Episode 3 Feb 26, 2020

Industrial Parts & Equipment Manufacturers

In this episode, Nathan Rabold stops by to share his experience working with industrial parts and equipment manufacturers as a customer success director at Zilliant. Nathan and his team help customers adopt best practices for applying data science to the myriad internal and external complexities they face every day. Listen as Nathan and host Lindsay Duran discuss the go-to-market intricacies for industrial manufacturers and how they can respond more quickly to volatility, embrace complexity, market-align customer agreement lines, and turn around quotes faster with scientific pricing.

Nathan Rabold

Nathan Rabold

Typically, there are many objections to starting a project: data quality, field resistance, difficulties with the end product configurator or end system the prices would be shown in. But those types of issues often take months, years to resolve. And in the meantime, opportunity is passing by. 
- Nathan Rabold, Zilliant

Episode Transcript

Lindsay Duran: Welcome to B2B Reimagined. In B2B, achieving stellar business performance is an incredibly complicated endeavor. At the vertical level beyond just manufacturing, distribution, and services, the intricacies grow even more challenging as unique macroeconomics factor, and industry disruptors further stress legacy systems and methods.

Gaining strategic control of pricing and sales performance at this level will be the differentiator between leaders and laggers. B2B Reimagined is a monthly podcast with a rotating host of experts, each of whom brings decades of experience using data science to address industry vertical specific challenges that give the strategic control over pricing and sales that today's B2B companies simply must have to outperform.

Join us as we delve into a unique mix of verticals each [00:01:00] month to discuss the challenges and dynamics, and discuss ideas to help you begin to think differently about achieving more than was previously possible.

Welcome to B2B Reimagined. My name is Lindsay Duran. This month, I'll be your host, as we talked to Nathan Rabold, who is our expert on deck to discuss the industrial manufacturing industry. Welcome Nathan.

Nathan Rabold: Thank you, Lindsay. Excited to be here.

Lindsay Duran: Nathan, why don't you start off by telling us a little bit about yourself. I know you have a lot of experience working with customers in this space.

Nathan Rabold: Absolutely Lindsay. So, I've been at Zilliant a little over six years now, and I currently lead one of our customer success teams. So, my customer success managers, myself, work with our customers day to day, make sure they're generating a high level of benefit from our SAS products by providing thought leadership, business consulting, and best practices in the areas of pricing [00:02:00] strategy, analytics, sales effectiveness and system adoption. Prior to Zilliant, I was a consultant at Deloitte where I got my initial software configuration and business process experience working the plan design to implement large scale software solutions.

Lindsay Duran: Excellent. Thank you for being here. Nathan, tell us a little bit about your experience specifically working with industrial products manufacturing companies.

Nathan Rabold: So in my time at Zilliant, I've supported and seen customers on both sides of the configuration and the ongoing support process. So, within the industrial parts and equipment manufacturing industry, I've worked with customers to solve problems relating to, configured and custom products, discreet standard into stock products, as well as aftermarket parts.

Lindsay Duran: Excellent. So at Zilliant, we focus a lot on helping our customers with pricing challenges. In your time working with those different types of manufacturing businesses, what do you [00:03:00] see as some of the dynamics in the business that make pricing such a complicated and complex and challenging part of the business to manage?

Nathan Rabold: Yeah, certainly. Maybe we can break this into a few components to address this. I think there's one that's broader industry and economic dynamics. And then, within that there's some channel and go-to-market specifics that just add a heavy layer or of complexity to, in the end, which is just getting a price to a customer.

Lindsay Duran: So, why don't we start with the broader industry dynamics? We've certainly seen a lot of information in the news about Paris and the adding of tariffs and tariffs going away. More broadly speaking, I think cost volatility is a challenge in this particular industry. Can you talk a little bit about what you've seen as being so challenging when it comes to responding to those types of macro-economic factors?

Nathan Rabold: Yeah, certainly. Starting with tariffs, [00:04:00] I think the main challenge of executing or responding to an event like a tariff is 1., the time required and the time that's there to respond and 2., the actual event window you have to execute against. So, I see as a lot of folks have a broad tariff strategy. They understand that the inputs to what they're creating are going up by certain amounts and they need to pass all or some of that amount on down the supply chain.

The question of the complexity comes into how exactly does this tariff costs distribute across my products and across my customers. And how do I get that analysis done in a very short amount of time?

Lindsay Duran: And then, more broadly speaking on the cost volatility front, I would imagine that it's certainly difficult to figure out how to pass costs onto customers.

But, what do you typically see as the primary challenges when costs decline or those tariffs go away? What are companies faced with when costs are actually declining, or those tariffs disappear? What have you seen as some of the [00:05:00] challenges in that regard?

Nathan Rabold: I think the first thing companies struggle with is the actual process, in some cases to calculate a reliable cost. Many of the customers I work with in the industrial parts and equipment manufacturing space, have cost data but the process to update a product costs or change it, requires coordination between folks in product management, the actual plant and then, some analysts to put all the information together.

So, I think the first challenge is just how do we actually know our costs in a timely manner and get that cost allocated down to a skew level? And I think then once the cost is known, the main issue becomes, how often do we update? And then, how do we strategically apply a cost update to our customers?

How do we know which customers we should or shouldn't pass the cost onto? And to what amount do we pass on?

Lindsay Duran: I would imagine that manufacturer given all of the different ways they go to market each face some different pricing challenges, [00:06:00] whether you're a configured product customer or you're selling through distribution or direct and that, and the type of product that you're ultimately manufacturing.

How have you seen some of those key differences manifest in the way that companies might tackle pricing?

Nathan Rabold: I think within the configured products space, there's several challenges we've seen it help customers address. The first is just, you may be creating either for a one-off or for a bill of materials, a custom or built-to-order parts.

And it might be you made only that one. Conversely there's other configured products that you're going to make and then sell somewhat or very frequently, and to configure that product, it's not necessarily that you're just combining a set of single skews. You may be configuring smaller pieces or other items that get configured it turns into a final product. So, I'd say the first challenge within the configure proxy space is just data and skew management and having the ability to create [00:07:00] the initial product selection that allows you to get to a file configured product there with that data management comes the difficulty or the challenge of pricing each individual component of a configured product.

Lindsay Duran: Interesting. And do you find that most companies, given that maybe you don't ever sell the same configured product twice, tend to use more rule of thumb plus approaches to determining what a price is and it's really done on a deal by deal basis? Or do you find that companies have a more scientific approach?

What's most common from your experience?

Nathan Rabold: I would say most folks I've seen in the configured space operate in a list minus or a discount from list structure where there's a broadly known list price for commonly configured items. And then the market language revolves around discounts and lists or a multiplier.

And because of that structure, the way price is set communicated is quite unscientific. You can think about for [00:08:00] a commonly configured product in a certain geography or a certain market, most often, there's a similar list price and a similar end price being given to customers.

Lindsay Duran: How do you think pricing typically handled for more discreet or standard products that may be sold through a distribution channel?

Nathan Rabold: Good. Good question Lindsay. There's a few ways I've seen this handled, although the idea of selling into stock parts for a product seems somewhat simple. I say in practice, I see most manufacturers sell into stock products through a variety of different pricing methods. Now you may have one or two pricing methods that just reflect the true in the stock price for a distributor. And they have going to other pricing methods that reflect a distributor’s into stock price with the knowledge of an end customer buying that product and associated rebate or discount. And then you also may have some pricing methods that gets you directly from the manufacturer to an OEM or an end customer.

And so, [00:09:00] even though the products themselves are discreet and standard, there may be two to six different ways to price them depending on how that product is getting to the end customer.

Lindsay Duran: Sounds like a lot of different price points for a team to manage. Do you usually see large teams of pricing people that are responsible for this or what does it structurally…what does a pricing organization look like for that type of manufacturer?

Nathan Rabold: Yeah. This type of pricing structure definitely drives a high level of complexity and a lot of data points to manage. I would say most commonly there is some type of central pricing team that is tasked with finding a way to maintain updates and then distribute these price points to the sales reps or the field or sometimes, if the customer is internally resource constrained, this may be a task that folks in product or category management do in their spare time or on a somewhat infrequent basis.

Lindsay Duran: Interesting. [00:10:00] Have you seen any of the industrial manufacturers that you work with take a big step toward e-commerce over the past few years? I know that it's certainly on the rise for many of our distribution customers, but perhaps a bit slower to adopt on the manufacturing side.

Nathan Rabold: Yeah, I would say definitely slow to adopt. Most of the customers I work with are starting to take some first steps to venture into the e-commerce space but are somewhat uncertain of how to do so and how to approach that with customers and particularly, how to not give away some of the previously negotiated value and price distributions that they've created and the market.

Lindsay Duran: Sure. And that really brings me to my next question. Nathan is how much tension do you typically see between the central pricing organization that you referenced and the field sales organization in terms of what the appropriate price is to win a deal? [00:11:00] And how do you see that kind of relationship evolve as companies get more sophisticated with our pricing strategies and tools?

Nathan Rabold: Good question. I would say initially there are two very different - two very strong sets of opinions between pricing and the field on what the end price multiplier should be. Generally, the field wants much lower price levels and pricing wants something a bit more nuanced or a bit higher. But I would say as customers embark with us on a pricing project, the data helps facilitate an interesting conversation where pricing can now, instead of using Excel based tools and a lot of just assumption based analysis, and then they can bring their field, real robust analytics and scatterplots that help those in the field understand. No, I may always price here, but everyone else pricing similar customers in similar areas is a bit higher, so why am I lower? When everybody else is higher? So, I think the overall process of going through, for example, the [00:12:00] configuration of a pricing system, just start to shine a light on folks in the field who are pricing much more simply for everybody else and certainly gives the pricing team a very reliable set of information to bring to the field and help change behavior.

Lindsay Duran: Excellent. And I would imagine that the more relevant the price points are that the sales reps are much more likely to actually adopt them out in the field. So, this podcast is called B2B Reimagined. And so now let's just dive right in what are forward thinking manufacturers doing to reimagine how they approach pricing and how they bring pricing to the market?

Nathan Rabold: Yeah, I would say broadly speaking, the focus I see among industrial manufacturers is one around getting quotes finalized, and turned around faster. Often pricing is a bottleneck to a somewhat long quote, configuration or [00:13:00] negotiation process, and tends to hold up the final approval of a quote.

So, a lot of folks are focused on getting the right price at the right time to speed up their overall time to get a quote to a customer.

Lindsay Duran: That’s interesting, Nathan. One thought I have there is do you see a role for artificial intelligence or any kind of automation to help enable that quoting process?

Nathan Rabold: Certainly, within our customers, we've explored options from, real time market pricing via API to help quotes get processed within seconds instead of days.

And, additionally just through some pricing integration to standard CPQ or ERP systems, we've been able to facilitate with Zilliant points, our customers internal approval processes to happened in a much, much faster way. Imagine previously, you make the figure - an order in your CPQ system, that system of approvers - they have to think about if the [00:14:00] strategy and the prices are right. That may take a bit of time. They send it back. There's a bit of back and forth. Then finally, a quote goes to customer with some prices. Generally, via artificial intelligence, they may be able to submit a quote and have it go through without any human intervention or, the quote approver we'll have some real time market info to say, yes or no, I'm okay with the price levels we're seeing here.

Lindsay Duran: Very interesting. It sounds like that can significantly renew a lot of the manual time effort, potentially error-prone activities that might slow down a quote process or make a less-than-optimal customer experience. What other ways are you seeing manufacturers reimagine how they approach?

Nathan Rabold: The shift away from configure products and look more into just, standard or into stock products.

I think the real re-imagining happening there is often within the stock products. There's only a couple of windows of opportunity to change either a list price, a [00:15:00] multiplier, or an actual customer agreement or in the stock price, once or twice, maybe three times a year, but often, perhaps once a year. So, I think the reimagining happening is how can we harness this small window of opportunity to make a big change across our customers that result in the highest margin level possible, and the least amount of quantity lost?

Lindsay Duran: And when you think about that system price, Nathan, one comment that I often hear from customers is around system price drift, or matrix price drift, where over time, you had good intentions that revenue might be spread evenly across different matrixes. But over time, every customer ultimately deserves the best price, and everyone ends up paying the lowest price possible.

Is that consistent with your experience and how do you recommend companies go about tackling that particular challenge?

Nathan Rabold: Yeah. Good question, Lindsay. I'll break into a few different stages. I think stage [00:16:00] one is just, say trying to set a matrix price or agreement, price. In stage one, we're trying to get the price f or the single customer and product or for this group of products and customers, what is the correct list price, net price, or multiplier for the next year? Once we have that price, that the next stage is, are we actually seeing the field execute and our customers transact at the price points?

And in stage three, is get the necessary follow-up course corrections and to just, monitoring execution to move folks that were set at a price and on that price to a more relevant or the original price.

Lindsay Duran: How do you see companies in this space tackle the, I'll say multitude of customer price agreements that they may have set over time that seems like a significant opportunity to just set and forget a price and not have a good mechanism to go and adjust that in the future? What are some of the best practices you see? [00:17:00]

Nathan Rabold: Yeah, good question. The broad problem certainly is that, set and forget - not being customers with hundreds of thousands or even millions of agreement lines that were set, sometimes years or even decades ago.

And there's no continual process to revisit update, refresh, or delete these agreement-wise. They just exist. And in perpetuity. I've seen two different approaches with customers. Each has its tradeoffs. One is to embrace the complexity and find a better way, particularly one that is AI enabled, to manage these agreements.

Your customers may be used to having an agreement structure. Its customers may like having agreements for every product they could possibly buy. And, if we're able to, through a quarterly, monthly, or yearly process, update these agreements based on a few different factors to a market appropriate price, you can now maintain your massive book of agreements, but do so in a way that keeps them market aligned. [00:18:00]

So, I say that's take one. That's embrace the complexity and use the system like Zilliant, to automate and find opportunities in the complexity. The second approach I've seen folks take is to just broadly simplify. Maybe look at your book of a million agreement lines and, in a kind of classic Pareto method, keep maintain and execute against the agreements that drive most of your revenue and then move all other smaller, or long tail agreements to some type of broad matrix structure. We're moving many similar types of customers and products to the same price point.

Lindsay Duran: That sounds good in theory, Nathan. But of course, the devil's in the details. And I think one of those details is around how do you get the sales team on board with making those types of sweeping changes? What have you seen work most effectively when it comes to getting the sales team to understand the importance of why you need to [00:19:00] manage pricing more closely or change customer pricing to be in line with the overall company profitability?

Nathan Rabold: Yeah, I'd say with either method, we always encounter field resistance, because the net effect of either method is someone in the field has to go to one of their customers and talk to that customer and explain to them why their price is changing, what the grid is changing to and why it has to be that way.

So, I'd say, across both methods, the change management acquired is somewhat similar. Because we're requiring folks to alter their behavior, deliver a new message to customers with the faith that the customer will accept that message. But I'd say that the real way to win that change management game is all around

executive vision, executive expectation and clear communication and expectations to your field on just why the broader change is happening. You know how it's going to benefit the company as a whole and how each person from the field will, we've measured and tracked [00:20:00] against this new behavior.

Lindsay Duran: Do you see companies often implementing different incentives or changing compensation structures to help with that behavior? Or is it more of a carrot approach rather than a stick approach at times?

Nathan Rabold: I wish that more customers, as part of pricing reimagining, would also change their set of programs. I found that, is often a difficult battle. But where customers do change their instead-of program, they usually see exceptional results.

I would say broadly across manufacturing, most sales teams have some type of constructure that heavily incentivizes volume. And so, if you're going to the field and you're now tasked with delivering a price increase know, you certainly will see a slight uptick of your commission - if you're able to get a higher price and thus, more revenue, for this particular order project.

But the trade-off is, it's [00:21:00] usually a small, incremental amount of revenue and the perceived risk of losing that deal certainly outweighs the small amount of additional revenue generated by going to a higher price. So, for that reason, I would say a volume-based or revenue-based instead-of approach, is usually one of the main hindrances to an effective pricing rollout or an effective pricing change.

Lindsay Duran: Interesting. I understand why many companies might shy away from changing sales compensation, especially at the outset of a pricing project. Is that normally a phase two activity in your experience?

Nathan Rabold: Typically. So, I would definitely recommend as a best practice that it is part of the phase one and initial rollout, but practically speaking, it's often phase two.


Lindsay Duran: Nathan, I'm sure a lot of our listeners are wondering what exactly is a customer success manager? Could you talk a little bit about [00:22:00] your role at Zilliant and the type of work that you typically do with our customers?

Nathan Rabold: Very good question. Maybe the frame outs, just the broad concept of customer success, within the software, the service industry, most companies have moved to some type of customer success service. Within customer success, the SAS companies can take a very high touch approach or a very low touch approach to customer success. And at Zilliant, we’ve chosen to take a very high touch approach. And what that means is our customers have a dedicated CSM. They talked to that CSM every single week and that's success manager is often on site with the customer, two to four times per year.

And the goal of our success program is to partner with our customers, to continually understand their business, their challenges, and their pain points, and ensure that our product configuration allows them to address those challenges. And then we provide practical recommendations on ways to adopt what we've [00:23:00] rolled out and measure the impact of what we rolled out.

Lindsay Duran: Great. Thanks Nathan. Given that you've seen a wide variety of companies tackle pricing projects, what advice would you give to industrial manufacturers in particular, as they think about how they might improve pricing as we get further into 2020?

Nathan Rabold: Yeah, I think the first piece of advice I give is start now.

Typically, there are many objections to starting a project: data quality, field resistance, difficulties with the end product configurator or end system prices would be shown in. But those types of issues often take months, years, or a very long time to resolve. And in the meantime, opportunity is passing by.

So, I'd say there's never a time it's too early to start a pricing project. So, embrace the data you have. Partner with someone like Zilliant to help you understand, pivot, analyze, and apply some artificial intelligence to that data, to begin getting some lift and [00:24:00] impact immediately.

Lindsay Duran: Excellent. On that note, I think we'll wrap up this episode of B2B Reimagined.

Nathan, thank you for your time and for sharing your insights today. And we look forward to everyone tuning in for the next episode of B2B Reimagined.

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