Episode 38 Sep 09, 2021

Revenue Growth Management in B2B with David Moss

Returning guest David Moss, partner at PwC, drops by to dispel a common myth about revenue growth management: it’s not just applicable in consumer markets. In fact, the concept is widely relevant for B2B companies, who thrive on analytical insights into sales and marketing every bit as much as their B2C counterparts do.

In this episode, David describes the six pillars of successful revenue growth management in B2B, and how each is enhanced by a combination of pricing/rebate management software and business strategy.

Featuring
David Moss

David Moss

This is really where strategy and pricing come together. In that if you think about the whole value chain end-to-end and where your customer's customer and your distributors and intermediaries, and everyone in the value chain gets a few pennies of every dollar that goes into that industry. And understanding who's making what money is important for your negotiations and important for you to match the value that you provide to the whole value chain.
- David Moss, PwC

Episode Transcript

David Moss: This is really where strategy and pricing come together. In that if you think about the whole value chain end-to-end and where your customer's customer and your distributors and intermediaries, and everyone in the value chain gets a few pennies of every dollar that goes into that industry. And understanding who's making what money is important for your negotiations and important for you to match the value that you provide to the whole value chain.

Lindsay Duran: You're listening to B2B Reimagined, a bi-weekly conversation hosted by a rotating roster of Zilliant B2B pricing and sales thought leaders featuring expert guests in the fields of technology, distribution, manufacturing, and business services. Join us as we explore the challenges and dynamics across a unique mix of industries in an increasingly complicated environment. Walk away [00:01:00] from each episode with pragmatic tactics and strategic advice to re-imagine the commercial approach in your business.

Hello, everyone. And welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for this episode. I'm joined today by David Moss, partner at Price Waterhouse Coopers. David, welcome back to the podcast.

David Moss: Hey Lindsay, it's great to be back. I love doing these. Really excited.

Lindsay Duran: David, I know you've been on once before, but why don't you just remind our audience a bit about what your background is and your role at PWC?

David Moss: Sure. I'm a partner at PWC based out of the Atlanta office in the US. I focus on pricing and revenue growth and trade. Have been working in this area for 21 years, serving clients across many industries. And we take pride in our work in this area. We've got a large team. And a [00:02:00] number of my colleagues are doing some of the similar work. So, really happy to be here and love the fact that we have a great Alliance with Zilliant, who's such a leader in this space.

Lindsay Duran: Excellent. We're thrilled to have you on. Before we dive into the meat of the discussion, I want to start out a little bit differently this time so that we can get to know you better.

What's something fascinating or surprising about yourself that you can share with our listeners?

David Moss: Ah one thing that might be a little different is I do have dual nationality; was born in the US, but I also have Irish citizenship.

So, I've got two passports. My children actually were born in England, so they have three passports: a US, Irish and British as a result. I've spent a lot of my career working in Europe. Before Price Waterhouse Coopers, I worked with Unilever and I've worked over 15 years split between the UK [00:03:00] and Amsterdam and the Netherlands both working with Unilever as well as with Price Waterhouse Coopers before. I've now settled back in the states for the last 15 years or so.

Lindsay Duran: Very cool. One of these days you'll have to remind me of the rules of Gaelic football.

David Moss: Since I came to my Irish nationality by marriage, I'm going to have to study up on that one as well.

Lindsay Duran: Indeed. We'll save that for another topic. So today we're going to be talking about some aspects of revenue growth management and pricing in B2B.

So David, first, can you talk us through the pillars, if you will, of revenue growth management and explain how that relates specifically to B2B companies? It's often something that we might hear in the context of B2C or in retail.

David Moss: Yeah, absolutely. I think it is probably a misnomer that revenue growth management is associated with B2C or retail, but it's [00:04:00] actually super effective and it's used by many B2B customers. But let me give you an overview and then maybe we can dive into some of the different components that are the pillars. So first of all, at a high level, revenue growth management, it is what it says on the can.

It's about managing your revenue. And more specifically. it's about managing the combination of your revenue and your margin in a manner that maximizes economic value add for our clients. And what that means is you can really think about it in a couple of a number of areas. First of all, one of the most important pillars to revenue growth management is to have really strong data standards - which is about making sure that there's a common taxonomy of data, that there's a common understanding of what data we're dealing with. And then a second pillar that's important is the price terms and conditions and the customer product profitability. Think about this as a mini profit and loss statement for every [00:05:00] customer that includes all the products that are available to those customers and all the pricing, the terms, the conditions, the rebates, the discounts, the stuff that is gross to net and the items that are below the gross profit line, all being lined up so that you understand if you're making money, losing money, at that customer product level. And that's important just for the transparency. Cause it's hard to change your pricing or to execute or improve rebates if you don't have that fundamental understanding. The next pillar is what we call price architecture. Sometimes we call it price, pack architecture if you consider all the bundled products. But price pack architecture is really about a good, better, best offering or even a premium offering. Appealing to your customers from a business-to-business perspective, some may want high-end products, some may want value products. And you need to think about where you play on that band. That's very much a concept that cuts across the whole industry. And then the next [00:06:00] level is what we call value chain and opportunity assessment whitespace analysis.

This is looking at areas in the value chain where you may not be playing, or others are playing or no one's playing. And there's an opportunity to capture more value. This is important to understand the value up and down the chain. So, if there's intermediaries or distributors between you and customers, how much value they extract from the value chain is something you need to understand.

And the analysis there to see where there are opportunities that may not be taken advantage of. Next is promotions effectiveness. So, this is when you decide to promote your products or discount them in a way to stimulate demand, is that effective or not? Is the juice worth the squeeze? …so to speak.

And then the last one is trade funds and business development. And this is about incentives. And this is something complex rebate programs have to do with business development funds, where you're trying to think about [00:07:00] enticing your business-to-business partners to behave in a way that's beneficial to your growth and your margin management.

And when they don't, you don't reward them as much. And when you do, you make it as pay for performance oriented as possible. I know that's a lot to think about under the banner of revenue growth management. And there are other aspects that I'm not including, but these are the basic pillars.

Lindsay Duran: Great. Thanks for taking us through that, David. Why don't we start with the backbone of data? What can B2B companies do to ensure they have the right data standards for revenue growth management? And do you see companies that are hamstringed by their lack of good data?

David Moss: Yes. So first of all, I do see companies that struggle with this data issue, and I'd want to start and say that it is all about the data. This is by far the most important pillar.

And I like the way you described it as the backbone. It is foundational and fundamental. [00:08:00] And what this really means is that if you think about that P& L from gross to net revenue, and then down to gross profit down to contribution margin or our operating income, depending on how far you want to go in your P& L, is that you have the right data in a transactional level to analyze what's happening in your business.

So, many people may have off invoice rebates. If they're off the invoice, then you need to assign those rebates to the right customer product combinations, when you think about analyzing whether or not it was worthwhile. So, getting all of that data straight and sometimes having to parse that data into pieces. Let's say there's a marketing campaign that might've cut across many customers. How do you allocate that across the customers that have benefited? Or how do you think about assigning innovation to the right products? Maybe not all your products deserve to get that innovation charge. It's not a whole lot of rocket science, but it can get [00:09:00] tedious. And companies like Zilliant, who can help make that data journey easier to handle and ingest the data in a way that's easily manipulated and standardizes is a big step in the right direction. The other thing I'll say about the data standards is it's also a cultural thing. You need to know that we have a common dictionary. And a common understanding of the taxonomy. So that up and down the value chain, everyone, whether it's sales or supply chain or marketing, or the pricing team all are speaking the same language.

I see so many companies that have the same data with different meanings in different parts or different functions. So, it also is a way to break down silos. So, you really think about what's most important is: What are the true economics of our business? And having a common understanding. We even issue these dictionaries.

Sometimes we'll use synonyms so that the supply [00:10:00] chain knows that the pricing team really means X when they say this. And so, it really helps everyone understand so that you start to talk about the same thing. Because if you get this really right, you should be able to make these RGM decisions in a real common-sense way.

It's just the fact that the data has grown up in legacy systems. It's in many places it's used for many different reasons. It may be labeled many different ways. But fundamentally, it's just about the base economics of your business. And getting that cornerstone is so important for revenue growth management.

Lindsay Duran: You're right. It really is the foundation for everything getting that data and getting it right. I think some companies often think that maybe they don't have enough usable data and that paralyzes them from getting started at all. I think what we see most frequently is that transaction data is really a great place to start and probably the cleanest source of data in any given business.

What's your perspective on that, David?

David Moss: [00:11:00] I couldn't agree with you more. As a matter of fact, I'll go one step further. I think if you put the transaction data in one spot. And you got it easily understood. And even if you have holes in your data and you have holes, let's say you don't necessarily know how to allocate some of the expenses below the gross profit line and just having the basic information and putting in a peanut butter spread number for everything else, at least as a starting point.

And then as you do your analysis, you can make some decisions. Going forward and say, hey, it's worth a little effort to go clean up data fields one through five. But after that, I think we have enough granularity to really make insightful decisions. And so, you can actually play a cost benefit game on how much you go.

We never say let's clean it all up. We're on more on the side of let's get started. Let's get the transaction data and anything that's already assigned. Let's put it in. Let's make some really broad assumptions around about everything else. Tie it out to [00:12:00] your financials. So, it's accurate. And then see what the analysis reveals.

And every time it shows that, customer A could do with a little less generosity. And customer B is flying. And you need to have your sales teams think more about selling in more like customer B.

Lindsay Duran: I think that's really great practical advice in terms of how to approach data sets that are not perfect, which data sets are never perfect in any business.

Moving into the customer product profitability analysis, really in an area that companies often look to Zilliant to add a lot of value. Can you talk about how B2B companies should approach this pillar?

David Moss: This is just so fundamental. Because when you have the data in that customer product profitability format, which is not necessarily the way ERP systems are designed, matter of fact, they're not designed to necessarily do that.

When you have it inside of the [00:13:00] Zilliant’s tools and modules, and you can see the various contribution, these start to see patterns of good and bad. I'll see the top four or five customers are usually pretty well managed because they're the top four or five customers, and there are many eyeballs. And then as you go down into below customer seven or so, for a B2B customer, you start to see what I'd call incongruent pricing; meaning that the pricing levels, whether it's list price or the level of discounting or rebates that customer gets doesn't necessarily equate to the contribution that they're making to the given client.

And you will see a lot of inaccuracies. And so, the way we think about it is let's just try to improve the bottom 25%. Let's isolate the least profitable 25%, particularly any, if there's any customers that are negative, meaning they're a negative contribution. You want to go and correct those quite quickly because you're hurting your marketplace.

You're definitely not [00:14:00] giving the value that you deserve isn't being had. Now there may be legacy reasons. They may not be legacy reasons. Maybe it's just they got a great deal. And they haven't really been looked at in a while and that deal is just been out there. And it's out of date and needs to be updated.

And so, it really cleans up a lot of sins in the past. And then once you get the bottom 25% closer to the average, then you start to see pricing ladders. And you can see your good, better, and best kind of product customer combinations. And then you can really start to think about optimization.

Lindsay Duran: So, David speaking of the functional areas that really thrive on a combination of strategy consulting that you provide at PWC and software tools like the ones from Zilliant.

Can you describe to our listeners what the pricing architecture pillar of RGM is all about?

David Moss: Yes. This is a great example of where, the Zilliant software can start to create [00:15:00] opportunities. Here where we're talking about what is the overall pricing structure of the market? And are you playing in a good offering area? Or are you playing in a better? Or are you playing in a best or premium?

Think about the high-end products that our B2B customers provide to their customers. It may be the same product, but with a higher level of service or a higher level of bundled value propositions. And it's important to have that really clear about where you're playing. And if you're really a broad player, you can offer all three or four offerings of a good, better, best, and premium.

And if you're not you need to stick to the knitting of where you're good. And this is about looking at how, what your offerings are, vis-a-vis your competitors. So, once you've gotten that incongruent pricing, where people just got some good deals, and they really didn't deserve them. Now, you really know what the rational pricing is out in the marketplace.

Now [00:16:00] we're talking about: where are you going to play and be competitive? So, you might, if you're in the good level, which has maybe a value level, are you just above or just below your competitors? Are you losing out? Run some elasticities and see if adjusting the price, a little up or down in that corridor is makes sense or not?

This is important to think through, but you need to understand the rational structure first. So, you've got to have all your data lined up and know where you're playing. And the reason we call it price pack architecture sometimes is you also have to consider if there's, if someone wants to buy an entire palette or someone wants to buy a one-off, seeing the items depends on the business model and depends on the customer.

You also need to consider that into your pricing architecture. So that volume discounts still needs to have some kind of good, better, best pricing architecture so that it's a very clear offering of where you stand in the marketplace.

Lindsay Duran: Yeah. Some of what you just described, David, we talk a lot about in the [00:17:00] context of having rational pricing or aligned pricing in that order size dimension or that order pack dimension, I think is really key there and that you want your prices to make sense in the context of how that customer is buying from you overall. So certainly, you can see that within a company, but also in that broader market dynamic that for rational markets to exist, you really need companies to understand where they're playing and where they're adding value, such that the prices make sense across the board for customers.

David Moss: Absolutely. And if they don't, then you have trouble defending your own value proposition. You're going to have complaints because people are confusing a premium offering with a value offering or just a good offering. And so, making sure that you have those clear corridors is important to establish a rational marketplace. Because once it's rational, [00:18:00] then great tools that you guys have are very good at predicting what's going to happen if you make a price change or change your rebate structure or change your discount structure. If it's not rational, the market isn't rational, then it's harder to predict. And so, getting to a rational market is the steps of revenue growth management that we've been going through a lot pillar by pillar.

Lindsay Duran: David, I'm glad you mentioned rebates. Just about every B2B company has a rebate or other off invoice pricing or incentive strategy. More often than not, it's a fairly big headache to manage. As our listeners know from a recent episode, Zilliant has some new rebate management capabilities that are really aimed at solving that manual administration burden and giving cross-functional teams from accounting, finance, pricing, sales, visibility, into profitability and performance. [00:19:00] Do you think we're at the point where companies need this type of software to be able to optimize revenue growth management in the context of rebates and other off invoice promotions?

David Moss: Absolutely. I think rebates are a great tool to manage your demand and to give incentives to your best customers who are going to take a lot of volume or maybe going to take your entire offering, everything that you sell. And for those great partners, you need to give them strong rebates.

And by keeping the rebates off invoice, and I'm sure that this doesn't happen every day, but I'm sure it happens leak sometimes is that if it's on invoice, it may wind up in the competitor's hand as to how your pricing works. Whereas rebates tend to be behind the scenes; dealt with cutting a check at the end of the year, but every quarter.

And so, it's really important tool to reward the customers you want to win with in the long run. They are strategic and important. [00:20:00] But, as you pointed out, keeping up with that can be difficult. I see on the one hand clients that create tons of liability and they didn't understand that they had liability and then they get a nasty surprise at the end of the year when they have to cut a check.

Other instances where I see customers overly concerned and they'll build up, accruals. There's money sitting on the sidelines that could be used to drive innovation or growth in other places. So, keeping it accurate exactly what you owe and keeping that administration is super important.

And there's really no reason, in this day and age, to have to do that manually. The machine learning and the AI and good strong programming with business rules will allow that to be done in a more automated way. Really only handled by a manual touchpoint by exception, not by the rule. And I see way too many clients who have entire organizations, many expensive [00:21:00] FTEs dedicated to sorting out rebates when they don't really need that manpower.

I'd rather see them put that manpower towards analysis to grow the business.

Lindsay Duran: I think that's a great point. And speaking of growing the business, one of the pillars - opportunity assessment and white space value chain analysis - is an area that many companies that we work with find to be rather difficult.

What's the ideal approach there?

David Moss: This is really where strategy and pricing come together. In that if you think about the whole value chain end to end and where your customer's customer and your distributors and intermediaries, and everyone in the value chain gets a few pennies of every dollar that goes into that industry.

And understanding who's making what money is important for your negotiations and important for you to match the value that you provide to the whole value chain. And [00:22:00] make sure that you're getting a proper return because you might be getting out negotiated or maybe you negotiated well and you'll get more than you deserve, and you're opening yourself up to competition.

So, on the one hand, it's just important to understand your place in the value chain. And is there opportunity that is commiserate with you in the value you provide? And understanding it is important for you to make that assessment. But then what you're alluding to with the light space is that, oftentimes, we see when you look at the full value chain and the entire addressable market, companies see adjacencies and opportunities to sell maybe existing products to new customers or sell new products to existing customers. Or maybe there's opportunity to innovate and offer something completely new that someone else is getting that value chain. Or it could even be white space that not very many people are participating in that pocket of a profitability. And you have the assets [00:23:00] as a company to go after that.

The strategists who are thinking about the next three and five years of growth for a company and the pricers and the pricing folks who understand the intimate nature of the economics of the industry can come together to really add value and make a strong impact for the long-term growth of a business.

Lindsay Duran: I think that's a great point. Something that comes to mind for me is thinking about our customers who are constantly introducing new products into the market to keep up with trends. If you think about trends in home building or in commercial buildings, and what was popular for your kitchen counter 10 years ago has changed significantly.

And so as companies continue to innovate and add new products into the market, how can companies apply this specifically to new product pricing when they're selling a product that has not existed before - as an example?

David Moss: Yeah, that's a great [00:24:00] point. And we have some statistics and studies that show that the vast majority of new products do fail.

And so, getting it right is important and there's really two ways that we do analysis to help our clients get it right the first time. One way is to go out and do surveys and conjoined analysis. And to really think through is this new product going to drive demand? What kind of price can I command for it?

Is it going to be profitable? And you can use discrete choice analysis or conjoined analysis to get it that answer. And it's even though conjoint and discrete choice analysis and survey work can get expensive, it's far, it's pennies on the dollar for launching a product and failing. So that's one way to do it.

Another way to do it is to get and use your existing data. And use products that are similar as a proxy. And we actually have found that this is sometimes more accurate, [00:25:00] depending on if it's completely new product and maybe not. But if it's a, let's say an extension of an existing product and it's a substitution. That kind of analysis that you might do by looking at actual transaction level data and running elasticities with different product features and combining them into what the new product might look like as a proxy is a more statistically accurate and far cheaper way of getting at the answer. I would suggest looking at both of those opportunities, both of those methodologies at a given opportunity. Again, both of them requires a lot of analysis, but it's far cheaper than putting a product out there and failing.

Lindsay Duran: Absolutely. And many of our customers often rely on analytics, looking at where similar products have historically transacted at what price and in what quantity, in order to help anchor some of that analysis. But certainly, much of that qualitative survey data that you described, I think also [00:26:00] can play a significant role and a helpful role, albeit more expensive in determining what those new product prices should be.

David Moss: Absolutely. And you've got to think that, if you're substituting and cannibalizing your own products with this new product or substituting a cannibalizing your competitors’ products, that's what you need to understand.

What are those cross-price elasticities? And those cross elasticities can get to tell you a lot and you can use the Zilliant’s capabilities to get at that. And when you use a transaction-based approach, and then you can top that up with conjoined, for the things that are completely innovative and new, that you have no legitimate proxy for.

Lindsay Duran: Indeed. Before we wrap up, David, let's touch on promotional effectiveness. Can you give our listeners some examples of promotion, best practices in B2B?

David Moss: Absolutely. Promotions are important in B2B just like they're important to consumers in B2C. Promotions can help fill the [00:27:00] shelves and the inventory in the warehouses of your businesses and you elbow out your competitors. Promotions can help to provide bundled opportunity.

So, if you have a high velocity product and you want to promote a slower moving product, you can bundle them together. And use the strength of your existing high velocity product that sells well. Or they may need to be bundled and you can price them as a bundle, and you can promote them for a while to see what that looks like.

You also use promotions to trial new products. So going back to the idea of a new innovation, you might say, “We were a longstanding client of yours. You've been buying product X for us for 10 years. We're coming out with a new product. We'd like you to stock it and sell it. We're going to promote it.

But we're also going to give you a discount on our high velocity product for getting it out in the marketplace as an anchor player.” All these things are great to really push for promotions to drive your [00:28:00] business. What promotions shouldn't be used for that are used too often - is you promote to fix a bad plan.

“So, you're behind plan and you need to catch up. So, I'm going to promote. Because I'm low on volume.” Now people do that. And I know that a lot of people promote, but that's the wrong reason to promote because you should be using Zilliant’s capabilities to have the right price to begin with most of the time, so you don't promote because you're behind on plan. Although I will admit that most of my clients are promoting for that reason. I try to get them off of that drug as soon as possible, because we also have a lot of statistics that at least those kinds of promotions are usually value deteriorating. And they are destroying the value of the business even though manager A might've made her numbers that month. It's not good for the enterprise of the marketplace in the long run.

Lindsay Duran: Sure. You're almost reinforcing that buying behavior.

David Moss: Exactly. [00:29:00] Any purchasing person at the B2B business on the other side, if you've trained them to wait for the promotion, they will.

At the same time, if you make a promotion that grows their business and your business together, and the pie gets larger, those are good promotions. You're training them to do the things that make your business grow.

Lindsay Duran: Absolutely. David, I want to thank you again for taking the time to join us for another episode of B2B Reimagined.

If our listeners want to get in touch with you, what is the best way to do that?

David Moss: Oh, the best way is to give me a phone call or send me an email. My phone number is (678) 468-6435. And my email is david.boss@pwc.com, which stands for Price Waterhouse Coopers pwc.com. So, I appreciate the opportunity to talk with you guys. I love having these discussions and would love to keep carrying on the conversation.

Lindsay Duran: Thanks so much, David. [00:30:00] And I'd encourage each of our listeners, if you haven't already, to go back and listen to Episode 28 “Pricing in times of inflation” to hear more from David on another very timely and critical topic.

Thank you all for joining us for this episode of B2B Reimagined. We're committed to your success. And if you need any assistance, please don't hesitate to reach out to Zilliant. This concludes our podcast. Please rate and review the show as it helps us to continue to put out great free content. Until next time, have a great day.

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