical industries. He also was a speaker and an author of a number of books.
Barrett, how are we doing today? Terrance, I'm doing great. Thank you for having me on the podcast again. Good, good. Absolutely. It's a pleasure to have you as as always. Now, your upcoming talk at PPS is about a topic that most price professionals and BDB companies wish they never had to address and that is the topic of price decreases. Why did you choose to discuss this topic with me today?
Well, you're right, Terrance, that you know most of the time if the world can be up and to the right. Over time that's where we want to be and in fact I think for most pricing folks that's been the case probably in in a lot of their professional career. But you know a season of price decreases is a very real possibility out there if you listen to some of the economic forecasts and and the last thing you want is to get caught flatfooted if that hits your
business. So I thought that it might be timely, especially if the people listening and in the roles today have not been through. Sustained and broad and industrywide or even planetwide economic downturn, they might have no personal experience from which to draw. I think it was the, you know, the last big global recession was around 2008, 2009 sort of kicked off then it took a few
years, so that's 15 years ago. We've got a lot of a lot of great professionals in the business that have come in since
that time. And so they've probably been focused on year over year price increases keeping up with inflation and that may really be the thing that they're strong at. So you know, I'm a, I'm a Boy Scout and work with the scouts still Terrence and you know our motto is, is as be prepared and when you say be prepared for what you know for anything really for whatever happens in business. So that is my motivation to bring this topic around systemic intelligent price decreases.
That's good, that's good. It is a very timely matter. Price decreases always can be a timely discussion. So I'm glad that you are addressing this with us today. Now let's talk about this. What's the difference, What's really the difference between price decreases and increases? Isn't that kind of the two sides of the same coin? Yeah. It's a great question and at some level. Increases and decreases have a
lot of similarity. I say it in the sense that the core skills that a pricing professional uses to manage those increases are going to be extremely valuable when they get into a season of pervasive decrease. An example of this I I see many businesses talking about and taking steps toward price automation.
As one idea using technology for example or making data-driven approaches, getting out of sort of a gut driven instinct level price setting or getting away from peanut butter spread price changes and doing segmented and smart and and surgical price changes. So those same ideas and concepts are going to apply in the decrease world, the price decrease world, but the details how do you apply those can? Very dramatically in some cases when prices are dropping.
So that's where it gets really interesting. That is interesting. Okay, that's very interesting. Now, is there any examples that you may have of a familiar concept that takes on a different form when it is applied to price decreases versus price increases? Yes, yeah. I'll tell you one that I think, I think most people are familiar with. And you know every price professional that I speak with, they, they have a way to measure their year on year price change.
And often they they do that to show the improvement if you will, that the pricing team and the pricing program is bringing to the business. Now the general form of that is to show the change in the key metric, like average selling price or gross margins. But here's the expectation in a
typical inflationary period. Probably everybody at the company has some rule of thumb that says, well, during inflationary times, you know, if you took the gross margins up by 50 basis points, maybe that's good. If you took it up by 100, it's great. If you did it by 200, you know it's outstanding, right? You're a hero and you get the you get the parade, the confetti parade, but and coupled with that.
In that same inflationary period where we expect the number to go up, if you had to report that your overall number was negative, maybe -40 BPS on that gross margin year on year, that would be a shocker. It would be clearly a sign of failure, right? Positive numbers good, negative numbers bad. So if that's how you're thinking about measuring your price performance, what's going to happen when you flip into that recessionary world and the assumption? Is already set that prices are
going to decrease. So right away like you're not going to be reporting a positive number. So that may be obvious, but it's sort of very different. So you like when I wait a minute, I'm going to be reporting a negative year on year change in margin due to pressure. And so if you report that same -40 bits, that would have been bad under the inflationary world, but now we're in the deflationary world, you report -40. OK, here's the quiz. Are you a hero or a zero at that moment?
Right. And honestly, I think nobody knows or they might not know inside that business. They might have no instinct about what good looks like in that kind of economic condition where prices are going down. So, you know, let me offer how I've seen some people address that, for example, if they might have had an industry report. Showing that in their industry, their competitors experienced an average margin loss of 100 bips in the downturn.
So hey, in that case, you've done far better than your peers. So even though you're negative, you're good, right? I would think so. I mean, that's perfectly legit. Or it might be the case that your financial planning team at the beginning of the year, they had a forecast of this margin pressure. And they might have for actually built in a loss in margin rate into the financial plan just
being realistic. So what if they planned however to take only a 20 basis point loss on margin that's what they built into the finance plan and you delivered twice that. I mean you you you lost twice as much as they expected. So they might say, well, hang on a minute, you missed the plan, right? So these ideas and these examples show that you're going to need to think carefully about how you plan with other stakeholders.
How will you judge price effectiveness of your price program over time in a recessionary environment since we cannot just say if the. Margin rates or the average selling prices go up. I must be good and if they go down, I must be bad. That logic isn't going to fly anymore. And so you have to think a
little differently. Plan ahead, decide what your anchor points are going to be so you can measure yourself against it. Because in the deflationary world, the assumption is those key metrics are going to go down. So that's a little that that's a different that's one example of how you're used to measuring. But the way in which you measure and define good and bad needs to be thought through a little more carefully.
In the recessionary world. That's interesting, that actually makes a lot of sense and it's especially for Recessionary times. That's a very interesting example that you provided. Now let me ask you this, how, how does the goal or or the tactics of pricing of the pricing team change during recessionary times? I'll offer with a what I admit is a bit of an oversimplification, but I sort of think of it like this.
And we'll start with the inflationary time and then we'll contrast in the inflationary time. The general goal is to, you know, raise your prices as much as possible without putting your revenues at risk. I think most pricing teams are. Inherently seeking this, they're trying to find that glass ceiling of prices, right? What's the highest amount I can charge? And of course I want to move there as quickly as I can, but I still want to hit other objectives.
I have a revenue objective, a market share objective, so I don't want to compromise those. But you know, we talked about leaving money on the table. The pricing team is essentially saying, how can I take that money off the table? Where is it? Somebody tell me how much it is and let me go grab it and bring it back to my own company and the way I increase my prices smartly. So all that makes sense. But that's during the
inflationary time. You want to take that money off the table, put it back in your pocket. But now let's flip over and look at the deflationary time. You know, the goal is fundamentally different. If you know your prices are going down, you are effectively putting money onto that table. Right. You're you're putting it on, you're you're giving it away in some form. You're not taking it back. And so here is how your tactic changes.
You want to give away the least amount possible and you want to give it away at the latest possible time. That's the mindset you have to have. How can I lower prices just enough but no further? And I want to delay that price decrease to the latest possible moment in order to hit my other goals, revenue and share and so on. And you know, your competitors are doing this too. And so you can think of this as like a game of mutual bloodletting, if I could say it
that way, right? He who bleeds the least is actually the winner. So your job as a pricer in the deflationary environment is. Honestly and transparently, you're going to be bleeding off price, you're going to be bleeding off margin and you want to do just enough, but not too much. You want to avoid being the first one to race to the bottom. We've all heard that.
It's certainly true here. So you have to work hard to be sure that you're not overshooting by the amount of those price decreases you give or the timing with which you give them. And so that really inverts, you know, the tactics that the pricing teams are generally using in the normal, if you will, normal inflationary period, HM Okay, that's good. So to put the least amount on the table at the furthest time is what you're saying does.
That make sense? Yeah. You know you're gonna have to give something cuz there are gonna be again, there's an assumption around this. Inflation or sorry, deflationary period is the price pressure means prices are going down overall. They're going down more often than they're going up. So you have to figure out where do I need to take that price decrease, how much is just enough? Not too much. And then you don't want to lead
too early. You don't want to give a price move, you know, six months before your competitors do it, Not if it's downward, you don't want to give it away yet, right. So the timing is going to matter there as well, but at least my own table, the latest at the latest amount of time. Now let me ask you this, What happens if I overplay this hand of mine and I hold back on a price a little too much, or I hold out on a higher price longer than I probably should? Does that? Does that hurt me?
Yeah, that's that's really the risk, right? It is this balancing game and a game of judgment because it will, you can get, you can get burned on either side so. Let's use this example you gave. What if I'm hanging on to a high price in a market where the prices are decreasing? You know, how does that hurt me if if I my price is too high or I hang on to it for too and I hang on to it for too long, How
does that hurt me? The way I think about it is you might have to ask like a correlated question and that is, what is the what is the scope of that price mistake that I'm making? You know an example is if. If I have 10,000 skews in my catalog, and it's only a handful but doesn't skews, you know where I'm kind of got the wrong, too high of a price or I'm hanging on to it for too long. You know what? What might that mean?
When somebody comes to my website and they're filling out that order, putting things in the basket, maybe I lose one item on the order and that has some impact, but it's not the end of the world. You know what happens if it's a bit more pervasive, and I've got several. Product categories or hundreds of products that are mispriced and maybe some products that are very visible.
I do a high volume on those. Well, back to this example, my ecommerce customer, I might lose several products and in fact if they're filling out the order online, they might say, gosh, you don't have much of anything I need priced the way I want to buy it. So you might lose the order itself. Now that could be a one time thing, right? They come to you in January for replenishment. You didn't have the prices right. You were too high. You were too late with your price move.
So you lost the January order. You know if they've been doing business with you for five years, 10 years, they're likely to come back in Feb and just try again and see if you sort of got it right, see if you got synced up. But what if you. What if you didn't? What if you continue in a pervasive way and over time, you're? Always lagging the market in terms of taking that price down when the others are going down and you never seem to get in line with the market level.
Well, after the customer comes a couple of three times and gives you a chance to get serious and get it right. And they see that you're not and they've given up several orders. At some point they're just going to move on as a customer. They're going to decide that you're not the vendor for them. And then if your situation is really pervasive, I mean.
Major parts of your catalog out of whack, You're hanging on to prices many months let longer than you should, then you're not going to lose just one customer, right? You're going to lose many customers and that's tantamount to losing a market. So the the, the impact that it has, how much it hurts you to be too high or too late on your price move is largely dependent on how often you're making that mistake on how many products and how long are you hanging on to
that mistake. Wow, But that's that makes a lot of sense as well. Holding out for too long can come back to bite you in the bud essentially and not just with customers or clients starting to potentially question if your value, if your product is worth that value or not. But it could, it could move them towards them as a customer moving on from from your product. And then the worst case scenario is, as you said, losing many customers, essentially losing a market as a whole and so huh.
Yeah, there's some tolerance. There's some tolerance for like occasionally I don't have the numbers quite right. You could take some bumps and rattles here and there and you can work that out over time. The market is likely more forgiving of that. But if you show in a big way like. Every time they add something to the cart, you're 15% higher than the other guys. And you seem to, even though you might say to yourself, well, I have taken my prices down, you know, since the beginning of the
year, yes. But if you've only taken them down half as much as someone else, or you've taken it down on half the products but you've missed the other half, you know you thought you could hold on to it. These things are always asymmetric. You know you'll be able to, you'll need to drop more in some areas than others. That's true. Hopefully you can judge each of those appropriately, but. Let's see if you get it right. Half the time, you miss it half the time and you stick with that.
That's gonna be more obvious than if you occasionally, you know, have a blip and then you catch it up in the next cycle. So it's a balancing act. It takes a lot of finesse. It takes a way to sense what's going on, you know, watching the order streams, watching win loss rates. Looking at well for using ecommerce for example, even monitoring you know, card abandonment rates would be
incredibly useful information. But even getting feedback from customer service reps and field sales reps on the kind of thing that the market and the customers are saying when you went in with that line item and you went in with that price, you know, if if you're way out of line, you're likely to hear that. And if you hear that from several places, several different customers and close
proximity and time you know. You can begin to trust that signal, sure, yeah, if the patterns there, it's likely true. Right now it seems that you're fairly deep in your exposure on price decreases. Let me ask if you don't mind me asking where did you get that exposure since most of the time the pricing function is centered around around increases. Yeah, that's I too have realized so many B2B businesses and in their normal times, right, the.
It's up and to the right as we said at the beginning and that's that's great in the growth market. But interestingly, Terrence, even in what we would consider times of growth when the economy is not in a recession or not under this kind of pressure, there are specific industries whose natural state is that of decreasing prices over time, sometimes radically decreasing prices.
And I know that might seem. A bit odd to folks here or you know maybe if you're in industrial manufacturing or you are in certain kinds of distribution, you know building supplies, something like that. You you do not see routine price decreases year on year in a stable or normal or growth market. You see increases right in the inflationary world, but in semiconductors, particularly the manufacturers making the CP U's and memory chips and so on, LED
lighting. Also went through this and I think it's still in it several years ago when at when there was a big conversion out of you know incandescent and fluorescent to LED lighting the because that's a high tech thing a lot like semiconductors every quarter and every year prices were dropping double digit period on period. And so out of those industries when I've worked with those kind of customers and when I've talked with them about their needs and.
Kind of gotten In Sync with how they think about approaching their pricing, since this is where they live all the time. This is what they live every month and every quarter is deflationary prices. That's where I've been able to glean some of my best understandings about what are the strategies and tactics that should be used. When any B to B company is in an A deflationary period, even if that might be the exception for them, you know it's the norm for
someone else. So I've done my best to pick up on the practices that work and distill those down and you know, compare them to what is usually experienced in the price increase world. So that informs my perspective, and I'm looking forward to sharing more of the ideas and strategies that I've learned from these industries at the MIPPPS session coming up in October. Mr. Barry Thompson everybody. You are full of knowledge on this topic and you know you would be considered an expert in
this realm. So I want to thank you so much for being on this podcast with us. Barry Thompson is going to be with us at our Atlantic Conference coming up in October, specifically October 10th through the 13th. Want to make sure you guys take the time to visit our website priceandsociety.com and visit the conferences tab to learn more about about the upcoming conference, those guest speakers who are gonna be in attendance,
and what you can expect. Now, Barrett, one more question before I let you go. Where can people learn more about you, or read more about what you stand for, who you work with, and just all things Barrett Thompson? Well, I encourage them to connect with me on LinkedIn. You'll see my profile there at Barrett Thompson 2 R's and two T's in the first name, and I'll be happy to make your connection. And also, I look forward to
seeing you at the PPS event. If come by, see me at the session or see me at the zillion booth on the vendor hall and let's be sure we trade contact information. I look forward to seeing you all there. Sounds good. Thank you so much everybody for tuning in. Until next time, have a good one.