Episode 25 Mar 04, 2021

How to Be Ready for a Price Optimization Project

Former client and longtime friend of Zilliant Pat Curtin joins host Rick Chappell, senior vice president of services and customer success, to share exciting news about his new pricing consultancy as part of a wide-ranging conversation about the steps needed to pave the way for a successful pricing initiative.

From executive alignment, data issues, competing projects and the jumble of business systems that need to speak to each other, the pair get their hands dirty dissecting the complexities that stand in the way of pricing transformation, ultimately arriving at a set of best practices that have been proven to move the needle for clients.

Pat Curtin

Pat Curtin

The team involved in the pricing department, when it comes to identifying the skills to make that type of work robust, there are many different skill sets required. And those people need sales skills because they need to understand the perspective of the customer.
- Pat Curtin, Curserv

Episode Transcript

Rick Chappel: I had to put myself on mute because I was laughing. I think we need to call this something like the Curserv Net Sales Readiness Challenge. If you ask five people at your company to define net sales and you get five wildly different answers, you're not quite ready.

Pat Curtin: I wish I could say that I'm not speaking from experience.

These are not indictments of individuals. These are simply, they're little things that creep in over time.

Rick Chappel: Hello everyone. My name is Rick Chappel. I'm the Senior Vice President of Professional Services and Customer Success at Zilliant. And I'll be your host for today's podcast. I am absolutely thrilled to welcome a gentleman who I've had the pleasure of working with for the better part of a decade at a variety of different companies in different roles.

And he's doing something unique, and I think valuable to our broader audience. It's my pleasure to introduce Pat Curtin, now the CEO at Curserv Consulting. Pat, welcome to B2B Reimagined.

Pat Curtin: Thank you, Rick. Nice to talk to you.

Rick Chappel: I wonder if you could tell us a little bit about, and our audience, about your new company and what you're hoping to accomplish in working with your clients?

Pat Curtin: Certainly, I appreciate the opportunity. Again, nice talking with you. I started this LLC last year towards the end of November. It was something that I had thought about doing for a while. And my mission for [00:02:00] this effort is to bring to bear some of the experiences I've had for the better part of two decades in focusing on profit management, price optimization and high level statistical work to share those experiences with companies, business units, and clients who are preparing to employ the services of Zilliant and/or want to better understand what they need to do to be prepared before Zilliant were to come onsite and begin to deploy those resources.

Rick Chappel: Fantastic. It's interesting that you have such great perspective on that to share. We come at this problem from different perspectives. Right? My teams are engaging after a customer has made that decision. Right? They've selected Zilliant. They've thought through the fact that they want to do a program. You're really coming at it from the other side of [00:03:00] the equation; the What do we want to do? How should we go about it? Who should we select?

Pat, I was hoping you'd talk a little bit about getting executives at a company to agree on a direction like this. At Zilliant, we see the customers that are the most successful, be the customers where executives across sales, marketing, finance product, have already come to agreement about what they're setting out to accomplish.

How hard is that in a corporate environment to get those multiple seniors executives to agree on a direction like this?

Pat Curtin: I think that’s a good point, Rick. It's not surprising that you find the greatest success where you have a solid leadership team aligned with their own expectations regarding how a focus of a price discipline is going to be a new initiative.

And I would say again, my experience is that generally you have a very strong leader who is the champion of getting a [00:04:00] third-party involved, looking at the data, identifying opportunities to improve price performance. And that champion reaches out and carves up a small department, existing employees, new hires, combination of both. And in fairly short order, I would say within six months, that leader, that singular person who's interested in pursuing this discipline gets the ball rolling, gets the budgets laid out, identifies what the ROI is likely to be and starts the engagement. I would say the team atmosphere of CFO, CEO, or president, VP sales, VP marketing, VP IT, and again, in my opinion, the collaboration among all of those folks is key to that success that you alluded to. And [00:05:00] even with a good, clear harmony of that leadership team, there is no shortage of obstacles to be overcome. But those obstacles really raise themselves to be something to stumble over without that collaboration at a high level.

There are simply too many variables in business metric management to be overcome if those high-level leaders are not aligned.

Rick Chappel: I wonder if you could talk about, if I could ask you to expand on the obstacles you've had the rich experience to solve this kind of problem for a few different companies.

What are the kinds of things that you commonly see crop up as an executive team works through an initiative like this?

Pat Curtin: Good question. It's funny. In putting some notes together for this podcast today, I got distracted over the last couple of days with the situation in Texas. So, Texas has its own power grid. And it's rich in natural resources.

And then all of a sudden, we [00:06:00] have a snow ice event. Not the storm of the century, but certainly something that needs to be overcome. And it's distracting. I have family and friends that live there. And so, the question arises. How can that happen? What are the dominoes that fall to create that? And it was interesting.

One of the quotes that I just wrote down and been reading and trying to find out what happened here is a quote from the enterprise that runs the Texas region. The quote is really short. “The reality is that managing our systems is becoming more difficult.” And for me, that kind of synthesizes things down very simply. Because whether you're the CFO, whether you're VP of sales, marketing, IT, et cetera, more and more, we have multiple systems that promulgate themselves like mushrooms throughout many enterprises.

Oftentimes we'll have one, hopefully just one ERP [00:07:00] platform to concern ourselves with. But then we're going to have a CRM bolted on or integrated. And there will be reporting systems. And whether that's Tableau or Tableau integrated or Cognos or some other system, there are multiple systems, it's very easy to lose track of where the repository is of those data points.

And again, that's why it's important for each stakeholder to come to this idea about engaging in a pricing initiative to clearly understand and cascade down the level of importance of getting your arms around exactly all of the details, supporting those systems. Again, in thinking about this most recently, the consequences in Texas for being a bit shortsighted in the complexity of the systems is widely apparent. It's literally become a matter of life and death. [00:08:00] In many companies, it doesn't become that on such a level, but certainly it affects people's lives in the amount of work they have to do to overcome oversights as well as errors that are seen that the most key central point. And that is what the customer. Everything that the leadership team does has to be focused on making sure that the customer has his or her expectations met, regardless of what initiatives we deploy to better define our price points.

Rick Chappel: You touched on a couple of things there, I think that are near and dear to my heart. And I was hoping you would expand on them a little bit. But again, when I think about businesses that we see get the greatest benefit. There are businesses that have made an IT investment to get on top of data exchange with a solution like this.

And integration to consume the guidance. So, whether you're talking about pricing or [00:09:00] cross- sell, or retention opportunities, campaigns, it sounds trivial, but getting data on a schedule that is consistently formatted and clean can be surprisingly hard for some organizations. Right? They have a lot of different it projects going on.

Prioritizing those products, those competing projects can be difficult. Have you seen that be a challenge at companies that you've worked at, and what's your advice for how to prioritize an initiative like this versus other important initiatives?

Pat Curtin: I have seen it, Rick. First and foremost, you mentioned integration.

Oftentimes the first order of business is going to make a decision as to whether or not the client is going to go down the path of a truly integrated approach with a third party so that real-time decisions can be made against real-time data. The secondary approach is extraction. And I've seen both aspects of this in play. And when a client decides that [00:10:00] they're going to go down an extraction route, in other words, not a true integration, but we're going to extract data from one source or another and then integrate it downstream. Now, all of a sudden, the juggling act gets a lot more difficult because you got balls coming into the juggling act from multiple directions.

But even stepping back a step before that. And again, going back to my own notes about: What is it that people really need to focus on first and foremost? I take a step all the way back to a simple Litmos test. And if I were to ask just a quick survey of a president of a division or business unit, or chief CFO, or director of finance, similar VP sales manager, whatever those titles are marketing, and IT, now I want to ask a simple question. One simple question. And that is: Define net sales? Oftentimes, it's a simple question. And this is just an example. [00:11:00] But in the definition of net sales, most people are going to come back and say, “Look, that's very simple. It's invoice price times quantity minus credits.”

There you go. That's gross sales are, invoice price times quantity and then less credits you've got net. But some people are going to give it a little bit more thought, and they're going to say, “I'm going to want to pull crate prepaid freight out of there as well. If I want to look at net sales revenue, I'm going to want to pull freight out of there.”

And then somebody else is going to say, “Yeah, but” and especially if they're coming from the finance end, they're going to say, “net revenue at the end of the year is also going to include controlling for my rebate accruels. So, whenever I'm going to pay out to customers in the form of credit for an accrual needs to be considered there.”

And so, you can see that simple questions of simple finance terms, all of a sudden get a little bit more complicated. And it's important to make sure that everybody understands their own internal verbiage [00:12:00] right along with determining what it is that we're going to do to optimize price in order to move forward with this discipline. It seems like overly stating the obvious. But I can assure you that these are the week to two-week delays that, in trying to corral everybody when you've already decided, you've engaged Zilliant to produce a solution, and everybody is pulling data together. And we were on a timeline.

We're hitting our milestones. And then all of a sudden there's calculus that comes up. Simple finance math. And net revenue doesn't tie out to net revenue in two different regions. And then there's the parsing of information. How can this be? Then you go back to the definition. And then that's when you find out that one group is summing on different variables.

So not just getting access to the data, Rick, and a true integration. But [00:13:00] including clear definitions. I hope I didn't belabor that too much.

Rick Chappel: No. Pat, I had to put myself on mute because I was laughing. I think we need to call this something like the ‘Curserv net sales readiness challenge.’ If you ask five people at your company to define net sales and you get five wildly different answers, you're not quite ready.

Pat Curtin: I wish I could say that I'm not speaking from experience. These are not indictments of individuals. They're little things that creep in over time that until somebody takes the time to investigate: What are the data that we need to control, or at least examine closely, in order to maximize the return that we're going to get out of this investment?

Oftentimes there are suppositions made. If we're doing quarterly P&L for a $2 billion piece of business, and we're only looking at $300 million regions rolled up month to [00:14:00] month, quarter to quarter, the questions of net sales, whether it includes freight or not, become fairly immaterial because it's all washed out. Right?

The finance guys have already reconciled this. But if you're trying to get down to three points after the decimal accuracy on pricing, and you're not getting the data to roll up to the sum total, now questions of validity come in. And we have to be able to get the math to work.

Rick Chappel: Yeah, thanks, Pat. That was great.

I'm going to move us in a different direction now. One of the questions that customers think about before they start a project like this is: “Do I have the right organization in place?” I wonder if you would talk a little bit, Pat, maybe in two parts about what is a sufficient organization to get started with if you don't have this you probably aren't ready to start? And then, what is the organization that you might want to grow to as you become a more mature organization?

Pat Curtin: So, my thinking on this kind of falls into what it is [00:15:00] that we want this pricing department to do. In other words, are we looking for a group of people to manage what are fairly taxing chores on a clerical level?

And so, managing all the price points for all customers for all products, in the system, is a detailed exercise. It can be taxing in the level of detail required. And in the number of people needed, especially if we're working within systems that don't lend themselves to a robust analytical tool. And by that, what I mean is, are we using tools that allow us to scan hundreds of thousands of records instantly?

Or are we extracting, examining in Excel, doing V lookups and comparative work? And it's a clear distinction for me as to whether or not we want to put a focus on [00:16:00] managing these clerical functions, because it makes a difference as to where this pricing department rolls up. Is it going to roll up into finance?

Is it going to roll up into sales? Marketing? And that's the way I'm hearing your question as to what that team looks like. Because if the goal is to maintain more discipline around the clerical function’s errors; we have too many invoice errors and prices on invoices that we can't reconcile.

There are a lot of possible reasons for that. And troubleshooting the details within systems absolutely has to be overcome. But that's also going to require a different team makeup. You're talking about the people that are detail oriented. Their skillsets are fairly narrow and very focused.

It is a mistake to hire people where the job title or job [00:17:00] description were to include analysis for those functions. Problem solving analysis, possibly, but most pricing teams are looking to do analysis toward improving profitability. In other words, analytical skills to manage large datasets, identify opportunities to improve profit by manipulating profit levers. That is: volume, price, product mix, customer mix. Right? And cost. Are there opportunities to affect costs? So, analysts are going to want to analyze many variables, whereas people identifying mistakes and clerical work that needs to be reconciled is a different skillset. The fact of the matter is that a pricing department is going to have to cover all of that work.

And as the clerical mistakes are reconciled and weak processes [00:18:00] are overcome, then we can move into more high-level analytical work. And some of that analysis can include fairly robust algorithms that Zilliant, anything that helps to define and produce and reproduce in order to continue to drive those sharp price points.

I guess the point I'm trying to make is that the team involved in the pricing department, when it comes to identifying the skills to make that type of work robust, there are many different skill sets required. And those people need sales skills because they need to understand the perspective of the customer.

Again, that idea that we have to retain focus on the customer expectations and meet or exceed those expectations. What are the marketing opportunities? I would go so far as to say that a lot of the marketing that's done needs to be confined within its own rigorous statistical work to [00:19:00] answer questions regarding promotions. Are promotions deemed profitable or not?

And are they successes or not? And when I say rigorously examined, a regression analysis to identify analysis done to identify: did we sell more units because we lowered the price or because of something having to do with content within a promotion? Did we pair up product? Was the pairing the thing that drove more? And these all have direct impact on price.

And so, identifying cause and effect is key to understanding whether we want to reproduce some of those efforts down the road. Did I answer your question as to the people part?

Rick Chappel: Yeah. Let me ask one follow-up. So, we were talking about the right team structure. Right? If you're going to take on a project like this, and then, so we've talked a bit about the, maybe the analytical mindset and the kinds of things that they might be doing.

Can you give our listeners any guidance on how your team size might vary with your [00:20:00] company size or structures? So, for example, we often see pricing analysts assigned to a product category or several product categories. How do you figure out as a pricing leader, who's undertaking a project like this, your analysts are going to start using this new tool, how do you think, Pat, about how many analysts do I need? Is it a function of revenue? Or is it a function of customer count? Or of product count? Or maybe it's some equation of all those things?

Pat Curtin: It is. In that context, the solution is going to be as widely varied as the company in question, depending on whether the company tends to focus on product. Whether they tend to focus on region. Do they have a strong marketing department? Or non-existent marketing department? Are there sales analysts that are already in position to work on customer segmentation? So, to what extent are those pricing analysts and sales analysts paired? Or in conflict? Again, this kind of goes back to that, the nature of [00:21:00] making sure that the leadership teams all understand that issues arise. What are the potential conflicts? What are the unintended consequences of putting this price discipline in place? One of the questions or one of the aspects of your question that kind of bleeds into the broader question is: Under which department does a price department belong?

Should pricing fall under marketing? Because it just naturally does? I disagree that pricing naturally falls within marketing. Pricing often falls within marketing because we're all trained to understand that, going back to the early definitions, you've got four Ps and pricing is one of them.

And that's what constitutes marketing metaphor. That is where it belongs. That's valid. I have no argument against it. However, I've worked in pricing departments that rolled up into finance. It rolled up into sales. That rolled up into marketing. I've also worked [00:22:00] in pricing departments that rolled up into procurement.

And I will tell you candidly, that the most successful of all those scenarios was that when I reported to the VP of purchasing. It was a surprise when we went that route and again, the internal structure of the way that the company was put together, the way the C-suite interacted with all the other divisions within the company - it just lent itself that way.

However, one of the reasons that it works so well is that my peers were all directors of vendors, product, and transportation, logistics. So, when we would have a weekly staff meeting, I knew immediately the extent to which my raw materials were going to be changing. So, I was ahead of the question of: What am I going to have to do to cover costs?

I never worried about it because my boss knew [00:23:00] exactly what vendors were coming along giving pricing increases. And we also knew, intimately, whether we could hold price and take advantage of profitability options where we knew we were going to get priced discounts from our vendors. And again, I'm less about staying with the tried-and-true rules, call it ‘the rules according to Hoyle of business construction.’

I don't know that there are right or wrong answers in there. A lot of times, at least from what I've seen, some of the most effective ways to focus on improving profitability comes in avenues that you don't expect.

Rick Chappel: That is fascinating. When you said procurement, I was like, I thought you were going to say, ‘and it was terrible,’ but I love the way you explain how it was the opposite of that.

It was fantastic. So Pat, a quick sum up for our audience. So, we've talked about the importance of executive alignment before you start a project. We've talked about IT prioritization of your project. So important things like quality repeatable data and building integration get surfaced. We've talked about some [00:24:00] team considerations. Appreciate that.

If we can, I'm going to challenge us to squeeze in two more things, briefly. One of them is validation. We've worked through a setup together. Now we're validating prices. I’m interested to get your thoughts on validating that guidance before you push it out to the broader community to use that pricing.

And then I thought we'd wrap up with a quick thought on measuring benefit and then we'll just have to be done.

Pat Curtin: Yeah, validation is always a challenge. And again, for me, it comes back to making sure that the pricing team is allocated the tools to do the work in very efficient manners. In other words, oftentimes the numbers of transactions that we're talking about, we're potentially looking at millions of transactions per month, quarter, or year.

And in order to validate the prices that are going to start to affect revenue and profitability, we have to have the tools that [00:25:00] provide the answers that have to be asked regarding viability. In other words, it's fine to say, “look, we just want to raise prices 1%. We know we'll get 1% lift in 1%, 1%.” That's great. And this never works out that way. And again, in the interest of time here, we won't go into all of the reasons that an across-the-board rate hike is neither desirable nor always effective.

But regardless of that, the process of validating proposed price basically becomes one of vetting one variable against a standard and adjudicating the extent to which we think that it's acceptable. My preference is to do it twofold. One is to let the results, the anticipated results, speak for themselves and say, “This is where by-product line by customer by region, by segment, et cetera.

What the roll up is going to look like. [00:26:00] These are the exceptions.” And use very simple rolled up numbers. The other aspect of this, the one that's more complicated, is to parse that data into likely results. In other words, using the statistical tools that come to bear on the likelihood of a change to be accepted and to be put into the market. That becomes more esoteric and therefore more difficult to explain and to be accepted.

That's why it needs to be paired with a broader challenge of running the numbers to identify exactly what the expected results are going to be. Both a granular and a rolled-up level. That allows everybody on the team, the senior teams, management teams, and the staff, to all agree that statistically, this is the likelihood.

And in the event of these proposed prices being adjudicated valid, [00:27:00] this will be the net result to profitability and revenue.

Rick Chappel: Can you talk for 30 seconds about how you measure the benefit of this project?

Pat Curtin: Measurement is generally pretty simple.

Have we added more revenue? And again, one of those things where all things being equal, it can be both a blessing and a curse of an aphorism. All things are never equal. Controlling product mix, price change, cost variation and volume. Right? We always have to look at those four key metrics together to understand how the drivers come together to perform on the bottom line.

Did we see added revenue solely because of volume where price was maintained as is? Or did we see revenue increase because price went up and volumes remained? The same question on the profitability end regarding cost. Did profitability go up, down, stay neutral because costs went in kind? And the most difficult one of course in the one that [00:28:00] remains the most challenging, particularly for sales is: mix.

Did we change the mix of product? And did our volume change across a mix of customer categorization? But we jumped way ahead from the early idea of setting the table for a successful deployment to, now that we've deployed and we're ready to validate and employ the prices that we want to see in market, what are the causes and effects?

And again, I'm a big advocate of early on identifying those variables as our metrics to set the groundwork, the framework, if you will, for determining rate of success.

Rick Chappel: And now you've brought us full circle, Pat. That was brilliant. Thank you. It's been so great having you on today. Thanks so much for sharing your thoughts with us on how to be ready for an optimization, a price optimization project.

Pat Curtin: A pleasure as always, Rick.

Rick Chappel: I want to thank each of our podcast listeners for being with us. We're committed to your success and if you need assistance, please reach out to us at Zilliant. Or to Pat Curtin at Curserv. [00:29:00] This concludes our podcast. Please rate and review the show is it helps us continue to put out this great free content. Until next time.

Have a great day.

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