All right. Well, hello and thank you all again for tuning into another episode of the Professional Pricing Society podcast. My name is Terrence and we have a great conversation today. We have a duo tag teaming today, G Mukherjee, VP and Head of Pricing for Holding Advisors and Kevin Mitchell, President of PPS. Today, they're going to be speaking with us about pricing power and we're very excited for this discussion. Gentlemen, how are we doing today? Doing great. How are you doing?
Good. Doing good. Doing just fine, Terrence. Thank you so much. Gee, always good to talk with you. Great. So looking forward to a discussion here. Yeah, absolutely. Good. Good. Now, now, Gee, I just wanna start this conversation off by asking you about your recent interviews with some Cxo's this year, if you don't mind expounding on that. And then of course kind of you know going into the topic of pricing power. Yeah, yeah, yeah, it was.
It's interesting. It's my second year doing these interviews. And typically we just talk about you know what these companies are going through, what are the challenges that they're facing. So last year obviously you can imagine inflation and the the turmoil in the industry was sort of a top of mind for all of these folks.
This year is kind of mixed bag, a lot of confusion what's going to happen, interest rates, things like that, normal stuff, you know, little little bit of a continuation from last year, but one of the things I asked because I was curious. I asked him about pricing power. I said, you know, is pricing
power important to you? It's one of the questions I had and it was one of the few times where that question was answered the same way by all participants, which is yes, it's important and it's something we want. And I said, oh, that's great. You know, usually you don't get like a full 100% saying yes on anything. And so I said Okay. Defined pricing power was sort of the second follow up question and I got 40 different answers
for what that definition was. Some of it I understood because it's really industry specific and and specific to their company. So I get it and they jump right into why they don't have it, some of the issues they have within the organization. So that's understandable. But the definition just wasn't there. So that was the big trigger for me to kind of dive a little bit into it and see if we can find some common language.
If we can find a way to measure it, to identify with it and then to talk about the two big questions, which is if you don't have it, how do you go get it? And if you do have it, how do you maintain it? So that's kind of the genesis for this conversation and some of the writing that we're doing. That's very interesting sheet and also as part of the Professional Pricing Society's surveys.
For the past four or five years, we've asked people to rate their company's pricing power on a one to 10 scale and for our most recent survey, which started in December 2022, so about 8 months
ago as we are recording this. We got an average score of 6.47 on a scale of 1 to 10 when we asked people to rate their company's pricing power, which was down slightly from a year ago from December of 2021. Obviously there are a lot of external things that we're all facing now, but we did see a slight decrease in the PPS index talking about pricing power there and of course for a lot of this and probably why your CXO
members. All answered positively and immediately when talking about pricing power is I know in our conferences and in our workshops, a lot of us have seen the quote from Warren Buffett that says, you know, he evaluates business based on their pricing power. And basically if you're in a business where you have the ability to alter prices to meet your company's goals, then that's a good thing in his eyes. And if you do not have that ability, then that is not a good thing in his eyes.
And the consensus is he's a pretty smart investor. So there is a lot of attention around pricing power. And of course, with macro economically, everything that's going on, Gee, right now, it may be a little bit more nebulous than it's been in the past because in this hybrid inflation area where some input costs are going way up, like labor is still increasing. Some are flat, some are down,
and some are a roller coaster. It really can depend on your short term goals, your medium term goals and your long term goals and your company strategies on what pricing power may be. So I think it's a very interesting topic. Yeah, you know the it's a great jumping off point is a warm buffet quote You did actually. I know you're doing it on the top of your head. You did a good job of, you know, saying that quote that there's an ending part that was missing, which is.
He he looks at your ability to raise prices without losing customers and and that's that's a critical piece of that definition. And I kind of pulled up the same definition Kevin because it's like a Business School thing that everybody kind of goes through because it's a really interesting way of stating it. And given sort of my value based history and and my knowledge, I kept reading that definition and I just felt like it was incomplete.
And the reason I think it's incomplete is because. It there is a theory that's behind it that says hey if you're above your differential value and you're still raising prices you're not going to lose customers.
And which I think is wrong and and and because I think of let's say Apple. Apple is like you know one of these great companies that we know they have pricing power they go do whatever they want to do it seems like and they're never losing you know their their customers it seems like and people are still waiting in line to get certain features and the latest gadgets and all that sort of stuff. But if if Apple said hey, my iPhones are going to be 10.
$1000 while Samsung and others are offering similar features at 1000. I would probably guess that they will lose some market ship may not be all. They're still going to be segments that are going to be like Nope, Apple or die. I get that and they have the they have the buying power to pay the $10,000 but I have a feeling they're going to lose some customers on that.
So I love the Buffett quote quote and I think the way he said it in the context in which he said it is accurate, but I think it's a little incomplete where I would add that notion of being able to. To create differential value and being able to capture more relative to your competitors based on that differential value and not lose customers, then I think the definition becomes a little bit more complete from our world. Absolutely. And Apple's a great example of that.
You know, obviously is a consumer goods company that we all know and that many of us love. Perhaps not all of us, but many of us do. And I remember in Wall Street Journal, I believe a couple of years ago, came out with some interesting statistics about Apple. And I have asked people this in our workshops and elsewhere. And basically if you ask people how much of the global smartphone market does Apple
have? And they'll say up 50% or something like that, when in reality it's somewhere in the upper teens, it might be 20% at most. But of course, the corollary to that is how much of the global profits do Apple does Apple take from the smartphone market? And there. Seventy 8090%.
So it's an interesting case. And Gee, one thing I was wondering about with you is I know that I talked with a lot of our member companies that say we are not the largest in our market, we are not first or second in market share. How can we determine if we have pricing power, How can we get it? And the questions that you raised earlier, how can we use it effectively and efficiently as well? Yeah, I think the definition part and, and I'll be totally honest with you, we haven't
done. That the measurement part of it, we haven't quite finished the entire process of how we're going to measure it, the pricing power piece, but we have created categories to understand it. And I'm the way I kind of think through it is I tested with different sort of B to C companies. So one of the things I did was say, let's look at automakers, right? And I said automakers is a great one to look at.
There's data everywhere. So I can just kind of play around with it a little bit to see where people stand. And what I noticed was that first of all, the segmentation piece becomes really important, which is are you measuring yourself against the right competitors? Are you measuring yourself against the right vertical that you're focused on? Because when I put all car manufacturers together, I noticed that, you know, one of the things that we're looking at on one of the axes for
measurement is obviously margin. You know if you have high margin relative to your competitors, you the assumption is you have some level of differential value whether that's in the product itself or the execution of the product, delivery of the product. There's some differentiation somewhere that you're capturing through that margin. So margin has to be a component of your of your pricing power obviously. So if I look at automakers, you know, you can't compare a Ferrari.
With a Toyota as an example, right? Because then your scale isn't accurate because the vertical, even though it's auto manufacturers, is completely different and the segmentation piece becomes so important here. And what I keep coming back to is how you measure yourself with the competitors. A Ferrari would never use Toyota as a next best competing alternative to measure their differentiation. They're gonna use a Lamborghini.
They're gonna use whatever. I don't know the names of all these fancy cars, but you know, whatever it might be, but that creates that segmentation to really know relative to that market where are you. But to answer your question directly, I think there are companies out there that can
have niche segments and niche. Portions of the market that they go after with really high margins and they're able to take margins up based on the differential value that they're creating for that very specific segment relative to how competitors are behaving in there. So I think there is an opportunity to have smaller market share relatively to the larger industry and still have
prices. Very interesting. And I like the concept where your company might have niches or special business units or product groups that might not be reflective of the overall company standings in some of those areas where you can wield pricing power, can be more of a leader and can also kind of set the place for that individual
marketplace or for that niche. And as we know, pricing leaders can be beneficial, but they're also probably a lot of examples where they have been suboptimal, let's say, to put it politely, where certain people have had pricing power and have used that to have a big price war battle for market share or something like that and have led entire industries down for quite some time. So it's something where, just like with everything else, if you have power, you have to use
it efficiently. Effectively and make sure that you're thinking about the right things you're keeping to your company business strategies and make sure that you are wielding that pricing power effectively as well. So that's very interesting. Yeah, and I won't mention names here cuz it gets a little tricky, but yeah. Let's not mention that, yeah. So imagine Apple. Apple's a great one. They're not gonna do this, but imagine if they stop differentiating.
But they kept increasing their price, right? One of the things we do have see happening all the time is when people do get that pricing power and they realize they have that there are some industries, there are some players that decide to continue to raise price relative to their competitors because they have that differential value, but they don't invest in that differential value long term. So the nature of the market and nature of competitors is it's
dynamic. So we can't think of ourselves as being a moment in time. We have to think of ourselves two years from now, four years from now, five years from now, whatever that horizon is based on your industry to really understand how we're going to create value over time. And what I'm seeing is there are some companies that aren't differentiating. They're trying to capture more and more profits today at the cost to the customers.
And what happens is the customers price sensitivity goes up. And it goes up on a, it's almost like exponentially. It goes up when they feel like they can't trust the company anymore. That trust piece is broken and the customers then all of a sudden are willing to go to a less differentiated solution and
grow them. And we're seeing that where it's almost like there's a new market life cycle that gets started with smaller companies more nimble, more technology forward where these these almost like these giant big companies that are just raising prices, customers are upset and they're jumping the curve, the S curve to the next curve and they are just creating the competitor's success and it's going really well and these larger companies go, Oh my God, what just
happened and they just get blindsided because they truly to your. Point Kevin, they did not use their pricing power in the correct manner to continue on that journey. They kind of had a one and done type of scenario from raising prices. Yeah, definitely. And we know that our customers are very smart in almost all cases have good memories as well. And Gee, just how you mentioned that defining pricing power is difficult for executives, for
leaders and so on and so forth. There also we all know that if your prices are not fair, then in the long term it will definitely come back to bite you and defining fair can be a little bit tricky as well. We all have the goal of having fair prices, having prices that allow us to grow profitably, which is great for our marketplace because that lets us reinvest in R&D and our people and our communities and our product groups and so on and so forth.
And that's how you can make that kind of win, win with your customer bases by having prices that are fair, particularly when you can wield pricing power and thinking about mediumterm and longterm and not just shortterm. Let's get everything.
That we can. And it's also interesting, I've heard from a lot of our members who recently kind of near post pandemic, we hope, knock on wood, that a lot of the discussions now are about reining people in and saying yes, with our supply chain having issues or with input costs going up, with inflation going up, we really, really.
Might be in a position where we could really raise prices a lot, but that might not be the best thing for our company in the medium term and the long term because you want that fairness, you want to be a partner to your customers and you want to have an ongoing type of of a relationship with them where it's not as you said, just one and done and moving on that way. So really, yeah, it's about a good long term.
Profitable growth strategy and making sure that you have the ability to reinvest in that engine to keep things going for you, for your marketplace, for your customers, for your employees, for your communities and so on and so forth there. So I think that's a very key point.
Yeah, It's what we're finding and seeing is obviously the more power you have, the higher the threshold for what's a fair price, right, because you're able to push it more than your competitors because you've got something extra. And what I'm also seeing is these companies have this notion that, you know, they don't look at differential value as a constant for today. These customers that are buying, they're looking at your ability to create differentiation in the
future. And that gets baked into the idea of how much they're willing to pay. So if when you look at Apple and apologize for using the same person over the same example over and over again, but it just makes perfect sense, which is because everybody can relate to it, We know that Apple's going to come up, and even Samsung, you know, just to change up the company. We know that Samsung's going to come up with a great product
next year, the year after that. So my ability to pay a little bit extra is not just for what I'm getting today, but it's also investing in the fact that I'm gonna be getting on a continuum more differentiation over time and I trust this company to create that differentiation. So my. My willingness to pay for what's fair goes up just a little bit because I'm thinking about differentiation on a continuum rather than thinking about differentiation just now for
this moment in time. So that piece becomes really important to bake into our calculations as well. Definitely. And it's also interesting that there's so many variables and so many inputs. Obviously, there's a good bit of behavioral economics and psychology. And this is, well, not only on B to C for consumers, but for businesses as well, because sometimes we all act as consumers, as consumers and sometimes consumers act as businesses now with our wealth
of information. So there's a bit of a blurring there. I'm, I'm feeling and I'm seeing. From the marketplace as a whole. But really, it is important again to just remember your strategies. Remember that it is not getting everything that we can today if that's going to hurt what we can get tomorrow and next week. As well. And it's just a situation where if you have the power, then definitely you have to wield
that correctly. You have to think about the marketplace as a whole thing from your customer's standpoint. Think about competitive actions and reactions, and use your game theory. Use your behavioral economics, use your analytical skills, your qualitative skills, and kind of all of the above. And it's a case where you have data, but things have changed so much. You have to take data, analyze it, use a grain of salt and
really think about what's next. So it's part data and part crystal ball about what's going to happen next and what your competitors are going to do as well. It's a very interesting topic. Yeah, the the next step is probably the one Kevin that we are spending a little bit of time on is, is the notion because as we do value based pricing, we're very sort of in tune to. Features, functionality, services that create that differentiation relative to competitors.
What we don't look at sometimes is what's going to affect purchase decisions long term that may not be quantifiable today. Then how do you bake that into your price? And that's the piece if you look at ESG, which is the perfect example of it, you look at sustainability where there's something, some markets quantifiable, right, carbon credits, things like that. It's quantifiable. You quantify it, you put into your pricing and you move on, moving on.
But then in some industries, you can't quantify sustainability, you can't quantify the differentiation it creates or anything. But you know it's going to affect purchase decision decisions, behavior at some point. Maybe it's 2% now next year, maybe by 5%, maybe it'll go down. Will go up, but you know it's going to be there and people are investing in that because they think there's going to be an effect and purchase decision at some point in the future.
And they're kind of positioning themselves to be able to capture the market when it does become a bigger portion of that decision making because that's when it converts from long term value driver to an actual value driver that you need to quantify for your price. And understanding that now instead of understanding it when they're actually making a decision off of it obviously is a very important piece.
So long term value drivers that's unquantifiable right now I think is going to be an important piece of this topic and how we bake that into our pricing is going to be really, really important. Yeah, that's a very good point. And hey, what interesting times that we're in where we have things that are changing like this and new things that are
coming about. And I was lucky enough to be a part of the pricing for the Planet Symposium that was in Paris a few months ago and would encourage everyone to check out pricing for the planet for some insights about that. But we talked about ESG, about sustainability, about what it means to our marketplaces. Are they separate products? Are they cases where we let people self select and decide, hey, if this product is more sustainable? Is it a different product? Is it an addon, is it a
replacement? And it is a case now where we have a lot of variables that are going into the thinking about that and thinking about other things that are new frontiers as well. And so really it's very interesting that it is difficult to be so forward-looking for something that is rather new right now, but it's also necessary to do that and to make plans for it.
And hey, that's why pricing people, that's why we get all of the accolades and all of the big bucks because of the decisions that we make and because of the inputs that we have and the effectiveness that we can wield for our organizations in discussing things like that. So, yeah, another great topic, something else that's brand new, something that will become part of some organization pricing power, some organizations differentiation and other topics there to come as well.
So, yeah, very good point there. That's great. I think so too. One thing that we haven't talked about is the ability to go get pricing power and that's the piece that is very industry specific as you know Kevin and. And it's interesting to me how some of these companies are behaving and acting because this is where sort of branding
becomes, it's becoming a topic. So a lot of the Cxos that we chatted with, they felt like branding and execution power and how you execute in the marketplace are two things that creates that. Pricing power long term that just your pricing by itself is not helping you create or the differentiation is not just helping you create.
So that's the last area I'll talk about which is you know the ability for a company to actually go out and execute all the things they do through the sales organization, marketing, product development, everything put together from an execution perspective becomes important for us to measure and track. So that has to go into the measurement of pricing power and how it affects the different industries that are out of it
definitely. And one question that you mentioned there and that we've touched on a little bit is you know how can you determine if you have it and how can you get it? Have you talked with Cxl's or other leaders who have basically tried trials with particular product units or geographies in order to test what would happen
when they try to wield power? There, there have been and there's mixed results from it because I have a feeling in talking to some of these folks, they weren't looking at pricing power as a comprehensive sort of go to market strategy almost because we use. You know, it's almost like a disservice to call it pricing power.
You're actually looking at the company holistically because then you know, like I was saying, if you talk about sales organization, you talk about marketing and product development, you're branding overall, all of those things are incorporated into pricing power. So if you are too monolithic in how you're looking at your pricing and you're doing a test in a region, it's just price based and competitive price
based. You're missing all the other elements, which is did you look at your customer service? Did you look at how you're presenting yourself in the market? Did you look at all of those other things? Because those also kind of add to it. And some of these companies talk to me about how, hey, it wasn't working that great because you know we could not execute on the some of the things we promised we were going to execute on. So they missed on some of those
things. So it became sort of a. A lot of false positives that were out there and also a lot of things that were out there that they they felt it was incomplete or inconclusive out of those tests. Interesting. So you have to think of it from your customer's perspective as a total cost of ownership from a holistic perspective where it's just not one lever that you're changing, it's one as part of a huge machine.
It's just one cog in that machine and you have to make sure that everything is working as it should there as well. So yeah, that's very interesting. That's right. Gentlemen want to jump in here and more so Serve Allow this podcast to serve as a teaser for Jeets upcoming Keno presentation in Atlanta. He is going to be speaking with us about how companies can build and sustain pricing power. So I want to thank you all for
this discussion today. I hate to be the the bad guy to pop the bubble, but I do want to let this to be the allow us to be the teaser for this discussion we could go on and on about. About this topic. Especially with these two, with these two fine gentlemen. So I want to thank you all so much for being in this conversation today. Gee, where can listeners go to learn more about you or pricing power or or holding advisors? I think holding advisors.com is the perfect place to get
started. OK, sounds good. And then Kevin, everybody knows you are already Mr. Popular, so you can probably just go to linkedin.com type in Kevin Mitchell Pricing Society or you can go to pricesociety.com to learn more about you and the upcoming conference. Also if you are interested in the conference, you can go to priceandsociety.com to register or just to learn more information in general. Kevin, do you have any departing thoughts or or or you know, anything you want to leave the
listeners today? Yeah. Mr. Egglesson, thanks for keeping us on time. Appreciate that. Obviously, Jeep Mukherjee and I could talk for a long, long time on this issue. So thanks for keeping us on time and keeping us on task there, Jeep, Sincerest congratulations to you and your team on the 2nd
edition of your book. And I am really looking forward to you joining us in Atlanta in October for the PBS 34th Annual Fall Conference. And also your town Hall will have a lot of great opportunities to sit down and to discuss pricing, power negotiation strategies, sales pricing and a lot more. But always good to talk with you. So thank you very much, Jeep. Thank you, Terrence and enjoy the discussion today. Thank you very much. Really appreciate it. Looking forward to October.