ScreamingBox Technology & Business Rundown

Dave Erickson 0:00
So in your mind, you have developed the world's greatest product. But how are you going to price it to guarantee success on this ScreamingBox podcast, we are going hunting for the best pricing strategies for business growth and profitability. Please like our podcast and subscribe to our channel to get notified when the next podcast is released.

Dave Erickson 0:44
So you have developed the world's greatest product, and if priced right, it will take over the market, like Godzilla taking over Tokyo. So what is the right price? Welcome to the ScreamingBox Technology and Business Rundown Podcast. In this podcast I, Dave Erickson and Botond Seres are going to try to figure out how to price things with Per Sjöfors, founder and CEO Sjöfors and Partners Inc. Per is a best selling author of the price whisperer, a holistic approach to pricing power, and he is a member and a thought leader at the Sjöfors Business Council and the C suite hero club. He was recently identified as among the 10 most visionary leaders making a difference in 2023 by Inc Magazine, and was recently identified as among the top 50 global thought leaders in sales by Thinker 360 at his company, he leverages the proprietary software that they developed, as well as predictive analysis and value research, in order to align product features, marketing message and customer segments with optimal pricing levels, with over 700 plus client engagements, his proven process has delivered remarkable client results, such as doubling the sales growth rates and a 25 to 40% increase in margins Per Welcome to this podcast.

Per Sjöfors 2:02
Dave, great introduction, thank you very much. I'm looking forward to this and same to you Botond.

Dave Erickson 2:11
Great well, in the beginning, what led you to focusing on pricing and pricing strategies as a career?

Per Sjöfors 2:20
Well, what happened here was that I I ran a couple of companies in Europe, one in Zurich in Switzerland, and one in in London and and when I came here to the US in the mid 90s, I did so to join a fairly large public company and set up a division and and run that for, you know, for a while. And consequently, I had another four CEO jobs. And in all of these instances, we did experiments with pricing only because it was sort of an interest area for me. And some of those experiments were very successful, meaning that next quarter revenues are up, 25, 30% others were complete duds, and most of these experiments were basically inconclusive, it didn't make any, any difference at all. And what I had learned in business school about pricing. First of all, it was like two hours on a Tuesday afternoon. And secondly, the little I learned was academic and theoretical and didn't help us to understand why some of those experiments that we did, why some worked and others didn't. So when it was time for me to, to start my own company. I, I thought to myself, What would I have needed? What kind of information would I have needed to make sure that every pricing experiment was a success? And, and, and I consequently developed the process to make every pricing experiment successful. And so that is the background to what we do. And you mentioned the AI software that we developed. It's, this is something we use internally only, but it really helps our process and makes it quicker and more precise.

Botond Seres 4:25
Well, that's the trouble with experiments. It's making sense of the results.

Per Sjöfors 4:32
Yeah, sometimes,

Botond Seres 4:34
Well, most times, I would argue. But anyways, I I wonder what is different about, about how you gather that information which helps you identify whether an experiment is successful or has been a failure. I suppose, from someone that's just starting out.

Per Sjöfors 4:59
Well. The the the fundamental, the fundamental process that we use will identify, identify the most desirable customer segment to a customer to a company, meaning the segment that will give the company the highest possible sales volume at the most profitable prices. Likewise, it allows us to identify the product features or functions or or benefits or service feature functions, benefits like in the same way that also generates the highest, highest sales volume at the most profitable prices. We also can identify the marketing channels and the the the marketing messages that would lead to the highest, highest closing rate and highest profitability. And the same with sales: what sales channels and sales methodologies will deliver the highest sales volume and at the most profitable prices? And also we can identify the monetization strategy that ensures that sales friction is minimized and, and the company can sell at more profitable prices. And then, of course, we also, we sort of goes without saying, we also can identify the exact or precise price points that the company should use for its products or services in order to maximize either sales volume, revenue or profits.

Dave Erickson 6:56
Let's just say there's a company they got. They're a startup. They developed some kind of business model product, and they've just got investment, and they're, they're questioning, and the investor is saying, You need to work on getting your pricing, you need to get your market tax strategy done. You need to kind of get ready to do business. We're going to give you money to develop all that. So they're going to come to you. It seems to me, from what you've said, they actually need to kind of not come to you empty handed. They need to be a little bit prepared. They need to kind of at least have an understanding of what market they're targeting. You know, what is their concept of marketing, some kind of basis of how they want to, kind of do sales and set up their business. And then you can take that, and you can say, okay, let's, let's go into some things and maybe work with them on the target marketing and help them refine that. Once that's kind of refined, then you can start setting up an understanding of, okay, if this is the market you really want to go after. These are the things we need to do next. I assume that's part of the process for, say, a newer startup company. Is that correct?

Per Sjöfors 8:10
Well, any company must, any, any company must have some idea of, of how to, how to go to market, how to market the product or service, to market fit and so forth. So, yeah, that definitely is a starting point, but we expand that because the kind of work we do is like fishing. And what that means is that, you know, you have to cast your net very wide because you don't know what you're going to get and, and, you know, I can give you examples of a recent customer, for example. I'm not going to say what the product is, but it is a premium product, and because it's a premium product, it's using advanced materials and all different things. The company had expected that they could charge a premium price for it, And yes, the result that came back was that they could charge about a 50% premium compared to their commodity kind of competitors. Unfortunately, a 50% premium was still below their manufacturing cost. And what they had hoped to sell this product that was three to four times what the commodity competitors were selling at. So last time I checked with them, they. Now reengine… I mean, they spent millions and millions of dollars on, of investor money to, to create this product and create a production line and all that stuff based on the gut feel that they could charge three or four times the, the commodity price. And, yeah, of course, they will would sell something, you know, they will sell a little bit at that that price, but nowhere near as much as as as they could sell if they priced themselves correct, and, and the the, if I remember correctly, the revenues at at their planned price versus the revenue at the suggested price that, unfortunately, again, was below the the manufacturing cost. The difference was 10x right, yeah, yeah. So, so the, I mean, they're now trying to re-engineer the product to have, you know, not use exotic materials and so forth. And so they can have, they can still have that premium product, but they're also going to have more commodity like products to create a good, better, best product strategy.

Botond Seres 11:31
I would think that there's a fork in the road for in these types of situations, like on one side, they could take the road that Royce Royce took, which is to completely change sales channels, because when you're looking at the Royce Royce at the car show, that's a massive investment, but if you look at it at a private jet show, it's an impulse buy. But on the other side, they. they could make it a loss leader and just use it as a promotion for their future endeavors. And I wonder, as an expert such as yourself, what, what do you think about these two strategies?

Per Sjöfors 12:17
Well, I mean, first of all, we have to, we have to realize that every purchase is made in context, just as you indicated. And and the example you, you know you gave is it's sort of interesting, because in those two situations, we have two complete different types of customers that show up. And and the, I mean, I don't have to go into the the differences, but, but, but you're absolutely, absolutely right that having that context is, is, is so important, but it's also very important that that context can actually be provided by the seller, it doesn't have to be external or different circumstances. But there is something that's called price anchoring and price anchoring means that the first thing you, you present to a customer is a product or a service that is premium of some kind, and, and then, in that sense, sets the anchor point. And then you, you present the, the potential buyer with what you actually want to sell. And because you have a high number as an anchor point, the, the sales of what you actually going to sell is going to be much higher. And we can see how that works on, for example, a website. If you go to MailChimp and look at their, their pricing page, you can see that they have four different options of services, the, the, the one that is to the to the left, which is we read left to right. So the first one is something that is, I think is like $299 a month or, you know, very, very expensive. And then the next option is 15 bucks a month, you know. So when you present it with those two options, not many will buy the $299 and the vast majority will buy the $15 a month. And so that is best practice. And if there's other things on their website that is not best best practice, but they, to present the prices in that way definitely is, is, is best practice.

Dave Erickson 15:13
It seems like, as part of this context of pricing, I kind of go back to this, because I don't think a lot of companies spend really enough time, and thought particularly when they're launching them as a company, but also as when they're launching a product into the customer segment. I think that they basically say, Oh, we think our customer segment is; they may pay for a research study that says this is who your target market is, but I don't think they really put in a lot of thought into who exactly is their market. How is it broken down? What segments are in it? It seems to me that that's very critical to your pricing strategies and models. Maybe you can talk a little bit about what you've seen as companies when they come to you, what they do have as far as an idea of a customer segment and what they could do better.

Per Sjöfors 16:14
In the introduction, you mentioned the subtitle of my book, which is A holistic approach to pricing power, and that is another way of saying that everything in your company actually matters, when you, when, when, when you, when you set your price. So not only customer targeting, but you know, marketing and sales and so forth. And but you're right that the the the customer that, how should I say, the customer targeting is part of this and the The mistake that many, many entrepreneurs do is that they they either use gut feel or they talk to a dozen friends or family and, and friends and family will echo back what they what they think you want to hear. They're not going to say, this is a, this is a God awful idea, and they just won't say that. And so it's, it's really crucial to do the research and understand how, how that customer targeting affects how you can price and again, let me give you another example of this is a SaaS company. They came to us and asking for startup. They were, they had some business, but there were maybe about a million or so in revenue, and we found that they were so underpriced that they could quadruple their prices, and which they did over a period of nine months, I believe. And when I, when I checked with the, with the CEO of the company, he said, at that higher price, there were two things that happened. First off, they, they, they saw a 25% increase in sales volume. But he also, and I'm paraphrasing him here, he said, and we got through those the bottom feeders. So now we have a more professional level of customers, and our customer support costs have gone down with 80% so, so, because they had priced themselves so low that they appealed only to price sensitive customers. And price sensitive customers are typically the ones that A. they don't feel particularly vested into the product or service they're using, so they don't bother to learn it and because they don't bother to learn it, they suck up the customer support of the company. And because they're price sensitive, as soon as there is a cheaper alternative, they're gone. So the, the company is, is, is, consequently, you know that they, it's not a very profitable way to or I shouldn't say that, if you, if you focus on customer, price sensitive customers, you have to set up your company in certain ways so that you can serve these price sensitive customers, cost effectively and you also need to make sure custom acquisition cost is very low because your price sensitive customers will not be loyal.

Dave Erickson 20:19
Well that seems to be a theme in, particularly in SaaS companies which we deal with a lot. You know, if they’re a start up they tend to go in literally giving the service or software away for almost nothing. And for them, I mean, there is a strategy, you kind of give the software away and then you limit the features, and then basically charge more to add features that are important. That’s one way of pricing. Another is, you price the product low intentionally in the beginning to get users, and then raise the price to get more margin and hopefully retain some of those users, but I think you’re right, I think there’re some things in there, other considerations of business if you do that. On the other hand a lot of SaaS companies basically say I’m making a product that’s similar to something on the market so I’m just gonna charge whatever they’re charging. I think, what do you have, if a company is thinking that way, how would you change them or what can you say to them to say, That’s not the way to go, you should try something else.

Per Sjöfors 21:36
Well I think Premium, that you alluded to, is a great way of introducing a product to the market, but there is some constraints here. First of all, because it’s free, you’re not going to be able to afford to support those who, who sign up so, so the product itself needs to be easy to use. So it cannot be a very complicated product. The other option then to have, and what I mean premium, you give your customers the entire product for a month or something like that, two weeks or so that somebody gets used to it before they eventually hit a pay wall. The other is that if you limit the functionality of the product then your potential customers don’t know how good it is. So why should they pay to get those other features? This is obviously a balance, because if you have all these other features and you limit access to those features, again, your customers don’t know how good your product is, but on the other hand if you give it all away, it is a complicated part, some potential customers will be confused and for that reason, not pay when they get to that pay wall.

Botond Seres 23:31
Premium is certainly popular these days. But I do wonder what’s your take on subscription services.

Per Sjöfors 23:41
Subscription services are great. They’re great for everybody involved. They’re great for the company because they get recurring revenue. They’re great for the buyer because the friction of paying a Quote End Quote, high price to get access to a product is mitigated and so, it’s really a great way of going to market.

Dave Erickson 24:15
If a company is, is, let’s go back to, kind of the SaaS company. If they’re looking at, Ok, let’s increase our margin, we want to focus on getting a slightly better client and customer. Maybe they’re focused initially on SMBs and they want to go after enterprise companies. Ok to raise prices there’s probably several components that a company needs to look at to determine whether it’s worth it to raise prices. What are those components that they have to, kind of look at to start figuring out if they can raise prices and do it well?

Per Sjöfors 24:55
Well first of all this is something that very few companies really understand, and that is that selling to SMBs and selling to enterprises are completely different, and, and, and they're different because in, you know, in an SMB, it's typically, it's typically either a single decision maker or a very small team of decision makers. Well, there's, there's always a single decision maker, but, but the number of influencers are, are, are very limited, and you can kind of access, you have reasonable access to them, because you can ask the company, when you get into into the the the enterprise size, you have a vast number of influencers that none of them can say yes, but if only one of them say no, you lost the deal and and they're saying it's still a single decision maker. So, so it's vastly different. The, the, the other, and also enterprises, is, is typically a much longer sales cycle. So so so the the what companies who who want to make that switch is, need to do it very carefully and really start attacking, if you like, the the the enterprise from peripheral business units or locations and stuff like that that may be first of all, that often have autonomy, and that can act more like a more like an SMB In and then, sort of once you, once you crack the code on how to sell to to any number of these divisions or business units or locations outside sort of the core company, then then you have references that may help you to to get into the that core of the company.

Botond Seres 27:26
So Per, you've given us quite a good explanation on how selling to SMBs and enterprises are different. But I believe, for most of us people who are just budding entrepreneurs, the big question is, how do we approach individuals in a way that makes sense? Because I know that there are a vast number of options. There's Google ads, Facebook ads, there's, of course, physical ads. And the general experience seems to be that none of these methods are particularly effective.

Per Sjöfors 28:16
This is many years ago I introduced a data storage that a data storage company to to the US market as a consultant back in, I guess it was 2004 or 5 or thereabouts, and and we made sure that we were in all the all the trade drives, so this was big data storage systems, and obviously the customer were IT directors and CIOs and so forth. So we spent an awful lot of money making sure that we were on the cover of various trade magazines. We were prominent on trade shows. We did case studies that we, that we published, and so forth. So in this case, it was, it was all about creating a brand that that that really resonated with, with the target customer, and we also made, we also made sure that we made it personal. I mean, having, I think, you know, we had the CEO or the cover on the cover, on on one of these trade magazines, and have made sure that they they interviewed him and so forth, and so he could tell the story of why the company did a product and developed a product the way they had done and so forth. So you get that emotional connection, because that's also something that we all have to realize that all purchase decisions are emotional and and it's only when, when we made our emotional decision, which is made by the limbic system, that that we we consequently put rationale on around that decision and justify it for ourselves on sort of technical or rational grounds, but the decision is actually emotional.

Dave Erickson 30:35
Sounds like a good explanation of government. It seems to me that part of the pricing calculation, or component, is the marketing, and there's brand marketing, then there's product marketing. When you're talking to a client about how to price product, how does that conversation about what marketing you're doing, or what are you planning to do, or how you could change your marketing will affect your price calculation. What is that conversation like? Or what do you look for in trying to have that conversation with a client?

Per Sjöfors 31:18
Well, I like in any, any sales situation, what you want to do is tell stories. So I tell stories and and I can give you one brand marketing story and one product marketing story, if you like, and the the brand, we do something that we call monetized brand value analysis. And what that means is that we can, you know, we haven't talked about our process, but we we can, we can accurately predict sales volume and revenue at precise price points, and we can do so for different brands of that have a product or service that we present as being identical. So we present an identical product that where we sort of slap on, quote, unquote, different brands, and we can see, then, What? What? What? Buyers in in the in the company's market are actually then willing to pay, and how, how the company can set prices. And the first story here on brand marketing is that we, our customer, it was shown that that it led to a substantially lower willingness to pay, ie, supported much lower prices on our customers brand than that of competition. And so when we presented this to the company, it, you know, the VP of marketing was very, very enthusiastic, because he said, Oh, this is great. Now I have the ammunition to go to the CEO asking for more budgets, right, the, so we could see that they were not they didn't market. Either they didn't, their marketing wasn't brand marketing wasn't effective, or they just did too little of it. The other story is, is a consumer product that the company came to us and said, we we tried to increase our prices seven years ago and and it backfired badly, so we had to revert and go back to our old prices, and what we found was that a different marketing message supported higher prices. So this this particular company, made the changes over about a week, and during that week, they went from a 200 to a $240 million company just by changing changing prices and their marketing message at the same time.

Botond Seres 34:08
This is something I have given quite a lot of thought, because I am looking into manufacturing jewelry, using 3d printing. And what I'm seeing is that it seems to be significantly cheaper to do so than the classical prices, or the classic prices that jewelry store charge and and I did wonder if, if setting a price that is 1/5 or 1/10 of the going rates would send the wrong message.

Per Sjöfors 34:55
Oh, definitely. I mean, jewelry is, is, is people buy jewelry because, because there's some, there's a, there's a value there in certain exclusivity. If all, everybody have the same jewelry, everybody's going to look the same. And there's no, there's no, you don't stand out, which is one of the reasons you use it or buy it. So, and let me give you another story and this this I've read about the I read this story, and I don't exactly remember it in in detail, but it's one of these store stories where a jewelry store had some kind of bracelet, and it was priced at, you know, $180 and, and it's been sitting there in the jewelry store for for a year. Nobody want to buy it. And, and the owner was taking a, you know, short vacation. So said to his assistant that dropped the price of that, of that bracelet, so we get rid of it. And she somehow misunderstood, so she changed the price from, from 180 to 1800 and it, and it sold in three days.

Dave Erickson 36:22
Uh, perceived value.

Per Sjöfors 36:24
Yeah, prices, perceived value. The the, there, there was a guy called Tostan Veblen who, back in the 1890s roundabout, wrote he was one of the leading intellectuals at the time and, and he coined something that he called conspicuous consumption, which is you buy something not because you actually need it, but because, because it sort of sends a message and it makes you feel good. And, yada yada, yada, and and, so there is something in pricing theory called Veblen goods, which are products that, where the sales volume increases when price increases. And I have another story for you: some 10 years ago, 12 years ago, this Swiss watchmaker made a series of watches from, made from steel that was recovered from the Titanic, and they priced it. These watches at 375,000 each, and they sold out the series in two weeks. It was consequently underpriced,

Dave Erickson 37:49
Yeah, because, I mean, it's very limited. How often are you going to get metal from the Titanic? (Not very often), yeah, so they could have charged a lot more, and probably sold everything as well.

Per Sjöfors 38:03
Yep, so, so it's a, it's a certainly for for jewelries, for luxury goods, where you want to use your price to message exclusivity. Then, then high prices is certainly the way to go. And, you know, we talked earlier about the importance of of using high price for for for anchoring purposes and the most brilliant way I've seen anchoring ever happen is one is when, when Apple came out with the watch, and what they did was, you know, they came out with a, you know, first generation Apple Watch. Nothing, nothing very exciting about that.

Botond Seres 39:01
I think that was the, the undisputed champion of price anchoring.

Per Sjöfors 39:06
Yes, they, so they, they launched that first generation at $349 but then they also had a version for $17,000 and it was the same electronics. The only difference was that the case was made of gold. And what happened was that, you know, people interested in, in you know that would be interested in the Apple Watch, were reading the trade mags and so forth. And every journalist wrote about the audacity of selling the same electronics for $349 or $17,000 so, and this is one reason why the Apple Watch took off like a rocket and is now the, the most sold, most sold smart watch.

Dave Erickson 40:10
Yeah, beat out who was basically the market leader.

Per Sjöfors 40:15
Yeah. I mean, there's more we can talk about when we talk about Apple.

Botond Seres 40:20
I was going to ask, what's the correct term for, for the thing Apple does when they slowly but surely walk you up the price ladder, price increases? No. I mean,

Per Sjöfors 40:36
I don't think there is. I'm not familiar with any particular term that people use, but the and maybe, because maybe I'm not familiar with it, because what we do is we're not career consultants or anything like that. We go out in a, you know, in my companies, we're business people. We go out in the marketplace and we discover exactly what people are willing to pay and we don't have to come up with, you know, interesting or odd names to to, you know, to to create value the but what I was about to say, and this is also a lesson for for entrepreneurs, if you remember the when, when you bought an iPhone, you got a charger, you got some some earbuds and and you got a cable, charging cable. And when, when the when iPhone 13 came out, all that was removed and, and you had to buy it separately, so they unbundled. And there's two things which are interesting in that, and that is that it means that they saved about one and a half billion dollars on cost, and it also meant that they made about four and a half billion in in additional sales Of these, of these items, right, just by unbounded So, but, but it's absolutely true that that Apple, Apple and Apple's pricing strategy is is, but I think they hit the wall. I think the, the, I mean, they, what they've done in, you know, the, the current generation of iPhone is always more expensive than, than the, the then the prior generations that they also continue to sell. So they don't talk much about the prior generations, but, but you can certainly buy the prior generation that discounted prices. So, so they cater both for those that are a little bit price sensitive and those who are not.

Dave Erickson 43:24
We talked a little bit about how marketing affects pricing, but you also mentioned about sales and sales channels. Maybe we can take it back a little bit more to B to B, where the sales channels are not as straightforward as say, B to C. How does sales channels affect pricing say for A, B to B model? Is it a consideration at all, or is it just they should use whatever standard channel they currently use?

Per Sjöfors 43:57
Well, I mean, there's a, there's a generic, general shift in that every you know, more and more products, more and more software, is being sold direct to consumers, whether, or direct to buyers, I Should say whether those buyers are corporate buyers or or or not. But there's also something to consider, and I'm not going to name names here, but some companies have created products that are so complicated, and we talked about earlier, that if you, if you have a, if you have a product that is, is is easy to use and intuitive, then you can sell directly, and you can do premium as a way of entering also, also, you know, SMBs and enterprises. Some companies have gone the other way and created extraordinary complicated products and products that need expert help for installation, products that need expert help to configure, that need trade, you know, expert training for users to use and so forth. And they can't sell direct, they and instead, they developed a channel of resellers that do all that. So, so, it really depends. It depends on, on, depends on your product. It depends on on, on how, you how you want to, how you want to market it, and different, different, different ways I'm going to market have different implications on your product or service.

Botond Seres 46:03
Early on, we discussed for a very short time that different prices may lead to different sales volumes. How can people find the sweet spot where the profitability per sale, and the for sale volume is just right?

Per Sjöfors 46:29
Well, I can tell you the way not to do it first, right? And that is price testing. And my first

Botond Seres 46:37
That would be my first idea, actually, (I'm sorry) That would have been my first idea.

Per Sjöfors 46:42
No, because everything matters. And so let's say you go to market. You, you have your price, whatever the price happened to be, you're doing your market marketing, whatever the marketing happened to be, you use your channel, whatever the channels you know, all that good stuff. And I also mention that when we did pricing experiments in these various companies I ran before I got into becoming a pricing expert myself, some experiments worked, and others were duds, and most of them were just inconclusive. And that is something that I hear from the people I speak to all day long, they said they, we did some experiments, and it was inconclusive. And that is because, if you because everything matters, so consider, if you're going, to you're going to test, say, eight different price points. You're going to try four different marketing channels with six different marketing messages. You're going to try four different sales methodologies in three different sales channels, and you're going to target four different customer categories, and you're gonna have maybe three different monetization versions of the product, and you end up with 25,000 combinations, because you got to try everything with everything else, right? So price testing doesn't work. And so some people say, Okay, I price this and then I use different discounts to find out what the price should be. But the price, less a discount to arrive at a as a certain price, is not the same as if that product or service was priced at that certain price from from day one.

Botond Seres 48:48
So discount says…

Per Sjöfors 48:49
That’s right, so this is why price, this thing doesn't work.

Botond Seres 48:54
Yeah, some, some products seem to be permanently on discount actually.

Per Sjöfors 49:00
That’s right. And I mean, if you, if you, I mean, there are some companies that do some of this, that is, is, is, have at least some kind of relevance where we where they try to figure out how, how marketing affects how they can price automatically, but it's very, very limited. And again, you may end up with, you know, 20 combinations, right? And you don't even know if those 20 combinations are in the, in the right ballpark, like, I mean, go back to this product I mentioned, where the where the company thought they could sell at at three, four times the commodity price and in fact, it was only 50% on top of the commodity price. So had they done price testing, where they wanted to be, it would have been completely inconclusive. It would have told them nothing right?

Botond Seres 50:09
So, what’s the right way?

Per Sjöfors 50:12
Well if you’re an entrepreneur you can do this and this is, when you’re about to go to market or when you’ve just gone to market, what you’ll do is, you’ll find 25 potential customers, those are not your current customers, they’re not your current prospects, they are certainly not friends or family and you’ll find at least 25, 50 is better and then you approach them, you talk about the benefits of your product or your service in such a way that this potential, the person you talk to, the interviewee will understand the benefits and then you say, and and then you say, now that you understand my product or service, what is the price that is so low that you think we are going to, we are over promised and us going to under deliver and that the product or service simply isn’t good enough and for that reason you wouldn’t buy it, so what is the price that’s too low? And then you do the flip side, and you say now think about if we are under promising and over delivered, that the product or service is much more than you can even imagine what is the price that is still, that is too high for you to purchase the product? And when you have 25 of those 2 data points or 50 better, as I said, you take the average of those and you say, you get a point for we should not be below this price and we should not be above this price. So we get a range.

Dave Erickson 52:25
And then you could use that range depending on, Ok if I want to use this marketing strategy then I think we can sell this much and therefore it justifies a price that’s a little higher or maybe you can say, I’m not going to put as much investment in it, I’d rather charge a lower price and have a little higher volume or something like that.

Per Sjöfors 52:44
Maybe, it’s because again you can end up, just again doing price testing, it’s just that it’s a narrow range of pricing or narrower. The best way of doing this is that as you talk to these 25 or 50 potential buyers, you take some basic understanding of who these people are, and as you continue to do this, because you don’t stop doing this. This is something that you do continuously. When you have maybe 100 of them, you start looking at other certain if you do B2B, other certain industries that have a range that is a little higher than other industries, other certain sizes of companies that are a little higher than others or there’re certain titles that have a little higher than others and so forth. And if you can’t find 25 potential buyers in your company, you have bigger problems than pricing.

Botond Seres 53:50
But, how do you know that someone is actually a potential buyer and not someone just feeding fake information?

Per Sjöfors 53:59
I mean how do you find 25 potential buyers before you have a product? Maybe you just go to LinkedIn and you say I think this is the profile of, of the people that I, that I, that will buy my product or service and you reach out to them and you say, can I ask for help, you know can you help me? I have 2 questions, can you help me? And you’ll do, you know 500 connection requests and maybe you’ll get your 25 people who are willing to answer your 2 questions.
Dave Erickson 54:51
It’s part of that market research. You know a lot of companies I think when they start out and they do market research and they find, you know, who are potential customers and they go do customer interviews and potential customer interviews. One of the things they probably forget about and they’re focused on feature sets, and you know, the benefits in the you know, of the product or service, they usually forget to ask about pricing. And I think that your advice on trying to find a low end and a high end range, I think a lot of people, when they do their market research, they don't ask that.

Per Sjöfors 55:18
No, they don't. Well, no, they don't. And I mean, the, that, that's why, that's why we have so many happy customers. Because, I mean, I'll tell you this, I delivered, we end our projects with with a workshop with the executive team and the, I delivered one of those Friday last week, and what the company said is that pricing, okay, that's interesting information. What is really information, valuable is to understand what market would, marketing will support more profitable prices, what? What customer targeting will support more profitable prices and so forth. So, so it's, it's that having that holistic view that everything affects how a company can set prices is, is really the key here.

Dave Erickson 56:19
So Per, can you talk a little bit about your company and what you do, and what are the type of clients you're looking for?

Per Sjöfors 56:28
Yeah, the, first of all, much of it is outlined in this little book of mine, right, “The Price Whisper” and, and what we do is, is we, we go out in a company's marketplace, we discover what, what their potential buyers are willing to pay, what marketing is most effective, what sales is most effective, what product or service features are most effective in driving all, all all of it driving higher sales volume at higher prices. So, and it's a, it's, it's a, we call it value research. It's, it's a, call it market research on steroids. And, and it, it's a process that always works. And it's a process that always works, because almost every company leaves leaves money on the table. They simply, they use gut feel or guesses, or they look at a competitor, and that drives commoditization and loss of pricing power and so forth. So it is always a, it's a, it's, it's getting that insights into a marketplace that very few companies have on, on what drives their customers to buy, and the the, it's the most important thing to understand doesn't matter if somebody prefers this marketing channels versus another marketing channel. If one of them leads to lower sales volume and one of them leads to higher sales volume, it is that sales volume that is important. And if you don't know the difference between I prefer and I want to buy is tremendous and, and that is what, that is, what we, we do, and our customers are SMBs and in my role, I, I exclusively talk to CEOs. You know, sometimes the CEO has the team with, with him or her, but she's always the CEO. So

Dave Erickson 58:58
Per we will put your contact information and company information in the description for the podcast,

Per Sjöfors 59:06
Great

Botond Seres 59:10
Per, in your opinion, what is the future of pricing?

Per Sjöfors 59:13
Within the pricing community, there is a lot of discussion about dynamic pricing, and that is something that has backfired more than more than once. Dynamic Pricing, for example, which was, is called, it was a time called yield management when, when used by the airlines, put every American Airline except Southwest into bankruptcy. Right. The the airlines still use dynamic pricing, but they, they restrict the, how the pricing can be changed based on and dynamic pricing. The idea is very simple. If you have high demand, your prices goes up. If you have low demand, your prices goes down and. And the, the, the same with inventory level. For example, if you have lots of stuff in inventory, prices goes down. If you have scarcity in inventory, prices goes up and so forth. But, but, it needs to be managed very, very carefully. And there's been recently, there's been some fast food chains that have tried this dynamic pricing, and it has backfired really badly, because we as buyers almost always want consistency. We want to know what it costs if my burger lunch sometimes is seven bucks, sometimes nine, sometimes five, I get confused, right? And the, and the confused buyer don't buy, and certainly don't come back to buy so and there's been talk about dynamic pricing at grocery stores as well. And I, I don't believe it. I think that we will still see dynamic pricing, obviously, in hotels and airlines and so forth and, you know, restaurants have dynamic pricing in the sense that they have they have happy hours. Doesn't have to be more complicated than that, you know. And, and, I mean, sort of back to your question. There is a lot of people who think that pricing is very complicated. It is not complicated. What is complicated is really to understand what buyers to a company, what they are willing to pay, and how you can set prices for sale, you know, Max sales, volume and profits, and that's a process. But other considerations for pricing is, is not so complicated. I, I saw some shorts somebody had put up on SaaS pricing, somebody did on LinkedIn the other day, and it was like 35 different components of how to price. No, it's just simple, understand what people are willing to pay, set prices accordingly, set marketing based on, on all the variables that we already talked about, and make sure that the company knows it. That's it, you know. So it's, it's and that and that the company act accordingly. So it's people are trying to make something that is, and that goes back to again what I said way back early on, that what I learned in pricing in business school was very theoretical, but when you look at this from a practical business point of view, it doesn't have to be complicated,

Botond Seres 1:03:17
Per, thank you so much for being on our podcast and helping us figure out the best pricing strategies businesses should consider. Well, we are at the end of the episode today, but before you go, we want you to think about this important question.

Dave Erickson 1:03:37
How are you going to apply data driven and customer centric pricing strategies to your business? For our listeners, please subscribe and click the notifications to join us for our next ScreamingBox technology and business rundown podcast. Until then, start determining your new pricing.

Per Sjöfors 1:03:58
Thank you very much, guys.

Dave Erickson 1:04:00
Thank you. Pear is wonderful.

Dave Erickson 1:04:03
Thank you very much for taking this journey with us. Join us for our next exciting exploration of technology and business in the first week of every month. Please help us by subscribing, liking and following us on whichever platform you're listening to or watching us on. We hope you enjoyed this podcast, and please let us know any subjects or topics you would like us to discuss in our next podcast by leaving a message for us in the comment sections or sending us a Twitter DM till next month. Please stay happy and healthy.