Episode 26- Pricing & Strategy with Mark Stiving

In this episode of "Small Business, Big Moves,". Thomas Bennett is joined by guest Mark Stiving  to explore creative strategies and innovative approaches that have propelled small businesses to new heights. Discover the steps to pricing and strategy for your business.

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Small Business Big Moves is a podcast where innovation meets entrepreneurship. Join Tom Bennett as he explores all things  business growth! From business funding and business tax credits to conversations with leaders who have grown successful and innovative businesses! 

Transcript

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Welcome to Small Business Big Moves, a podcast where innovation meets entrepreneurship. I'm your host, Tom Bennett, and we'll explore all things business growth from business funding and business tax credits to conversations with leaders who have grown successful and innovative businesses. Welcome to the show. Today's guest is Mark Stiving. Mark, I'll let you introduce yourself. Hey Tom, thanks for having me on. So, as you said, my name is Mark. And I'm a pricing guy, but I have to tell you that I remember going to the grocery store with my mom when I was 10 years old and seeing prices that ended in nines, right? So 69, 99, I always thought, why do companies do that? Do they think we're stupid? Right? We know 99 is a dollar. 20 years after that, I found myself at UC Berkeley in a doctoral program and I had a chance to play with scanner panel data. Now this is the data that grocery stores collect when we use our loyalty cards. Okay. And, and I could test whether this nine cent thing really works or not. Turns out it does. And it works because we are lazy subtractors. I became absolutely addicted to understanding how people use prices to make decisions. And from that point, of course, the real value is coming into figuring out how, once we understand that, how can companies make better pricing decisions? And so I've written three books. I've been in pricing my whole life. I appreciate that intro and I'm excited to jump into that with you a little more. And I wanted to go back to that last part. I know we're both published authors, you obviously, three times, so that's exciting. I know not many people can say they're a published author, but you can say it three times, so exciting stuff there. I wanted to give you a chance to jump into that a little bit. Quick background on the three books that you did publish. And let, us hear about that a little bit. Sure. The first book I published was in 2011 and I published it. It's called impact pricing, your blueprint for dark, for driving profits. And I wrote that this is going to sound like a funny story or maybe, maybe a sad story, but in 2008, I was the CEO of a company that failed. And I thought to myself, who's going to hire a failed CEO. And so I was in a deep depression. I found a job in pricing. And once I got a job in pricing, I promised myself that was never going to happen again. And so I started blogging on pricing. I I blogged, I've blogged every week since then, since 2010, it's pretty amazing. And And a little over a year after I started blogging, I said, I wonder what I think about pricing. So I laid out all my blogs to figure out how do I structure this? How do I organize it? And then I wrote a book about pricing. And as I look back on that book, I still am really happy with what the content is. It's, it's a very good primer on how to think about pricing and a bunch of the nuances of pricing itself. About five years ago, I had left a, a company that I had non-competes with, and I'd, and I'd created a pricing course for them. And so I said, I have to write something slightly different. And I went out and studied subscriptions. And the whole world of subscriptions is fascinating once you dive into it and say, how is this different than every business we've ever seen before? And so I wrote the book called Win Keep Grow, and I, I wrote that book completely. Build with aha moments. I had while I was studying subscription businesses. So I, I just love that book. It was fun. It was, it's really short. And then the last book I wrote called Selling Value is all about, I took what I know about value, about how is it that customers perceive the value of our products and said, what if I could teach that to salespeople? What if I could get salespeople to communicate value the way I understand what value means to customers. And so instead of pricing, it's really selling. Now, I'm not a great salesperson. I'll confess that, but, but one thing I do know better than most people is how is it that our customers perceive the value of our products? I love it. Yeah, I know it's exciting stuff though. Three time author and it sounds like each Each book had a lot of value packed in there. So so good stuff And then the other thing I wanted to go back on was obviously I know we kind of we talked you touched on 2008 failed ceo, right? We talked about the books that you put out there and then obviously focus on pricing and strategy, but walk us through kind of where you, where you got started and how you ended up where you are today doing what you're doing. So that's actually a really interesting question because it's something that I like to teach people. So 2008, I was a failed CEO. I am nowadays. I'm I'll consider myself successful. Some people may not, but that's totally okay. But I made the decision that I was going to become known as an expert. And starting in 2010, I blogged every single week. I've written books. I do podcasts. I put out tons and tons of free content to show what I know about pricing, to share what I know about pricing. And, and the fact that I do that is what's made me successful, right? It isn't that I can charge more or anything like that. It's that I give away so much and I study this field. I love to find things I don't understand because then I have to figure out why doesn't my framework work in that situation. And how do we expand the frameworks and how do we make them bigger and better? So it's a fascinating business, but the, piece of what I've gone through that I love to recommend to people who are knowledge workers, like you and I, I would consider to be a knowledge worker is become known as an expert. You have no idea where it's going to lead. I didn't know where this was going to lead for me in 2010, but I got to say that it's done exceptionally well for me. If you can pick a field, pick a topic, study it, write about it, share about it, you know, put out as much content as you can. Five years from now, people are going to look at all the content you've put out and said, Hey, he or she is an expert at this thing. And so you can become an expert. And the value of being an expert is amazing. It really is. No, absolutely. And that sounds like that's what led you to do what you're doing today. Just just providing value and helping businesses, businesses which is what I think it's all about. So I'm glad you shared that with us. One question I had for you is, and I don't know if you see this as much, I know I see it a lot in the online space, but I know one of the first things you mentioned was that that 99 example, right? It was 1. 99 or 2. 99 or whatever that might have been, 499, right? And then I know a lot of what I've been seeing lately or for a few years now, at least in the. Online space. I see a lot of people going with the a 97 number, right? Like they have a small product for 27 or 7. And then they have a another course for 497 or they continue with the seven. Is that something you're seeing the switch to the seven? Or do you have any background on where that all started? Yeah. So, so I have zero facts. So I'm just going to share an opinion with you, if that's okay. Absolutely. So my opinion is that the seven acts just like a nine did. Well, so, so first off, let me tell you what nine does for you. One thing it does is when you're comparing two different prices, So if I'm going to compare 400 with 299, that looks like a huge difference. But if I compare 399 to 299, it doesn't look like as big a difference, even though it's almost identical, right? And so we, tend to subtract left hand digits when they're different and then ignore right hand digits. And so that's why this 9 cent thing works so well. And I would say the 7 does the same thing. Now, one of the other issues for 9 cents that, or 9, however you want to look at it, that we've demonstrated to be true is that people have learned to look at nines And say, that's a good deal or that's on sale. And, and so what it may be is that people are looking at nines and saying, Hey, that's on sale, or the company's trying to trick me at this point in time. And so I think companies have just moved to sevens and they've probably done AB testing and said, Hey, does seven work better than nine and seven is working better than nine, and so they're using seven instead of nine, but besides that. I don't have a great answer for it. It definitely makes sense. I really wanted to jump into here, one of the, one of the first things I wanted to cover was, I know we talked about pricing and strategy and obviously combining the two with strategic pricing. So I really wanted to touch on the area of being able to raise prices without losing customers, right? Because I'll preface that with this is obviously geared towards small to medium sized businesses. I talk to business owners all day and oftentimes the difference between where they are today and where they can be at a much higher profit producing business is simply just they're not charging enough, right? So I think there's a lot of people that can get, get value out of this and charge more than what they're charging right now without ripping customers off and actually getting paid with it, with their customers or what their business is worth. I never think of companies ripping someone off. Now there's a few exceptions. So the EpiPen guys, I think they were ripping people off, right? I mean, so there's a few ethical examples. But in most cases, if you have a customer who chooses to buy from you, the only reason they choose to buy from you is because you're providing more value than it costs them in money. And so it's a decision they made. And if you think about software or I think about Microsoft office for a second, it costs Microsoft close to zero to deliver office to my computer. And yet I pay him what 70 bucks a year or a hundred bucks a year or something like that for that. And so they're ripping me off. But they're not because I get a lot of value from that. So this concept of ripping people off, I think is, is is a fallacy that we have to get over now. The second one I'll bring up, which I think is, Oh my gosh, every company right now, every company I work with is trying to figure out how to raise prices and what is common across every one of them. Is there afraid, everybody's afraid to raise prices. And here's why you're afraid. You're afraid because you think you might lose customers. You're afraid because you think customers might get mad at you. You're afraid because someone's going to say something bad to you on social media. You're afraid because you're going to get the phone call with someone yelling at you, right? You just don't know what's going to happen when you raise prices. That's the big problem. And so what we want to do is create a game plan that says, How can we raise prices without being so terrified, right? With having a good expectation for what we think is going to happen. And, and so that's the real objective. And so step one is to stop thinking that raising prices means I have to raise prices on every product and every customer raising prices really means we have to figure out which customers. Which products, which situations can I get away with raising prices without damaging my business, without hurting my business? And so that's a, that's a really fundamental concept that once we start thinking that way, then it's easy, much, much easier for us to create a plan to say, how do we raise prices? Secondly, I wouldn't do it all at once. Whatever the plan is we created, don't do everything today. Do it a little piece at a time. Watch what happens. And when you see that the world doesn't fall apart, then you can go do the next step. But you're going to find the world really doesn't fall apart, that you have these really horrible expectations in your head. And it doesn't happen that way. And then the last thing I'll say is have a fallback plan, have a pushback plan. You will have customers that call you and tell you, Hey, I'm really mad. You raised my price. Great. What are you going to do about it? So I'll give you two choices of things you could do, which is pretty common. One is you could say, Hey, I'm really, really sorry. You've been a loyal customer. Can I just hold your price where it is for the next 90 days? And then we'll give you the price increase. Sometimes customers just want to be heard. Or the other thing you could do is say, oops, I didn't mean it. And bring the price back down and you didn't lose the customer. So what? And so we don't have to lose customers when we raise prices. I hope that was not too much information and too short a time. No, that was extremely valuable. And I know it's something I know a lot of people can benefit from. Like I said, I, I see it all the time. And I think a lot of these businesses just Just need to raise their prices to get the business to where it deserves to be, but piggybacking on that. Do you have like any tips or advice or ways for a company to determine if they're getting the revenue or pricing that they deserve? Yeah. So I, I would say my first tip is if you don't know, if you're getting the revenue, you deserve, you're probably not. Right. You'd probably well below that number and you have a lot of room to grow, but, but I'll give you a lot of hints that I usually tell companies, this is when it's time to raise prices, right? So it's time to raise prices if you've got a ridiculously high win ratio. So if nobody ever says no to you, you're not charging enough. If your win ratio is increasing, so you used to win 30%, now you're winning 50%. Great raise prices. Right. Let's get that win ratio back down to 30 percent because the margin's much better and the profitability is much better. When we're making a reasonable win ratio, not a huge win ratio. If you've added a lot of value to your product and not changed prices, not raised prices, then you probably in a position where you should have raised prices. If your competitors raised their price, just raise your price. Don't try to steal share, try to make profit. Just raise your price and follow your competition. And then my favorite reason that you should go raise prices is it's now January 1st, a year has gone by raise prices. We need to get our customers used to the fact that we raise prices every year. I don't know about you. I, I run my business with the QuickBooks and every single year until it sends me that email that says, Hey, your price just went up to, and I hate it. And I write the check. That's just the way it is. Exactly. That's, definitely how it is. And like you said, it's another way for for some of these business to increase that revenue for sure. And I think like you've touched on a lot and mentioned that you've touched on is obviously that value, right? I I've been taught for a long time that when value exceeds price, the clients are going to buy, right? I think a lot of people have heard that, but back to that point with the business owners, I don't know if whether they lose track of that or maybe, maybe go off the path from that. And there's a lot of businesses out there providing a tremendous amount of value and not, not charging what they should be charging. So I think that was extremely valuable for a lot of people. Now, what if you have a small business that's kind of starting out, right? They, they, maybe they've worked in the industry or they've built something out there. Is a is a trusted company or trusted business, and they're working on figuring out where they where they want to price or where they want to set that up. How would you tell a company to get started on that? Obviously, they can always increase it. But any insight there? Yeah. So first off the idea that you can raise prices. You can, a lot of people say you can lower prices, but you can't raise prices. That's just not a true state. Right. The, the thing that's scary about raising prices is if people knew the old price, then it gets scary. But if you're going to go out and win new customers, they don't know what your old price was. So it doesn't matter. Right. You can raise prices. Most companies, when they're first launching a product price, relatively low, relatively aggressively. And I'll say, I think that's probably a good strategy because when you're first launching a product, the goal isn't making profit. The goal is figuring out that you have product market fit. Can you build a marketplace? Can you build a customer base? Once you've done that, now you've got proof points that say, what is the value that you're delivering to customers? And once you know what that value is, now, you know how to price it much better going forward for new customers. And by the way, you can go backwards and raise prices on existing customers. You know, for the sake of argument, if you charged a hundred dollars for a product and you find out the people, new customers willing to pay a thousand for that same product, your existing customers are thinking to themselves, I'm getting so much value from this product. I'm glad he only charges a hundred bucks. They've got room to go. If you wanted to go back and raise prices. Absolutely. No, that helps a lot for sure. And then just, I know we've kind of thrown a lot at them there as far as pricing or strategy, but I'm sure there's also plenty where we even know any, anything else you'd want to throw at them or leave them with when it comes to the strategy on pricing. Oh my gosh. Can I, I'm just going to give you a huge, huge topic for a second. And that is. Let's start by thinking about a product and how different customers perceive that product. It doesn't really matter what it is. So, you know, for the sake of argument, let's talk about shoes, right? So some people are wearing shoes just to walk down the street. Some people were in dress shoes to go to a ball. Some people are wearing dance shoes to go dancing, basketball shoes to play basketball, right? And so there's different people wearing different types of shoes. So what we ought to be thinking is if we're a shoe manufacturer, what kind of market segments do I want to be in? And so this is a huge, huge high level topic that says different market segments get very different value from my product. So can I understand what those market segments are? And once we can define those market segments, we can take a step down and say, well, now that I know that I'm making basketball shoes or whatever that happens to be, can I create a portfolio inside that market segment? And can I create. And in most cases, I talk to companies about creating good, better, best products inside that market segment. But could I create a series of products where people could say, Oh, I'm, I'm very price sensitive, but I want that one. Or people say, Hey, I'm not price sensitive at all. I want the best. I'm always going to buy this one on the very top, but I still want the best basketball shoe I could possibly get. So that's, that's a second thing that really matters in strategy is after you've picked your market segment, can you define your product portfolio around the way your customers care about your products? And then the last piece is once you've got a specific product attached to a specific market segment, Now you're allowed to do something called price segmentation, which means you can charge different customers, different prices for the exact same product. And an easy example is just imagine somebody who's using a coupon versus somebody who's not using a coupon. Somebody who bought it at the end of the season when it was on sale, somebody who bought it, When it's prime think about the person who sat next to you on the last airplane flight you took, assuming that you didn't buy the ticket for them. Odds are really good. They didn't pay the same price you did. It's just the way the world works. And so that's the huge strategy piece of pricing. Can you understand the value that different customers get well enough that you could structure your market segments, your offers per market segment and your price segmentation? Spot on. Yeah, I know. I love that. I know obviously we gave him a lot of value on the pricing and strategy. I know we briefly touched on failed CEO back in 2008. That that's an area that I always like to cover, right? I know we always see the good things going on or all the all the wins and successes all over the internet and social media, but we don't often get to hear about the The ups and downs and some of the failures that a lot of these business owners or successful people have gone through. So walk us through some of those a little bit, some of your ups and downs and what, I guess, what caused that to be a failed CEO in 2008. So first off, I try hard to take responsibility for everything that happens to me. And so the fact that my company failed, I'm going to blame industries and things like that, but in truth, it was, it was us and not making the right decisions and not seeing what was going on, but we were selling. Home technology products to the new production home marketplace. And in 2008, that market just shut down because of the recession and, and the bulk, the housing bubble that burst, et cetera. And so we, we didn't survive it. I left the company and, and I was a fail. Oh my God. I was a failed CEO with a million dollar mortgage. And, and I had no idea how to get a job and how to pay a mortgage. So it was, it was the most depressing time of my life by far. And and I got to say that, that when we go through struggles like that, when we have these huge, huge downs, downfalls, that's what drives us to be successful. That's what drives us to work hard for the next thing. So I, I, you know, although I hated the fact that I went through that, I'm glad that I went through. Definitely. Yeah. And it's, it seems like it worked out for you, obviously, and pushing through that and getting to where you are now, obviously You're making a difference on a lot of businesses and love what you do. So that's all exciting. Anything else, whether it's on pricing strategy, maybe your store, anything else that we might not have covered or anything that you wanted to jump into a little more today. So, you know, I never have something that matters to me that I really want to jump into, but let's just talk about value for a minute. Is that okay? Because I love thinking about how customers perceive the value of our product. And, you know, I probably have 20 different dichotomies on how customers could perceive value, but one of them that is probably my favorite is what I call will I versus which one. So let me teach a quick lesson and we'll just call this fun. When people make a purchase decision, they make two different decisions. The first decision is will I, so will I buy something in the product category? And then they go on to say, okay, which one am I going to go buy? So if your refrigerator breaks down and the repairman says we can't fix it, You just made a yes to the will I decision. I'm going to go buy a new refrigerator. So what do you do next? You go to the appliance store, you go to several appliance stores, you're shopping, which refrigerator style and model and manufacturer and type and color, And by the way, price is a really important part of that decision. And I'm trading off price for all these other features and things that can happen. And so people make this price decision when they're making a, which one based on which one's more expensive, is it worth it, right? Is the differentiation worth the difference in price? Now that's interesting, but here's, what's fascinating. Sometimes people don't make a, which one decision. Sometimes they only make a will I decision and then they buy and when they do that, they're not price sensitive when they do that, they're not looking at competitive alternatives. Now, I'm not to say the price wouldn't change their mind. Big changes in price, small changes in price have no effect on demand at all. And so I'll give you my favorite example of that. If you are an iPhone user today. My guess is that you're thinking to yourself, should I buy the new iPhone 15 or not? But what you're not thinking is, should I buy the new iPhone 15 or switch to Android? You are only making a will I decision. Now that's not true for Android buyers, right? Android can choose between LG and Huawei and Motorola, whoever else is making phones with Android operating systems on it. Right. But if you want an iPhone, you're buying it from Apple. Android has 72 percent market share worldwide in the mobile phone market. Apple makes 85 percent of the profit. And that's because Apple is all will I decisions. And, and their buyers are not price sensitive. So the lesson that everybody should take away from this, by the way, is can you build will I products? Can you recognize when you have a will I decision being made, but there's lots of them around us. And the easiest one to think about is if you've got a product and then you're going to sell an add on or an option to that product, that add on or option is probably a will I product. So if a customer already has your platform and they want to buy an option or an add on to that, they're not going anywhere else. They're buying it from you. And so therefore you could have a, a potential will I situation, raise your price on that 10%. It has zero impact on sales. It's incredible. Another, another great example. And I didn't realize that about Android having that 72%, but. Apple having 85 percent of the, of the profit. So that that's exciting stuff. And yeah, I appreciate you having you on. I was, I was an exciting episode and that's going to be a wrap on this episode of small business, big moves. If you enjoyed this episode or know someone that can get value out of it, what we ask is that you review and share this podcast and you can find me on all social media at Thomas Bennett. And I look forward to seeing you all in the next episode.