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For as long as modern businesses have operated, price changes have lived alongside them, as they are an inevitable part of a company’s lifecycle. When a company decides to undergo a price change, there are many different stakeholders and factors to keep in mind. At a high level, management should pay close attention to the internal and external stakeholders involved in the process of a price change. In this blog post, we will discuss some of the typical reactions by these stakeholders, how to handle them, and why they occur. When a company alters its prices, the impact is deeply felt within its internal teams. Particularly, their sales and customer service team. The Effect on the Sales Team In terms of the sales team, they are the ones usually taking the lead during these big shifts, so they are the first affected. Through ripple effects, even their compensation and work strategies may be impacted. If the prices are increased and the perceived value of the product/service remains enticing to the customer, it could lead to higher sales commissions due to higher-value transactions. However, if the price hike is seen as unjustified by the customer, the sales team may have to face very difficult and uncomfortable conversations with customers when securing deals. This increased difficulty to closing sales may negatively affect their compensation, and in turn, also affect their overall morale. If you like this article, you may also like these related articles: How To Price Products 1 1 Determinants of Pricing Change Management for Pricing Initiatives Preparing the Sales Team To combat potential negative financial and emotional effects of price changes on the sales team, the team needs to re-evaluate their sell stories to be more in-tune with the new price changes. If possible, the team needs to double-down on the value they are providing to justify the price increase. If the perceived value of the offering is actually increasing, then their jobs become easier. If there is no improvement in perceived value, then the transition may require additional training and resources from management. Perhaps management can provide them with a playbook on customer pushbacks in order to best equip and prepare them to proactively handle price changes reactions prior to the change happening. The Customer Service Team Now that we know how to deal with the sales team during a price change, we can focus on the other key internal stakeholder: the customer service team. The main impact of pricing changes to the customer service team is their intensified workload. This is because customers typically approach the customer service team when searching for explanations about price changes. When a price hike occurs, the customer service team should prepare themselves for an influx of customer complaints or negative feedback coming their way. This could overwhelm the team and impact their work environment, which subsequently affects their overall morale. This is why it is crucial for management to prepare this team prior to the price change. The best way to approach this is by ensuring the education of the customer service team on the reasoning behind the pricing changes and how the change affects any internal backend systems. Once they are educated on the changes, they should be trained to convey them to the customer in an empathetic and effective way, perhaps through a playbook management provides them. Customer Loyalty After handling the internal parties involved in price changes, we can move on to the central external group involved in the changes: the customers. A shift in pricing inherently calls customers to re-assess the value of the offering they are receiving. If the price increase is minimal, or the perceived value of the offering is increased alongside the price hike, then brand loyalty may be enoughto keep the customers around. Brand loyalty is a useful defense against negative price change reactions, but it has its limits. Loyal customers may initially convey their understanding towards the price altercations, but after continued increases, or a substantial increase, even these loyal customers may start reconsidering their options. Customer Variations Aside from testing their loyalty, the direct financial implications price changes have on customers varies by customer. Customers on tighter budgets can find themselves disproportionately affected by price increases. They may be forced to halt the use of the offering, or at least reduce their consumption of the offering, while more financially free customers may come out unscathed. Whenever possible, if customer retention is the goal, all customer types should be kept in mind when implementing a price change to preserve the broadest group of them. If it's not feasible to cater to the needs of budget-conscious customers, then the persuasive/communication strategies and techniques that management has trained the sales and customer service teams with become crucial in convincing these customers to remain loyal. Customer Reactions Now having dealt with their reactions, we can discuss the customer’s main expectations when pricing changes occur: clear and honest communication. They seek to understand the reasons why the price hikes occurred in the first place, and what they can look forward to in terms of a perceived value increase. This is why internal training of your sales and customer service team with a response playbook is so crucial, so that customers can avoid any dissatisfaction on the communication side of things. Structured responses on the internal side of things can really help foster customer understanding. Summary In conclusion, the process of navigating through price changes calls for a deep understanding of all the stakeholders involved. It begins with recognizing the uncertainties and pushbacks your internal teams will be experiencing and providing them with the necessary strategies and tools to anticipate these pushbacks. The more confidence you instill in your internal teams through preparation and training, the more clarity they will externally convey to your customers. From an external standpoint, management must ensure an understanding of their customer’s sensitivities and values, and tailor their internal playbooks to capture those values. Generally, for customers, transparent communication ranks above all, as price changes aren’t merely a financial decision, they are a test of the company’s relationships with its employees and customers. Successfully handling this test can foster an even stronger bond between the company and its stakeholders, paving the way for sustainable future growth. As the world’s business landscape is ever-changing, keeping these keystone strategies in mind will be crucial for managing the inevitable pricing altercations your company will be encountering.

Author: Frank Frohmann “This thing called ‘PRICE’ is really, really important. The only difference between companies ones that SUCCEED and the one that fail is that the champions figured out how to MAKE MONEY. They were deep-in thinking through the REVENUE-, PRICE-, and BUSINESS MODEL. That’s under-attended to generally.” (Steve Ballmer, Microsoft, ex CEO) My vision is to support companies with an integrated consulting approach which tackles the challenges mentioned by Steve Ballmer. The article below gives you a first idea about the definition of business-, revenue and price model. The definition is based on more than 25 years of business experience. For more detailed information please contact us or refer to my book ‘Digitales Pricing (Springer Gabler 2018). The second edition will be published in 2022. 1. Price management processes consist of numerous challenges that have different relevance depending on the sector (B2C, B2B, C2M, C2C), industry and company. 2. Important business decisions are upstream of the pricing process: • The definition of revenue sources (the revenue model). • The definition of the value-to-customer and the operating model as central pillars of the business model. This means: professional price management must go beyond the pure optimization of the pricing process. Pricing has to reflect the higher-level decisions on the business model and the revenue model (cf. Frohmann, 2018). 3. In digital business models (platforms, marketplaces, ecosystems, etc.), price is no longer a reliable metric for competitive pressure. Many companies (like Google, Amazon, Alibaba or Tencent) cross-subsidize parts of their business. Not all business units have to contribute to profit. Services are therefore offered for free (Google, e.g., search engine, cell phone operating system) or below production costs (Amazon, e.g., Kindle Fire). The Levels of Digital Pricing at a Glance The starting point for digital pricing is the business model (cf. Figure 1). A business model is a structured representation of the value creation and value extraction of a company (cf. Osterwalder & Pigneur, 2010). The business model definition results in potential revenue sources (products, services, software, digital content, advertising, digital services, etc.). The revenue model of a company or business unit answers the following questions, among others (cf. Frohmann, 2018, p.55ff): 1. With which business offers do we want to generate revenues? 2. Which revenues come from which sources? 3. Can individual revenue sources be combined? Or do we want to offer our business services separately? Most companies operate with multi-tier revenue models. Particularly in the case of digital business models, these are based on a deliberate decision not to generate revenue from certain offers. Examples of two-part revenue models are: 1. Software for free - make money on advertising. Google offers the Android software free of charge. In this way, it promotes the penetration of its mobile operating system, the number of users and its revenues through context-specific advertising. 2. Service for free - make money on advertising Google offers its search engine for free. Advertisers pay for access to user data. Facebook uses the same revenue model for its social media platform. 3. Software for free - bundled with paid service Red Hat Linux offers its open-source software for free. Services must be paid for by customers. Similarly, there are revenue models that aim to generate revenue in all components. One of these 2-part revenue models is "Bait and Hook". "Bait and Hook" is based on the revenue linkage of 2 products that are used jointly. Revenue is generated with both components. Very important for subsequent pricing processes (price level optimization and price model definition) is: The link consists of a durable good and a consumer good that is consumed at regular intervals. Examples of this are the following product combinations: • Copier and paper • Razor and razor blade • Printer and cartridge • Water descaler and water filter. With increasing penetration of digitalization, “Freemium” has become a successful revenue model in numerous industries. 2-tier freemium models are particularly relevant for digital services such as software, content, video games, apps, contact platforms and social networks. The distinction between user perspective and company perspective serves as an explanation: From the user's perspective: "Freemium" is a combination of free and fee-based parts of the offer ("basic for free, premium for fee"). The free version is associated with limited functionalities. Extensions of the basic version (e.g., via premium features) are subject to a charge. From a provider's perspective: Many freemium models rely on 2 main sources of revenue: • Advertising • Digital service. The world's largest music streaming provider Spotify operates with a "freemium” revenue model. Crucially, there are several potential price models for the premium component. For music streaming, for example, subscriptions (e.g. Spotify) or pay-per-use (e.g. Apple i-Tunes). Definition Price Model A price model is based on the revenue model definition. It is created by logically linking six essential pillars. The six dimensions (see Figure 3) of a price model can be defined based on the following questions: 1. Are business services combined into a bundle or do we charge for a single offer? → Scope 2. What does the customer pay for? → Reference base 3. How many components does the price model contain? What is the unit of measure? → Price metric 4. How does the customer pay? → Form of payment 5. Who sets the price? → Degree of interaction 6. at what point of time is the price set? → Time of price setting Price models (how much to charge?) define the qualitative basis to which quantitative price levels (how to charge?) refer. All six dimensions of a price model are logically linked. Linking the answers to each of the six outlined questions defines a model. 1. Scope: As a direct consequence of the higher-level revenue model definition, the number of revenue sources is defined. A current example is the "Apple One" price model. This involves the bundling of 4 revenue sources from the field of digital services (Apple Music, TV+, Arcade and News+). 2. The Reference Base of a price model is based on the question: which offer is the customer paying for? Traditionally, customers pay for a transaction, such as the purchase of a product (ownership) or service. Other potential reference bases are (cf. Buxmann/Lehmann, 2009, p.519ff.; Stoppel, 2016, p.58ff; Frohmann, 2018, p.227ff): a. Access: the customer pays for access to an offering. b. Usage: the user pays to use a revenue source (e.g. products, services, software, digital content, digital services). c. Outcome: Customers pay based on the results achieved. Fulfilled value propositions are monetized. d. Success: customers pay for achieving a defined economic outcome (cost reduction, profit increase, profitability improvement). 3. The price metric is defined by 2 elements: The unit of measure and the number of price components. In particular, the unit of measure can take different forms, depending on the revenue source. Examples are: Price per transaction, Price per storage requirement (in GB), Price per usage in hours or minutes, Price per mile, Price per number of users. As 3 further pillars of the price model, payment form, degree of interaction and time are added (cf. Figure 3). These serve to describe in more detail how the price model is implemented for the customer. The logical connection of the answers to the questions outlined above defines a price model. Example: A flat subscription model for music streaming (e.g. Apple Music) refers to „a single revenue source“ - is based on “access” - covers „1 component“ and a „monthly rate per user“ - is based on “regular payments” – is “not interactive” and an “ex ante price model". The following Figure 4 serves to precisely delineate the 2 challenges (revenue model definition and pricing model optimization). The figure shows 4 revenue sources (software, digital services, advertising and digital content) for Google's automotive division as an example. The 4 revenue components result in 4 potential price models for the different services of Google's "autonomous driving" business model (license fee, two-part rate (base fee + cost per minute), auction/pay-per-click and subscription). The Reference base in particular is of enormous importance in the definition of the price model, as it determines the first milestone with regard to the price level decision. Price models which are based on ownership or access are usage-independent systems. Across different offers, a common denominator is established to which the respective price level (in the numerator) refers. This promotes the comparability of prices from different competitors. This forces the intensity of price competition. A particularly striking example is the music streaming business, in which all competitors operate with a similar pricing model. Subscription models are interesting for some companies, but they are only one of numerous price model options. Many B2C and B2B companies have been able to differentiate themselves with usage-based approaches. Examples of sectors that apply "pay-per-use" are: • Car insurance • Sharing business models (e.g. bike sharing, car sharing, e-scooters) • Online advertising (pay per action). Ultimately, a customer only ever pays for the satisfaction of a need or the solution to a problem. The needs-based perspective generates a much broader basis for price model design. Digitalization triggered the evolution of price models which led to value-driven reference bases: - "outcome-based" - "success-based" Innovative price models focus on the customer's benefit (outcome, success) rather than the transaction, access or usage. In creative - outcome-based - approaches the reference base is aligned with the value drivers of a product. Value metric and price metric are fully aligned. The basic idea of an outcome-based price models can be described using a case study from the B2B sector. In mechanical engineering, pricing is traditionally done on a unit basis: The business customer pays for a machine or the purchase of certain components. But: the actual benefit results from the service provided by the machine and the resulting end product. Therefore, an outcome-based reference base for the price model is appropriate. The basis of assessment is then no longer the machine, but its performance (e.g., the products manufactured or the number of operating hours). Outcome-based approaches exist in various forms: • Price per “mileage” (Michelin) • Price per “cubic meter of purified water” (Enviro Falk) • Price as a “function of transported weight” (Schindler) • Price per “laugh” (Pay-per-smile; Comedy theater in Barcelona: Teatreneu) All 4 examples demonstrate the enormous potential of digital technologies (operating model, level 1) for Price Management processes (level 3). Optimizing products, developing new services and designing creative price models go hand in hand. In the case of innovations or significant product improvements, a variation in the pricing model is often the decisive lever for profit optimization. One of numerous examples is Michelin's "pay per mile" approach in the B2B segment (truck tires). With the traditional pricing approach, Michelin would not have been able to implement a price increase in a double-digit percentage range. Monetization of the technical advantage required a completely new pricing model (from "price per tire" to "price per mile"). In success-based price models, the company's revenue is based on the economic benefit that the customer derives from the offer. Billing is not based on a discrete unit (e.g., time or data volume). The wind turbine manufacturer Enercon offers a successful price model example. Enercon only generates revenue when its turbines generate electricity for the customer. The higher the running performance of the wind turbines (and the electricity generated as a result), the higher the customer's payment to Enercon. The basis for this is digitalized value-generation processes, including automated recording of the necessary process data and sophisticated measurement technology. The price metric is the running performance of each individual wind turbine recorded via sensors. Through its creative pricing model, the manufacturer takes some of the risk off its business customers. If the return is low, Enercon earns correspondingly less. Conclusion: Price Model Optimization Digitization offers enormous opportunities for differentiation in pricing. Not via the price level as such (numerator of the price formula). But via the price model (the "denominator"). The object of price model design is to answer the questions for what, when, by whom and on the basis of which parameters the price is designed. Innovative price models do not only lead to a better monetization of the benefit. As an independent value driver for the customer they increase the value-to-customer (and thus enhance the business model)! The consequence of this: price management is not only "value capture" (monetization). Pricing can also contribute to value “generation”. The selection of the optimal price model is a complex process that requires methodical support. A prerequisite for decision support logics for price model optimization is a stringent definition (cf. Digital Pricing, p. 239f). The introduction of new price models in the market should be carefully planned and prepared. The decisive factor is the benefit argumentation for the customer.

Author: Frederico Zornig, CEO – Quantiz Pricing Solutions Until three years ago, prices were predictable, reasonably stable, or less volatile, supply chains were relatively balanced and the buying behavior of customers and consumers, although constantly evolving, followed an expected trajectory. However, as soon as the world was affected by Covid-19, what we knew until then about how to manage prices fell apart. We were forced to change prices at an unusual frequency, working with wildly fluctuating raw material costs, a challenging macroeconomic environment and consumers and clients rapidly migrating to online shopping channels. In a new unstable scenario, like what seems to be the new reality, companies will depend even more on more assertive and dynamic price management. Some fundamental pillars for capturing market value remain, for example, a clear and well-defined pricing strategy and respective positioning in the market is the starting point. Defining the best method to form your selling price also requires a correct self-analysis, as not every product or service has differentials from the customer's point of view to allow the use of Value Based Pricing. Often, allowing us to work with prices in relation to the main competitor (when we have reliable information) ends up being a more profitable way of pricing. Using analytical models, based on cross-elasticity, that define our main competitors and how vulnerable we are to their price changes, in addition to break-even studies, allows us to make accurate decisions about our own price movements. The basis for any price management process is associated with a reliable, up-to-date, easily accessible database with relevant information for pricing issues, encompassing marketing, sales, finance and even supply chain data. Nowadays data lakes are available in most companies, but there are still few that can transform the amount of data they have into information and knowledge for decision making. Going further, sophisticating the ways in which we do business, or negotiate prices, with our customers, can be a lever to change the rules of the game and strengthen relationships. It is common in the market to see companies delegating this definition of discounts and incentives to the commercial area, failing to seek a more strategic role in negotiations, when we offer incentives connected to the purchasing behavior we want to encourage from our customers. We can also work with price optimization, in the appropriate dynamism (hourly, daily, weekly) for each business, using Price Response Curves in B2C, when prices are published and visible, or Bid Response Curves in B2B, when we do not have much visibility of market prices. In both, we were able to establish what we call the Optimal Price Ranges by SKU, with lower limits, maximizing sales volume (revenue) and upper limits, maximizing margins (profit). All this can currently be supported by pricing algorithms running in real time on artificial intelligence platforms such as Amazon (AWS) or Microsoft (Azure). In other words, the time when companies needed to invest millions of dollars to implement pricing software or even be hostage to some SAAS solution to manage and optimize prices is gone. With the democratization of the technology currently offered, it is enough to want to develop a customized internal solution and you will get excellent results for a fraction of the cost necessary for this. Not to mention the advantage of building and mastering all the knowledge of what is being processed with your data and information. The governance of all the activities listed in this brief article must be the responsibility of a Pricing and Revenue Management area, duly structured and with clear and well-defined roles within each organization. Some with the area more centralized and with greater decision-making power, while others may be more decentralized and act more as support to other areas, each case is different, and the company's level of maturity allows us to find the best format. Finally, I believe that everyone who has come this far understands the importance and potential that Pricing and Revenue Management can bring to your company's results. The theme gained relevance in this troubled moment we are living and due to the greater competitiveness of the market, I understand that it will be even more valued by companies that really want to come out victorious.

As a pricing professional, attending conferences is a large part of your continuous learning process. It is an opportunity to meet other pricers, learn about the latest trends, best practices, overcoming common challenges, and gain insight from industry experts. We’ve just wrapped up our 34th Annual Spring Pricing and Workshops conference in Dallas, TX and it contained all those opportunities and more. So, whether you regretfully missed out or proudly attended, this blog post is for you. Here is a rundown of the exciting highlights from the conference. Check out the conference PHOTO GALLERY here! Keynote Speakers The conference hosted eight renown keynote speakers who shared their experiences, hurdles, and expertise in selected areas throughout their career. That lineup was led by Laura Preslan, Commercial Partner & Incentives Strategy Team Leader at Microsoft. Her wit, knowledge and humor set the tone for the day and left our pricers in high spirits itching for more knowledge. In addition to Laura was Reed Holden, author, senior executive coach, and founder of Holden Advisors consulting firm in Concord, Massachusetts. Before leading the discussion on “Pricing During Turbulent Times”, Reed found out he was the PPS-selected recipient of the inaugural “Founders Award”, a recognition of achievement, renown accolade, and excellence in the pricing community with multiple years of high-level success in their career. Other astounding keynote speakers that left our audience amazed were: Manoj Chopra - Vice President, Strategic Pricing, Cinemark Richard Braun - Vice President of Strategic Pricing, Parker Hannifin Adam Echter -Partner, Simon-Kucher & Partners Grace Shafer - Senior Director of Pricing Strategy, Iron Mountain Sudipto Banerjee, CPP - Partner, KPMG Tim J. Smith, Ph.D., CPP - Founder & CEO, Wiglaf Pricing One notable nugget we all learned from our conference-leading speakers is that being a leader is more than just a title. Effective leadership requires collaboration, guidance, and support to get real results. Workshops and Breakout Sessions With 10+ workshops and 20+ breakout sessions available for the choosing (upon attendee registration), you can only imagine the amount of overall pricing knowledge that was being distributed during this single week. From topics about analytical pricing approaches to “handling” inflation to artificial intelligence, our workshop and breakout session speakers covered a wide range of areas taking the pricing community by storm. The smaller, more intimate, setting of these sessions allowed attendees to easily focus on areas of their interest, share experiences, learn about new technologies and solutions, and network with their peers. Networking Opportunities Networking is an essential part of any conference, and this conference did not disappoint. Chances to connect with other attendees, speakers, and sponsors offered great value to those who took advantage of the opportunities. Some of our headlining networking events included: New Members Coffee Reception Industry Connections Luncheon Infusion Luncheon – Discussing diversity and inclusion in the pricing workforce. The PROS Luncheon- a private, invite-only, event. The CPP Breakfast Thursday Night Reception Our other, less formal, networking opportunities came from: The PPS Scavenger Hunt The Conference Sponsor Hall Our “Dining with PPS” dinner night In addition to daily coffee breaks, off-site meet ups, etc. It was fascinating to hear about what others are doing in their organizations and share our own experiences with professionals, both seasoned and entry-level. Takeaways In conclusion, attending our annual conferences is an opportunity to learn, network and gain more insight into the latest trends and best practices within any industry, but especially pricing. Our attendees learned a lot about effective leadership, navigating economic challenges, and new solutions that can be used to improve organizational success. But perhaps the most significant take away was the chance to connect with peers and build new relationships that can be leverage moving forward. If you missed this conference, don't worry, more events are coming up this year that you can attend. Be sure to take the time to do your research, select an event that matches your interests and join. Who knows, you might meet your next employer, business partner or mentor there! We look forward to seeing you in the future as we continue to grow our knowledge and expand our professional networks!

Hiring the wrong talent comes at a high cost for businesses. A study from McKinsey, for example, shows that top talent is up to eight times more productive than average ones in highly complex occupations. Even if you get the hiring decision right, however, but are unable to retain it, the loss in productivity from high turnover is tremendous. This is particularly true for Pricing function, where talent is in high demand, but talent pool is in short supply. Evolution of the pricing profession The pricing profession is a relatively new field that has evolved over the past decades from being a tactical function to a strategic one that requires ongoing education and professional development. Consider, for example, that for most of the human history, pricing was largely determined through bargaining and negotiation. The first encounter of a price tag – fixed price for a product – is credited to John Wanamaker in 1861, a Philadelphia merchant who believed that everyone should be charged the same price. The practice of haggling, thus, started to dissipate in the 19th century when store owners began applying cost-based pricing. And it is really over the last few decades that sophisticated pricing strategies and tools have evolved, and that pricing as a function has started to attract some C-level attention. Top performing companies over time have understood that pricing is not just a number – it is a powerful tool that can make or break a business. Multiple studies have shown how price improvements have a much bigger impact on profitability than equivalent improvements in volume or costs – even though the latter get disproportionate attention from average companies. Best practices to attract & retain pricing talent 1) Consider the skills that are truly critical for the role you are hiring! Pricing related roles typically require a combination of pricing domain expertise, people/ communications skills, technology skills, and business acumen. Finding the talent that exactly meets your needs is very hard as pricing talent is scarce and unique, and former industry experts or pricing consultants also tend to be pricey. Depending on the role that you are hiring for, consider the skills that are truly necessary for success in that role, do appropriate vetting for those skills, and provide resources to help them build the skills that they lack. Ironically, recruiting a pricing professional sometimes means foregoing previous pricing experience – especially in more junior roles. A survey by Deloitte, for example, shows that only 3% of the pricing professionals have always been in pricing. Top five functions prior to coming into pricing profession include finance, marketing, operations, sales, and consulting. 2) Reduce time to productivity through tailored onboarding and continuous development! Best companies not only do a great job with onboarding their talent, but also in providing ongoing development opportunities. Pricing is by and large not taught as a distinct field in universities. Even an organization such as Pricing Professional Society, which provides a great forum for developing your pricing talent, was founded only recently in 1983. At best, some of us were exposed to basic principles on pricing as part of a business or a marketing course. A survey conducted by Bain & Company found that companies with strong pricing outcomes and increased market share over the past two years emphasize trainings and forums in pricing. In simpler terms, companies that have done well in pricing have focused on training their employees in how to set and get the right price and have created forums to discuss pricing strategies. Other options to consider are sending the pricing talent to conferences, engaging vendors that do pricing specific onboarding/ training, or offering tuition assistance programs for employees. 3) Consider the Employee Value Proposition (EVP) Lastly, attracting the right candidate requires not just looking externally but also looking at yourself in the mirror. When you are evaluating a candidate, a candidate is also evaluating you. Have you considered what you offer in terms of compensation, benefits, culture, development, and recognition? A good way to refine your EVP is to consider what you offer compared to competitors out there.

Author: Fabien Cros, Co-founder of PricingForThePlanet.com As we enter a new era of risk management, sustainability has become a critical priority for businesses across the globe. The challenges of global warming and resource scarcity demand our immediate attention, and companies that fail to adapt risk being left behind in a rapidly evolving marketplace. Pricing, in particular, has emerged as a critical key to monetizing sustainability and to helping accelerate sustainability transformations. To this end, pricing practitioners need to arm themselves with a powerful set of tools that can help them navigate the complexities of the modern marketplace and respond to the changing consumer perceptions towards sustainability. From conjoint analysis and willingness to pay studies to usage-based pricing, subscription pricing, consumption-based pricing, and value-based pricing, there are a variety of techniques that can help businesses monetize sustainability and improve their bottom line. Yet, many companies are not discussing sustainability monetization or just relying on outdated pricing strategies. This lack of maturity in pricing not only undermines sustainability efforts but also leaves businesses struggling to compete in an increasingly crowded and competitive market. In this article, we breakdown the toolbox for pricing practitioners who are willing to monetize sustainability. We examine the latest pricing strategies and techniques, exploring how they can be used to help businesses adapt to the changing landscape and capitalize on the growing demand for sustainable products and services. By doing so, we can help companies invest even more in sustainability and make this transformation more impactful. In the context of sustainability, value-based pricing is paramount. In today's business landscape, sustainability has become an increasingly important priority for companies of all sizes and industries. As consumers become more aware of environmental issues and seek out sustainable products and services, businesses must adapt their practices and offerings to meet this growing demand. Value-based pricing is a strategy that seeks to capture the value that a product or service provides to the customer. It takes into account factors such as the customer's willingness to pay, the monetary benefits that the product or service provides, and the competitive landscape at the customer segment level. By doing so, value-based pricing allows businesses to set prices that reflect the true value of their offerings, rather than simply relying on cost-based pricing. In the context of sustainability, value-based pricing is paramount. For the end user, it is difficult to communicate the benefits of sustainable products and services without framing them in terms of economic value. Consumers are usually willing to pay more for sustainable products and services, but they need to understand the value that they are getting in return. Value-based pricing also provides businesses with a powerful tool for promoting sustainability. By setting prices that reflect the value of sustainable products and services, businesses can encourage consumers to choose these offerings over less sustainable alternatives. This, in turn, can help drive demand for sustainable products and services and encourage other businesses to embrace sustainability as well. The first drawer of the toolbox: an understanding of the circular economy The circular economy seeks to minimize waste and maximize the use of resources by keeping materials and products in use for as long as possible. Pricing practitioners must understand the importance of designing products and services with end-of-life in mind. This means considering the entire lifecycle of a product or service, from production to disposal, and finding ways to reduce waste and increase efficiency at every stage. Additionally, they must work closely with other areas of their company, such as supply chain and procurement, to ensure that sustainable practices are being implemented throughout the entire organization. This includes understanding the sustainable engagements and activities being made internally and by suppliers, as well as the perception of customers towards sustainability. By incorporating circular economy principles into pricing strategies, businesses can reduce costs, increase efficiency, and minimize waste, while also promoting sustainability. This can lead to a competitive advantage in the marketplace and a more positive perception among customers who are increasingly concerned with environmental issues. The Second Drawer of the Toolbox: Pricing Research In the pricing practitioner's toolbox, pricing research studies play a critical role in helping businesses monetize sustainability. These studies provide businesses with insights into consumer behavior, preferences, and willingness to pay for sustainable products and services. One common type of pricing study is willingness to pay (WTP) studies. These studies seek to understand how much consumers are willing to pay for a particular product or service. By conducting WTP studies, businesses can gain insights into consumer demand and set prices that are in line with what customers are willing to pay. This, in turn, can help businesses maximize their revenue while also promoting sustainable offerings. For example, you have the Van Westendorp price sensitivity meter. This study helps businesses determine the optimal price range for their offerings by asking consumers simple questions. By analyzing the results of the study, businesses can determine the sweet spot for pricing that balances consumer demand and profit margins. Another example is the Gabor-Granger pricing model. It involves presenting consumers with a range of prices for a particular product or service and asking them to indicate which price they would be willing to pay. This helps businesses identify the optimal price point for their offerings and understand how price affects consumer demand. A third example would be a pricing conjoint analysis. This one is a research method used to determine how consumers value different features of a product and how they trade off one feature for another when making purchase decisions. Overall, pricing studies are a critical tool in the pricing practitioner's toolbox. They provide businesses with real-life data points that help them understand consumer behavior, preferences, and willingness to pay for sustainable options and business models. By leveraging pricing studies, businesses can set prices that are in line with consumer demand, maximize revenue, and promote sustainability. The Third Drawer of the Toolbox: Pricing Analytics Pricing analytics are a third component of the pricing strategist's toolbox, providing businesses with the ability to monitor the impact of pricing on customer behavior and measure the effectiveness of pricing strategies as quickly as possible. Pricing analytics can be used to track changes in demand for sustainable products and services as prices change, allowing businesses to identify the optimal price point that maximizes revenue while also promoting sustainability. This data can be used to adjust pricing strategies in real-time, ensuring that businesses are always providing the best value to customers. Additionally, pricing analytics can be used to monitor competitor pricing and identify opportunities for businesses to differentiate themselves in the market. By comparing pricing strategies and identifying areas where competitors may be underpricing or overpricing their offerings, businesses can adjust their own pricing strategies to gain a competitive advantage. The Fourth Drawer of the Toolbox: The Test and Learn Methodology. Test and learn involves creating experiments or trials to gather data on how customers respond to different pricing strategies or product features. This allows you to make informed decisions based on empirical evidence rather than assumptions or guesswork. By testing different pricing and product options, you can identify the most effective strategies for achieving your goals, such as maximizing revenue or increasing customer satisfaction. This iterative process of testing and refining can help you create sustainable products and services that meet the needs of your customers and drive business growth. By continually testing and learning, you can adapt to changes in the market and stay ahead of the competition. In addition to creating sustainable products and services, test and learn can also provide valuable insights to the R&D and engineering teams. By collecting data on customer behaviors and preferences, the pricing team can provide valuable feedback to other teams about which features or designs are most appealing to customers. This information can inform future product development and help ensure new products meet market needs. By leveraging the insights gained through test and learning, the pricing team can contribute to the overall success of the organization and help create products that truly resonate with customers. The Last and Fifth Drawer of the Toolbox: Innovative Eyes to Challenge and Re invite Business Models. The fifth and final drawer of the pricing strategist's toolbox in a sustainable world is the ability to challenge and re-invite business models around sustainability. To successfully monetize sustainable products and services, pricing strategists must be capable of challenging the status quo and proposing new ways to approach pricing. This means exploring innovative pricing models such as usage-based pricing or subscription-based pricing, which can help promote sustainable behaviors and reduce waste. It also means being open to rethinking existing pricing strategies and business models to ensure they align with sustainable principles. Pricing strategists must be innovative in their thinking and willing to take risks to drive positive change. By challenging existing business models and embracing new approaches to pricing, they can help businesses to create sustainable offerings that meet the evolving needs and expectations of customers. In conclusion, pricing is a critical tool for monetizing sustainability, but it requires a comprehensive and innovative toolbox. Pricing practitioners must be able to incorporate various pricing methodologies and analytics, as well as understand the circular economy and work closely with other areas of their company to ensure sustainable engagement. By having a seat at the sustainability table, pricing professionals can bring the very best monetization practices to make sure sustainability does not just become a compliance play with a strong internal cost focus. Sustainability can be a strong corporate differentiator. When monetized it can bring a real impact to the bottom line. To learn more about how to monetize and price sustainability, join us live for a PPS webinar on April 4th, 2023 at 10am US EST. Register here: https://www.crowdcast.io/e/pricing-for-the-planet-w/register No idea where to start? Contact Fabien Cros, Co-founder of PricingForThePlanet.com

Pricing the Products Multiple internal and external factors can influence the pricing of the product. Sometimes the model or strategy we use to price a product will only apply to one industry sector or customer segment. Look out for constraints that would apply to your specific business. For businesses like children's books, the Pricing strategy of subscription type for digital commerce is relatively standard. However, a traditional retail/ wholesale pricing model would apply to storefront bookstores. Internal factors that can influence pricing include: • Cost of production: The cost of raw materials, labor, and overhead expenses are all taken into account when setting prices. • Perception of value: By understanding how customers perceive value, you can set prices to reflect their perceived value. • Industry competition: Knowing what the competition is charging can help you set prices that are competitive. • Brand image: Prices may be adjusted to project a certain image for the company and its products. • Profit margins: Setting prices to ensure you are making a profit is important for the long-term success of any business. External factors that can influence pricing include: • Market conditions: The state of the economy, consumer spending habits, and the overall market can all affect pricing. • Government regulations: Government regulations and taxes can influence pricing decisions. • Consumer demand: If demand is high, you may be able to charge higher prices. • Distribution channels: How you sell your product may affect how much you can charge for it. • Seasonal factors: Seasonality can have a big impact on pricing decisions. Factors for pricing the product Multiple factors can impact the price of the product. Categorizing factors that can derive the cost into —9 Ps for determining the product's price. Factors for Pricing the Product Multiple factors can impact the price of the product. Categorizing factors that can derive the cost into —9 Ps for determining the product's price. 1. Patrons: These are your customers/ merchants or anyone who loves your product and is willing to pay for the services that you are offering. 2. Price for Operation: These are the costs necessary for the business; they can be the cost of raw materials or external services you are consuming for the company. 3. Prospects: These are other prospects for the users who have the potential to drive the price of the product. Competition is a major driving factor in many businesses to price the product at a relative price. 4. Possibilities: With service: Today, the product's price is a derivative of the value or extra convenience/ possibilities it offers to its patrons. At times market perception also plays into determining the price. 5. Proposition: Important to offer a better value proposition for the service provided relative to the competition. It can be more services under the Freemium model. 5 6. Proceeds: Sometimes, the price can depend on the final target profits. Most of the time, the company's earnings rely on the (revenue earned - all the costs) which gives profits. At times, the price is fixed, based on yield. 7. Potential: At times, price is determined based on the product's potential and how better the outcome is to the competition. Even including the potential to gain or lead the market segment. 8. Promotions: Extra discounts or coupons to attract or influence the signup for the product or service. Many organizations offer it as fixed days money guarantee too. 9. Place: The cost of the fixed asset in the form of location or the case of digital commerce can be based on the association with a specific platform and determine the price and traffic. E.g., Selling on Amazon vs. Shopify vs. Etsy. How Do You Price A Product? A genuine new product can be priced based on the assessment of these four cost structures. For determining the price, paying attention to these four costs is vital. 1. Cost of Goods Sold (COGS): This includes the direct costs associated with creating the product, such as raw materials, labor, and overhead costs. 2. Operating Expenses: This includes expenses associated with running the business, such as marketing, advertising, rent, salaries, and other overhead costs. 3. Margin: This is the amount of money that a business keeps after all costs have been taken into account. This is typically determined as a percentage of the total price. 4. Growth Potential: This is the potential for the product to generate additional revenue over time. Factors such as market demand, customer lifetime value, and customer loyalty can all be taken into account when setting the price. By taking into account all of these cost structures, a business can come up with a pricing strategy that is tailored to their goals and objectives. When setting the price, it is important to consider the cost of production, the potential for growth, the customer 6 lifetime value, and the overall market demand. This will help ensure that the product is priced appropriately and that the business is able to maximize its profits. 1. Creation cost: This is the overall unit economics of producing your product. Including the external vendors, cost of raw materials, and inventory costs. 2. Enterprise cost: This is the added cost on top of the creation cost, which includes the price of employees and cost to run the business, and licensing costs. 3. Marketing cost: This gets added, especially when marketing is an additional cost post-product creation. Usually, when the sale is an external part of the original product team. 4. Delivery costs: Costs for mailing, postal, and delivery, including the last mile delivery cost and also adding to it the costs of return, refunds, and refurbishment if it applies. What Structure Works to Determine the Price? Based on your industry, we might see various price determination structures. Price Determination Structures 1. Cost+ markup structure: This is the most commonly deployed method to establish the price point for newer markets and new segments of products. Where cost is the overall cost of producing the product from scratch to the finished product into the hands of consumers, and markup is the additional profit the firm is planning to take per unit. 2. Competitive pricing: This is popular in businesses with stiff competition, and the products offered are similar, resulting in pricing products very closely and relatively at the same price point. Ensuring consumers are kept from the competition. 3. Skimming: is deployed where the premium is charged for limited available products and newer models. E.g., For next year, model cars and tech gadgets are at a premium compared to older generation cars or tech gadgets. This extra premium is for the latest product/product line models. 8 4. Marketing pricing: is the price advertised to get the consumer into the door, a bait-and-hook pricing model. The marketing team gets deployed based on discounts offered, coupons, or even seasonal events based on temporary price adjustments. Is Lower Pricing or Higher Pricing Better? When Businesses Mark Prices Low • Organizations will only assemble sufficient capital to remain in business for a short time. • You attempt to run a thrashing because you don't have adequate finances to spend on marketing. • Not to say the perception you permit your consumers to have around your products and brand: inexpensive, inferior quality, subordinate value, bargain buy, unremarkable. When Businesses Mark Prices in the Middle • Organizations will need additional cash on hand to grow. 9 • You'll eternally be in that process of constructing, marketing, building, and selling, but never smashing out of it to build more and market additionally because you need additional capital for more. • Yes, companies need additional finances to produce more of it. When Businesses Mark Prices High • Organizations gamble estranging consumers. • You might obtain a deal now and then and earn a large sum, but the idea of when you'll get your subsequent deal intimidates you because your product ought to be priced better in your demand. • By pricing high, you frighten your consumer. How to Convince Customers This is the Right Price? Value-based pricing: This is based on the scientific method of understanding the cost of the product/service to build based on cost + markup structure, adding to it markup and genuine value addition or differentiating services being offered. Consumers should be able to realize differentiating value add-ons and willing to pay for them. Loss leader pricing: This applies to some sectors and a few products, where the business is able to sell the original product for loss so that the business can gain profits from subsequent recurring sales. e.g., printers are sold at a lower price, but profits are expected from toner. Alexa is sold at a lower price, expected to gain from overall amazon sales and to gain user data. Bundle pricing: This is where organizations bundle together two or more individual products which are higher priced to a lower price so that customers it can be offered at a lower rate. e.g., a washer can cost $1000, and a dryer unit can cost $1000, but the bundle can cost $1800. This is a way of convincing customers to buy the bundle together as a better deal. Anchor pricing: This is considered a hybrid of bundle pricing & value-based pricing, where consumers are shown an option of "gold, silver & platinum" or "lite, plus and premium," where the price and relative prices are features offered are visible. At times the consumer is offered the original price and discounted price making sure the consumer understands the value he is gaining by this purchase. Types of Pricing Models? A pricing model is a framework or formula used to determine the price of a product or service. Pricing models can be based on a variety of factors, such as cost, value, competition, market dynamics, and customer segmentation. A pricing model should be tailored to the specific needs of a business and should be regularly reviewed and adjusted to ensure that it remains effective. pricing model types: 1. One-Time Fee: This model involves charging customers a flat fee for a one-time purchase or service. 2. Subscription: This model charges customers a recurring fee for access to a service or product. 3. Pay-As-You-Go: This model charges customers for the specific amount of a product or service they use. 4. Freemium: This model offers a basic version of a product or service for free, with the option to upgrade to a premium version for a fee. 5. Tiered Pricing: This model offers various levels of a service or product at different price points. 6. Performance-Based Pricing: This model charges customers based on the performance of the product or service they use. 7. Volume-Based Pricing: This model offers discounts to customers who purchase a certain amount of a product or service. Challenges with Pricing Modelling? 1. Dealing with Seasonality: Seasonality can cause pricing models to become outdated and inaccurate over time. This can be especially challenging when forecasting the demand for seasonal products. 2. Incorporating Multiple Variables: Pricing models often involve multiple variables and pricing levers, such as discounts, promotional offers, and competitor pricing. Accurately incorporating all of these variables into a pricing model can be complicated and time consuming. 3. Accurately Forecasting Demand: Accurately forecasting demand is key to making sure that pricing models are accurate and up to date. This can be difficult, especially when dealing with short-term trends or new products. 4. Avoiding Price Wars: Price wars often occur when companies compete on price. This can be damaging for businesses, as it can lead to unsustainable pricing models. Companies must be mindful of this when setting prices. 5. Determining the price elasticity of demand for a product or service: Price elasticity measures how a change in price affects the demand for a product or service. It can be difficult to accurately measure the price elasticity of a product or service due to the complexity of the market and the number of factors that can influence demand. 6. Forecasting demand for a product or service: Accurately forecasting demand for a product or service is critical in pricing modelling, as it helps to inform pricing decisions. This involves collecting data on the past demand for the product or service, analyzing trends, and considering external factors that may influence future demand. 7. Developing an appropriate pricing strategy: Once the price elasticity and demand for a product or service are established, a pricing strategy must be developed. This strategy should consider factors such as competitor pricing, customer expectations, and the economics of the market. 8. Accounting for external factors that may influence demand: External factors such as economic conditions, seasonality, and competition can significantly influence the demand for a product or service. Accounting for these factors when modelling prices is essential for accurate pricing decisions. 9. Testing and validating pricing models: Testing and validating pricing models is essential to ensure accuracy. This involves running experiments, collecting data, and making adjustments as needed. Pricing and Compliance Relationship? Pricing for software and services depends on the complexity of the project and the level of customization the customer requires. Generally, software and services are priced on a subscription basis or on a per-project basis. Subscription-based pricing typically includes a one-time setup fee, a monthly or yearly maintenance fee, and a discounted rate for any additional features or services. Per-project pricing may include a one-time setup fee and a flat-fee quote for a particular project. Compliance standards must be met in order to ensure that software and services are secure and compliant with regulatory requirements. This is typically done through the use of third-party audits and certifications. Companies must also ensure that their software and services comply with any industry regulations and standards, such as the Payment Card Industry Data Security Standard (PCI-DSS) and the Health Insurance Portability and Accountability Act (HIPAA). Additionally, companies should ensure that their software and services comply with the various privacy and data protection regulations, such as the General Data Protection Regulation (GDPR). Near Term Future of Pricing The future of pricing largely depends on the market conditions. Prices may fluctuate due to changes in supply and demand, economic conditions, and other factors. In general, technology is likely to continue to drive down prices as companies are able to automate processes, reduce labor costs, and create more efficient supply chains. As the global economy continues to become more connected, the prices of certain goods and services may be subject to greater variation due to foreign exchange rates, availability of materials, and other factors Conclusion What works best depends on many factors as the maturity of the market, competitors, and category of the product/service. Also, this whole process is part of art and partly scientific to determine the right optimal price point, and it can take some iterations to finally settle down at the optimal value and at times it’s a continuous process where you need to experiment the price continuously and adjust to the market changes and demands. So don't be afraid to try and 13 experiment a bit by running multiple prices treatments and offerings before settling down on what works for your business.

Author: Ben Daniel. Sr. Mgr. Revenue Data Science, CHEP Rule sets are often convenient ways for dealing with analytic problems. They are quickly formed, and when they come from those with years of industry experience - they often make a lot of business sense. For example, a marketing team for a building supply company might want to create a campaign to target electricians. The team could draw on their previous business experience and (probably) correctly guess what electricians are likely to buy. Wire, conduit, and switches come to mind. The team could query the sales data for customer accounts that over-penetrate into electrical product categories, and out would come a list of accounts that they could enter into a digital marketing campaign for growing the business among likely customers. There are problems with this approach, however. Problems with The Rules Based Approach: 1. Assumptions and Biases: The rule for identifying an electrician as described above are straightforward. Whether the rules are correct is irrelevant, the fact of the matter is the team that created these rules baked in their assumptions and biases about electricians. Certain customers may be missed because they did not fit the rule that the team may have believed to be true about their target customer segment. 2. Exception Management: Every rule has its exception. As more business rules are created, exceptions appear. The job of managing all these exceptions can be daunting even with robust information systems. 3. Exceptions Create More Rules: Like the air bubbles in a block of Swiss cheese, exceptions create gaps in rule sets. So, to manage the exceptions, analyst teams create more rules. This becomes a vicious cycle - where even the rules that were created to handle exceptions indeed have exceptions themselves! Data Driven Approach How do we break out of this cycle? We must have a data driven approach whereby we start with data, run it through the right machine learning algorithms, and allow the model to derive the rules. But these rules are not like the rules that were formed in the first case, where assumptions and biases are inherently included. These rules are similar to a decision tree. For example, the new rule might state, “if a customer buys more than 1.5 standard deviations from the mean in wire coils in a year, they have an 90% chance of being an electrician.” Machine learning techniques such as CRISP-DM can model and evaluate the accuracy of the decision rule. Hence, analyst teams can validate their approach before they deploy their campaign. In pricing, we can break out of the rules-based approach by asking some big questions: 1. What am I trying to predict (or classify)? 2. What am I trying to estimate? 3. What might I learn if I were to group the subjects of my analysis together? 4. Do I know the important features of my data? Asking these types of questions first and choosing the right analytic technique(s) second can lead to robust model development that not only solves business problems but also sheds useful business insight. For instance, pricing managers might ask themselves, ‘Which of my customers are price sensitive’? The next step might be gathering the data about those customers from sales and marketing systems, tagging the customers who reduced their business after a price change, and then creating a predictive model (e.g., logistic regression, random forest, etc.) to predict which customer is likely to reduce their business after a price increase. Not only can the model make predictions about individual customers, but the coefficients from the model itself can indicate what is likely driving the sensitivity and to what degree. In my personal experience, I have seen the data driven approach work time and again - when it is applied correctly. It can liberate pricing managers from being stuck in rule sets that are not only full of exceptions, but also impossible to validate. With the modern data technology stack and training of data scientists coming from academia, there is little holding companies back from using this approach to optimize their pricing analytics.

Author: Johnny R. Haskins, Jr. MBA, MCTS, MCITP Anyone who took Shakespeare knows that the title of this piece is a play on the words of the character: Hamlet, in Shakespeare’s Hamlet, Scene 3, Act 1. But as a pricing leader for your organization, the concept is not foreign and is one that has to be effectively managed daily to achieve and beat revenue goals for your organization. The answer to the pricing question almost certainly is, “Yes”, you have to price and price effectively. You have to surf the waves of the enthusiasm within your organization and body-board the rip-tides of global market constrictions and deliver the best pricing solutions for your organization. Whether your company succeeds or fails is directly tied to your ability to manage pricing, searching ever for the sweet-spot that delivers against the demand from your customers and the competitive-price-daggers of the competition that result in some saying, “Et tu Brute?” Even though the brutal truth is that the elasticity of demand remains a key element in setting price, many leaders find it increasingly difficult to forecast by simply raising or lowering prices that result in little effect on unit sales. Some price leaders wobble into solutions that are as transitory as the markets the leaders seek to profit in. Other leaders bogg themselves down with superfluous iterations of economic calculations that have little or no effect on increased volume of units sold. And still further, some leaders search for the profit-maximizing price by marking up variable costs that tend to be only on upward trends. Though the latter methodology has saved some price leaders from the doom and gloom of missed opportunities, it also has contributed to missed revenue opportunities due to the reliance on simplistic assumptions. Even new managers in the pricing-world know that fixed-costs play no role in setting the optimal price and are only relevant when they help leaders decide whether to offer a product into the market. Fixed costs relevance only helps when deciding how much to charge for the product. And so, now you are in the position of making the pricing decisions for your organization or at least are a part of a team of pricing managers. To avoid pitfalls of other pricing leaders from the past, you should ensure that you expand your knowledge base and stay agile in your pricing-decision-making process. Some pricing managers take one additional step and leverage the absorption costing approach, where the cost-base is the absorption costing unit product cost rather than the variable cost. This methodology makes pricing decisions look too easy because it assumes that the customer needs the forecasted unit sales and will pay whatever grandiose price the company chooses to charge. The tragedy of this approach opens many price leaders up to competitive market pressure and the potential loss of market share. Other price leaders choose to employ target-costing, where the target costs is set first and the company’s product is designed so that the target cost is attained. Whichever methodology you choose to employ in your organization, Pricing, Pricing, Pricing will echo in your head (or at least it should) and scream at you in your dreams—or pricing nightmares.

Author: Frank Frohmann Price optimization for business services (e.g., products such as game consoles, services such as air travel, digital services such as video streaming) must include 11 essential information. These can be symbolized by the "11C" of pricing. In essence, the following questions are involved (cf. Digital Pricing, Springer Gabler 2018): 1. Customer : What are customers willing to pay? What are the price elasticities of customers for our offerings (products, services, software, etc.)? 2. Competition: What are the prices of our competitors? How will competitors react to our measures? 3. Costs: What is the composition of our costs? What is the ratio of variable to fixed costs? 4. Capacity : What is the capacity situation in the industry? How high is the utilization of our production and service capacities? 5. Cycle stage: What stage of life cycle is our offer in? 6. Company targets: What is the strategy? And what are our goals? 7. Compliance: What is the legal framework for pricing in our industry? 8. Channel: Which sales channels do we use? What is their strategic relevance? 9. Country: In which countries are we actively selling? What pricing-relevant interdependencies exist between the individual countries? 10. Currency: How should exchange rate changes be represented in pricing? 11. Context: How does our price presentation affect customer perception? How can we change the context in which a price is presented? How can we consider findings on "nudging", "framing", etc. when optimizing prices? About the Determinants in Detail Customer Price acceptance from the customer's point of view is a key factor influencing sales and profits. Competition Customer preference for a manufacturer or retailer depends on the prices offered by the competition. The tendency here: the lower the competitor prices, the lower our own pricing potential. However, there are numerous examples of companies in various industries that largely avoid price competition based on a differentiation strategy. Costs The level and structure of costs determine the company's pricing leeway. Capacity: The utilization of production facilities or service readiness has a direct impact on pricing. The intensity of price competition results from the relationship between supply capacity and demand. In the case of overcapacity, price is increasingly used to control capacity utilization. The strong correlation between capacity utilization and price levels is particularly true in commodity industries. In the case of homogeneous mass products, the market price is primarily determined by the relationship between supply and demand. Raw materials (crude oil, cement, steel, iron ore), electricity, certain basic chemicals and many other product categories are among these commodities. Cycle stage The variation of prices over the product life cycle is one of the decisive levers for corporate success. Pricing strategies and levels differ fundamentally for the four phases: introduction, growth, maturity, and degeneration. Market penetration can be controlled by the company. For example, a low launch price can accelerate the diffusion process. Digitization fuels the speed of market developments. One example illustrates the dynamics: the classic telephone took a total of 75 years to reach a penetration of 100 million users. In the case of Facebook and WhatsApp, the time required to conquer the same number of users was reduced to four and two years respectively. The changing pricing potential over the lifecycle can be described by the concept of "pricing power." Pricing power describes the potential of a company to enforce price increases (Simon and Fassnacht 2016, p. 26). A company's pricing power is one of the key leading indicators of long-term success ( (Ramanujam & Tacke, 2016). The ability to enforce prices varies over the lifecycle of offerings. High pricing power - and the resulting profit potential from price changes - tends to arise in the following situations: – Innovative offers – High market share (dominating market position) – High customer benefit – Complex offer with low pricing transparency – Scarce capacities – Superior brand image The pricing power of offerings tends to increase from launch through the growth phase and reaches its peak in the maturity lifecycle phase. Thereafter, the price penetration potential generally declines again. Market share is of prominent importance within the criteria. In connection with the lifecycle phases, investment in market share is critical to success, especially for digital offerings. In many digital sectors, quickly achieving critical mass is a prerequisite for reaping the value created through higher prices in later lifecycle phases. Company targets The basic equation Profit = Quantity × Price - Cost illustrates the direct relationship between price and profit. All consequences resulting from a price action are condensed in profit as the ultimate target. Compliance The opportunities and risks of price management are determined by legal details, especially in digitalized industries. Some examples: Technology companies such as Amazon migrating to the financial sector must observe the regulatory requirements of the banking sector. Legal restrictions are also relevant in the highly profitable cloud computing business. For example, Amazon is not authorized to directly analyses the content of companies' stored data. In other sectors, legal requirements apply to digitized price publication (e.g., gas stations) as well as restrictions on the potential of bundling (e.g., software). The following also play a significant role: the fundamental price regulation (e.g., retail, gastronomy) for maintaining price truth and price clarity in the interests of the consumer, and gender equality in the context of gender pricing (e.g., in the cosmetics industry). Channel Digitization has led to a significant expansion of sales channels: including web stores, online marketplaces, platforms. In addition to online sales channels, there are indirect sales (via a distributor or dealer) and direct sales, - this makes price management across all channels much more challenging. For certain customer groups & products, online stores have proven their worth (e.g., spare parts, simple products, customers with low service needs, additional products). Even with a rough division of channels into "online" and "offline", there are different options in pricing: no price differences, "best buy" model, price differentiation "offline" vs. "online". Depending on the industry and strategy, online channels can also be positioned higher in terms of price than stationary stores. The latter strategy was driven by Wal-Mart in 2018. This was due to 3 of the influencing factors already outlined above: Costs (higher logistic costs), Customers (convenience) and Company targets (traffic shift to the stationary channel). Country Price variations depending on countries, regions or sales territories can be explained by a variety of parameters (including differences in competition, costs, or willingness to pay, tax influences). A particular challenge are flows of goods between countries that are not intended by the companies (reimports, grey imports). Parallel imports lead to profit losses through cannibalization, which can be actively countered by a price framework. A price corridor is a compromise solution between unit prices and independent country prices. Currency Exchange rate changes play a prominent role in the price management of global companies. Looking at the price potential between the upper and lower limits (figure 1), it can be stated: The greater the variable unit costs in relation to the maximum price, the greater the influence of exchange rate changes on the optimum price. Context The benefit and price perception of end users, customers and sales partners depends on the context (situation, location, price presentation, etc.). The price presentation is more important for the perception than the objective price level. Consequently, pricing must necessarily incorporate the latest findings in behavioural economics. The latest findings from brain research must be integrated both in price optimization and in the other challenges of the pricing process. Figure 1 illustrates that the various criteria act on two levels. The first tier outlines those criteria which directly influence the level of a price. The second tier comprises factors that have a moderating influence on the price level. Conclusion Professional price management requires the integration of all influencing factors outlined. Business mistakes are inevitable if individual factors are ignored. The most common mistakes include: • Considering costs, customers and/or competition in isolation • Neglecting the legal framework • Not setting clear target priorities • Inconsistent pricing across sales regions and channels The complexity shown in the diagram is further increased in the context of Dynamic Pricing. Dynamic pricing is a time-based approach to price optimization that incorporates a variety of additional criteria beyond the factors outlined: Temporal factors such as season, day of the week or time of day; contextual criteria such as location and weather; customer-related factors such as end device or "search agent" up to offer criteria such as perishability. Particularly important: 1. Price optimization for business services (e.g., products such as game consoles, services such as air travel, digital services such as video streaming) outlined based on the 11 influencing factors is only one facet of price management! 2. Pricing processes consist of numerous challenges that have different significance depending on the sector (B2C, B2B, C2M, C2C), industry and company. Monetization ("value extraction") and value creation ("value generation") can be achieved equally with this management process. 3. Important entrepreneurial decisions are upstream of price determination: ✓ the definition of revenue sources (the revenue model). ✓ the definition of customer value (value-to-customer) as a central pillar of the business model. 4. In digital business models (platforms, marketplaces, ecosystems, etc.), price is no longer a reliable metric for competition. Two major reasons may be mentioned here: a) Many companies (like Google, Amazon, Alibaba or Tencent) cross-subsidize parts of their business. Not all business units have to contribute to the profit. Services are therefore often offered for free (Google) or below production costs (Amazon). b) In digital business models, customers can pay with an equivalent value other than money. For example, with awareness in the context of freemium models. Here, they accept advertising to be able to use the "free" component free of charge. But they can also pay with their data (as in the case of Facebook and Google). 5. This means that professional price management must go beyond the pure optimization of the pricing process and reflect the higher-level decisions on the business model and the revenue model (Frohmann, 2018). 6. Only a holistic view of all levels, including their sub-elements, enables companies to exploit revenue, profit, and value enhancement potential.

What a time! The Professional Pricing Society hosted the return to in-person events during the Spring Pricing Workshops and Conference event held April 26-29th in Chicago, Illinois. Over 350 attendees from more than 90 companies joined us for last month’s 33rd Annual Professional Pricing Society (PPS) Spring Pricing Workshops Conference in Chicago. After two-and-a-half years of Virtual Conferences, the PPS Team was thrilled to return, face-to-face, with our members, speakers, experts, and sponsors. We had a wonderful week reconnecting with old colleagues and meeting new friends at 9 full-day workshops, 8 keynotes, 16 breakout sessions, and 6 speaker town halls. Sincerest thanks to the PPS Team, the hotel staff, and our contract team members for their very hard work for our event – also, a very special thank you goes out to our speakers and sponsors for their partnership as well. View the official #PPSCHI22 Photo Gallery below: Watch the recap video from PPS President Kevin Mitchell below: The extended link to view more photos: https://photos.app.goo.gl/ENpAtzbSKoDNU1xU8 Look out for more updates from our attendees, staff and Sponsors as we continue to share event highlights from #PPSCHI22. Join us in San Francisco this Fall! https://www.pricingsociety.com/fall-conference-22

In this "throwback" post, initially shared in the Professional Pricing Society's Pricing Journal, we learn how important the rules of inflation are in pricing and the successful strategy that sustained over time. High inflation is one of the main concerns in emerging economies. The conventional pricing approach is not suitable for inflationary environments given the distortion in the traditional business incentives. Under these environments a new framework should be developed in order to assess the new priorities of the pricing policy. This new approach -called the “Inflation’s 3 C”- highlights the key issues that pricing should address, i.e.: Cost, Collections and Communication. This article develops the key issues that integrate this new framework. Challenges of Pricing in Emerging Economies: Coping with High Inflation High inflation is still one of the main concerns in emerging economies. Annual rates in the neighborhood of 10% -and even more for some specific markets- have characterized the pricing situation of many emerging economies for years. This scenario represents high uncertainty for companies doing business at emerging countries. Prices and their evolution become the centre of the business worries –in many cases- at the expense of losing the focus in the business strategy. This situation entails a particular challenge for the pricing profession. Understanding the new price dynamics becomes a critical issue for the companies’ survival. A new pricing approach together with financial management tools should be implemented in order to cope with this difficult environment. New Approach The conventional pricing approach –valid for low inflation economies- requires some adjustments in order to reflect the new challenges of high inflation environments. While the “4 C” framework is a trusted and important tool to identify the key drivers of pricing in conventional scenarios, i.e.: Cost, Customers, Competitors and Channel, it needs to be redefined when high inflation turns out to be a main concern. During inflationary times companies try to protect their profits and cash flow transferring the inflationary impact to third parties. These parties are customers, suppliers, and employees. Customers will be affected through selling price adjustments. In the case of suppliers, the company will try to delay the impact of cost increases and extend payment terms as much as possible. Finally in the case of employees, they will be affected if salaries lag behind the inflation rate evolution, reducing their real purchasing power. Under this environment a new framework should be developed in order to better assess the new priorities of the pricing policy. This new approach -called the “Inflation’s 3 C”- highlights the new set of the key issues that pricing should address i.e.: Cost, Collections and Communication (see figure 1). This new framework reflects the change in the priorities for the company and the new way of doing business given the distortion of traditional incentives. For example, while during in normal times increasing sales is one of the top priorities of the company, in inflationary times holding large inventories while being very selective in closing sales could be a more profitable strategy. Financial gains (working capital appreciation) can be far more rewarding than classic operational profits under the new set of incentives. Figure 1: “Inflation’s 3 C” Key Drivers: “Inflation’s 3 C” Cost In inflationary environments the company has to keep up with constant cost increases that should be passed through to prices in order to avoid losing profitability and cash flow. Information about costs and its forecasted evolution is vital for the planning and scheduling of the pass-through strategy. Fluid communication between the pricing professional and key internal departments as Finance & Administration, Purchasing and Human Resources is pivotal under inflationary situations. These departments will be the source of valuable information to make quick decisions under the new price dynamics. In the case of the Finance & Administration department its contribution is vital to model the forecasted path of the different cost items. This information will allow to make simulations of the forecasted impact in the overall cost structure. The cost simulation model outputs will be a critical raw material for the pricing practitioner to plan the magnitude and timing of the price adjustments. Fluid communication with the Purchasing department (raw material and services) is also very important as this area is the one that has first hand information from suppliers. Many valuable “off-the-record” inputs about cost evolution –that should be adequately weighted by the pricing professional- can be available even before the detailed cost simulations. This department will source the Finance & Administration department with the necessary information to feed the simulation model. Another critical input from the Purchasing department is the reliability of the raw material deliveries as –mainly in very high inflation contexts- suppliers may constrain or delay the deliveries in order to take advantage of future more favorable pricing conditions. If supply constrains are foreseen the companies pricing situation should be ready to reflect this. Human Resources is another key department for cost evolution information. This department will be able to forecast the labor cost evolution which could impact both internally (i.e. labor costs of the company) and externally (i.e. labor costs of the suppliers). In the latter case this will let the company anticipate a next round of cost increases once the suppliers recalculate their costs. In most cases labor costs usually lag behind in the adjustment path of inflationary environments. As a consequence of this lag it is probable that even when raw material inflation starts to decrease, labor cost evolution accelerates in order to catch up with the accumulated inflation rate. The information sourced by Human Resources department will also feed the cost simulation model. Regarding the methodology to implement the price adjustments the company should always base its pricing on the analysis of the future costs -not of the historical ones- associated with making a sale. The relevant cost is the future cost of replacing the inventory when sales are made. Otherwise, there will be a risk of losing working capital as the revenues generated will not be enough to replace the inventories at the new higher costs. For example, considering a book seller that is informed that from next month the wholesale price of his books will suffer a 10% increase. If he keeps the retail price unchanged as the new wholesale price has not affected his purchases yet, he will be reducing its financial capacity to replace his inventory as he will be paying a higher price in the next purchase. In this case he will be forced to borrow money or retain a larger portion of the earnings in order to keep the same level of inventory. To avoid this, he should adjust his retail price as soon as he notices about the increase, in order to reflect the future cost of replacing his inventory. When high inflation is a persistent phenomenon an automatic price adjustment clause can be an interesting idea to explore. Suppliers and customers could agree on a criterion or index that could serve as a trigger to automatically implement price adjustments. This criterion or index should be as simple and transparent as possible in order to avoid any conflict during its implementation. This system could be very useful to reduce the impact of a constant price negotiation under a persistent inflation situation. Collections Payment terms are usually reduced during inflationary situations mainly for three reasons: to decrease the exposure of the accounts receivables, to protect the company from the higher risk of past due problems and to avoid charging the customers with the higher cost of financing sales given the higher cost of capital. Accounts receivables have the same problem that inventories –especially if the company has long payment terms- as there is a risk that the revenues to be collected do not reflect the real “cash” cost of the sale. Unless the prices invoiced already include the cost of capital on the agreed payment term, there is a permanent risk that revenues collected will never be enough to reflect the replacement cost of the goods sold. Past due problems are very common as some customers are likely to show speculative behaviors trying to delay payments in order to liquidate the burden of accounts receivables exposed to the inflationary erosion. The cost of financing sales also rises as the cost of capital increases to reflect the expected inflation. The payment term reduction should be usually complemented with stronger incentives in order to increase the opportunity cost for the customers of delaying the payments. A price waterfall analysis could help to break out the entire discounts framework from the invoice price to the pocket price in order to find some opportunities to improve the collections performance. For example, moving some discounts from commercial purposes (e.g. promotional discounts) to financial purposes (e.g. pay in advance discount or payment in term discount). Focusing the price waterfall items to improving the payment performance can be very helpful under inflationary situations. Communication The communication strategy is crucial for the price recovery actions success. The communication should not only be directed to customers but also to other stakeholders, as competitors or the government, depending on the particular situation of each market. Customers should be convinced that the price adjustment is inevitable and equitable for the entire customer base. The price adjustment should be perceived by customers as critical in order to maintain a reliable product supply. Relating the increase to widely known “high-level” cost increases can help to gain credibility and reduce the opposition. Nevertheless -if possible- the company should try to avoid giving too much information to customers about detailed cost increases in order to maintain enough price flexibility. It’s advisable to give only the strictly necessary details about the cost drivers of the price increases. However, in some concentrated markets with few strong customers there’s no other alternative than open book pricing. In that case the company should prepare a detailed spreadsheet communicating the cost impact in each part of the cost structure. Far from desirable, this can be the only way to get a price increase in markets where the demand is very concentrated in a few customers. Competitors should also receive the message about the price adjustment. Even then, the means and scope should be carefully analyzed in order to avoid behaviors that can be considered illegal in certain markets. The communication -that can be done through an industry council or a press release- should help to spread the idea that is in the best interest of all the players to implement soon a price adjustment in order to maintain the long-term profitability and continue competing at the same price level that before the price increase. In the case of the government –especially in markets closely screened by governments because of any political or social reason- the message should be directed to communicate the general cost foundations of the price increase. This communication could also help to refocus the interest of the government control from the suppliers of the market to the supplier’s suppliers. Opportunity For many companies –mainly at emerging countries- the price adjustments driven by inflationary environments can be an excellent opportunity to reformulate its pricing policy. Given the uncertainty that surrounds the inflationary situations, all the stakeholders are more wiling to accept price reformulations than in stable situations. This helps to reduce the normal resistance than entails a price adjustment. Following the developed framework the company can turn a problem -as surging inflation- into a real pricing opportunity. About The Author: Ariel Baños is an economist with vast experience in pricing at emerging economies. He has developed his expertise at a leading American company operating in the automotive business at emerging countries. Ariel is the founder of Fijaciondeprecios.com the first organization specialized in pricing for Spanish speaking countries. Contact: ariel_banos@fijaciondeprecios.com References Nagle, T. and Holden, R. (2002), “The Strategy and Tactics of Pricing”. Third Edition. Prentice Hall Marketing Series. Strategic Pricing Group, Inc. (2003). “Dealing with Cost Increases: A Matter of Survival”. SPG Bulletin. Sanguineti, E. and Lazzati S. (2002). “Gerenciar con inflación”. Revista Mercado.