Lydia DiLiello: If we're building our brands properly and developing our relationships with our customers, part of that is also the ability to raise those prices. I know that our customers see the value in the brand that we're bringing to them.
Lindsay Duran: Welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for this episode. I'm joined today by Lydia DiLiello, [00:01:00] CEO and founder of capital pricing consultants. Lydia, thanks so much for joining us today.
Lydia DiLiello: Thanks for having me back Lindsay.
Lindsay Duran: Yes, indeed. And welcome back to the podcast. Before we get started, why don't you tell us a little bit about yourself?
Lydia DiLiello: Alright, thanks Lindsay. So I'm Lydia DiLiello, as you said, the CEO and founder of capital pricing consultants. And I've been in the revenue management and pricing space for my entire career. So more than 25 years now, spent 20 years in corporate America and then decided to go out on my own and help companies really across all industries, understand their pricing better and leverage their ability to monetize the strategies that they are trying to put into place.
Lindsay Duran: Excellent. Well, we're thrilled to have you back on the podcast. I looked back and it's been a little over a year since you were on, even though it feels like maybe 10 years have passed with all that's gone on in 2020 and 2021. But when you were on last year, COVID was [00:02:00] really just starting to wreak havoc on the U.S., on the world, on the economy, how we work. And back then we talked about how companies really needed to avoid that race to the bottom on price and put some guard rails in place to reduce over discounting. And as we see the light at the end of the tunnel for the pandemic, at least in the U.S., we now have the opposite challenge; that companies are struggling to raise prices, to keep up with cost increases, keep up with inflation.
Dealing with overwhelming demand, dealing with supply chain shortages. So lots of new challenges that companies are faced with this year that look very different than what they were experiencing last year. What are you hearing from your clients that are trying to manage this rollercoaster ride that we're all on?
Lydia DiLiello: Well, I think Lindsay, you outlined it really well [00:03:00] relative to the kinds of challenges that my clients are facing. And it's very much 180 degrees from where we were last year. Relative to we were speaking about not over discounting and now we can't raise prices fast enough in any industry to accommodate either the lack of supply due to the supply chain issues that we've seen, whether that issue is of physically being able to obtain a good or whether it is lack of production.
So it's not that they can't ship it. That just simply it's not made. So then price becomes irrelevant, but my clients are really struggling with how to get out in front of these price increases in the cases where they are able to actually obtain the specific goods that they're looking for. We talk a lot now about the difference between being proactive and reactive.
And I think Industry Week just published something this week to that effect, talking about the gaps that manufacturers are seeing, and it was related to [00:04:00] automotive parts where their focus was in terms of what happens when you're reactive, constantly, and always trying to address the latest crisis. So the latest emergency, and I think that's really where the vast majority of my clients are at in terms of they know what they need to do strategically yet it's the emergency that's being dealt with.
And that emergency right now. Costs continue to increase and increase. So how in the world do we get a price increase in quickly enough? And these are companies who I would say have strong pricing skills, who understand what they need to do, and my clients that aren't as sophisticated really are feeling left out and in a bit, I would say on the losing end, because they just simply cannot react fast enough to address the changes in the market.
Lindsay Duran: On that note, Lydia, what would you say are the gaps in the pricing process or in the technology or [00:05:00] skillset that companies have that are making it so difficult to respond to the price increases?
Lydia DiLiello: So I would say that the specific gaps are communication and that's the first one. I don't see companies being as proactive as they should be communicating what's going on with their customers.
I do have a gourmet foods customer who actually has been very good at that, where they have posted on their doors before you even go in, due to the cost increases in food, you will see price changes on our menu. We apologize, but we've had no choice. So they preemptively are telling customers before they even get in the door.
And I see that as a gap with most of the market. Communication is not as clear as it needs to be. It's not as direct as it needs to be. And then that communication needs to be followed up within the technology. Clients that don't have pricing software that are trying to manage things off of Excel spreadsheets are honestly losing money faster than they can [00:06:00] account for it because when we've seen costs that just continue to skyrocket in a month's time, trying to work from antiquated technology is making a situation that is difficult compoundingly difficult for them.
Lindsay Duran: Let's talk a little bit about the supply chain, disruption and inventory shortage that we're seeing.
I know as a consumer, I'm certainly feeling that. I ordered some new patio furniture back in March that just was delivered yesterday. And so things seem to be backed up really across the board. What are some pricing strategies that companies can take where they are facing inventory shortages? And how do you typically advise clients to handle it?
Lydia DiLiello: So couldn't agree with you more Lindsay, it's bad when we walk into Starbucks and even Starbucks, who we would say is almost the de facto in terms of what we expect [00:07:00] relative to service and consistency. It's like, McDonald's, doesn't have certain products. So it's amazing that you finally did get your patio furniture, even if it is four months after the fact.
What I'm sharing with clients is: so step one is start communicating early and often and give your customers an update as often as you received the update. So if in three times in one week, your supply chain is coming back to you and saying the product is delayed. The product is delayed. If you continue to get those notices, then start sharing with your customer base.
You don't yet know when that product is going to be coming in, but you will keep them posted. And as soon as you have it, you'll let them know. The second thing is make sure that you are adjusting your prices in real time. And I'm suggesting that my clients actually add additional price to be proactive relative to don't just take the cost increase [00:08:00] you need, because by next week it's already going to be out of date and you won't have even published the new price and it's not accurate anymore.
So I'm suggesting that clients actually add buffer to try to help them gain some traction relative to getting out ahead of where supply chain is at. I know in some cases I have clients where supply chain is updating that price point multiple times throughout a week. And so literally. They have a stack of papers on their desk and they just look for the latest, hourly print out to see what the accurate cost is, which for any of us in pricing is maddening.
So those are really the top two things, which is the clear communication about what is going on. And if you're getting too much communication, then start sharing with your customers. Look, at this point, we don't know when we're going to get the product. And then prices in the systems that are above what you actually need to give you some protection [00:09:00] when you finally do start to receive the product.
Lindsay Duran: And to that point about giving yourself some protection, have you seen companies start to shorten the time that a quote is valid?
Lydia DiLiello: I have, and I have actually seen most clients. And thank you for bringing up this point because now more than ever it is critically important.
Most quotes are good for a day, perhaps a week, but the days of a quote being good for a month are absolutely no longer valid. And I would say the majority of the folks I'm talking with are setting it on a daily basis. Simply so that they have a point in time marker, relative to when they quoted it. I saw an article as well in the Wall Street Journal, I think it was yesterday that talked about how the building industry, in construction, the new home builders are not selling the homes early in the construction process exactly. To this point, Lindsay, because they [00:10:00] want to make sure that they are protecting their margins. So they're waiting until the houses are almost completely built before they're then going to sell them so that they know what the real cost is.
Lindsay Duran: Interesting. Yes I've certainly heard that builders are even coming back and asking for more money or putting the houses up for bid as they are completed, especially in the very hot real estate markets and in Texas and Florida and Arizona,
Lydia DiLiello: I have heard that as well. And I think that just speaks to the current environment where costs are changing so dramatically.
The other thing that I'm suggesting that clients do is partial quotes. And in any other circumstance than this, I would not have recommended it because it is certainly more administration that's required, but to protect profitability, doing a quote that says, “We'll hold this price for you up to X in our cost basis and then if we exceed that, we [00:11:00] reserve the right to adjust it up to a 15% add,” for example, so that you are building some leeway into your quotes automatically. And I believe if you have developed strong relationships with your customers and you educate them well, and they understand the circumstances, they're willing to work with you on these kind of things. Outside the box or unusual criteria that we're now adding into contracts.
Lindsay Duran: Very interesting strategy. Let's talk a little bit about eCommerce and eCommerce pricing. Lydia, one of the things that really struck me about the past year is that companies that had invested heavily in their eCommerce presence seemed to do a bit better.
Then companies that were behind the curve, what do you tell your clients who are struggling to manage prices in their eCommerce platform?
Lydia DiLiello: So the first [00:12:00] thing is I have to resist the urge to say, I told you so because always wanting to have technology that supports your strategy that is hand in glove with a company's latest strategy is critical.
So if you have cutting edge strategies that you want to implement, You can't be running off Excel spreadsheets. And so companies that espouse that in did the hard work of moving into an eCommerce platform, which meant then that they had to have software that was sufficient and stable to support that eCommerce if from a pricing perspective, They are doing dramatically better relative to maintaining profitability relative to increasing revenue.
All of them that have strongly functional eCommerce platforms have actually seen in many cases, actually, record revenue. And so now the issue is not so much to the record [00:13:00] revenue, as it is to maintain the profitability, which they are able to do much more quickly, because now it's a in the pricing software, you go in, you say, update my prices by X percent.
And it loads automatically rather than if they're chasing after antiquated ERP systems or working with spreadsheets that can take weeks to get that into the new, into the webs prices. At which point you've already lost the money. So if it's been a huge differentiator for the clients.
Lindsay Duran: Interesting. Yeah, we're seeing a couple of trends emerge on that front. And I think you touched on it a bit there as it relates to the ERP system, but many companies are really beginning to bypass their ERP because it is too difficult to get prices from the ERP system. In a kind of high availability, fast way from their ERP. So it's too slow to make a [00:14:00] call out to that ERP system in order to retrieve a price.
And so we're seeing increasingly that companies are really looking to have a more dynamic pricing in general, more real-time pricing engine, if you will, to support that process. And then the other piece of it is the relevancy or the quality of the price. For so long, I think companies have relied on salespeople as the filter to make sure that the price that is presented to the customer makes sense.
And as more and more business moves online, that filter goes away. In many instances, you run the risk of significant customer dissatisfaction. If you're showing prices to customers that don't really make sense in the context of their overall relationship with you, how do you typically advise clients to solve for those channels?
Lydia DiLiello: So most certainly it has to be from a strategy and a technology perspective. So to [00:15:00] start from a strategy perspective, if their goal is to have a significant web presence, which right now, I can't imagine any company after what we've seen with this pandemic, not to be focused on a web based strategy.
Then the obvious answer relative to the strategy is there has to be the technology to support. So to your point about something that is flexible and that is readily available and moving around an ERP system for immediate access to price point, there has to be technology supporting those price points.
So my recommendation to clients is if they haven't made that investment, they need to stop putting it off because every month that they're putting it off, they are losing order of magnitude of what they would have been two years ago. It isn't just a convenience relative to being web enabled. It's a requirement.
And to get these specific chosen, targeted [00:16:00] for a particular customer to ensure, because to your point, there is no filter anymore. It is an electronic exchange. There has to be something substantive behind it. And the only way to ensure that it is repeatable and substantive and statistically derived is to do so through technology.
Did I answer the question, Lindsay?
Lindsay Duran: I think you did. I think you, you did that justice for sure. We talked a lot about resiliency. And the episode last year at the start of COVID, how can companies think about building more resiliency into their pricing and costing processes? If they didn't go down that path in 2020?
Lydia DiLiello: So the first thing I would say is they really need to be serious about both their short-term and their long-term plans. I think if there's one single thing, the pandemic taught, all of us is companies that had a long-term plan and had a plan for [00:17:00] I'll say, a contingency plan of what happens fare dramatically better than those that didn't.
So first and foremost have that long-term plan and really be working it and addressing it each year. So to come back to this, the conversation relative to how do we get the right price to the right customer? And do it electronically. It's going right back to technology and ensuring that we're making the right investments in technology and not sidestepping it and saying, “Gee, I think I'm going to put that off six months or put that off a year.”
It needs to be now, the opportunity to wait is long gone and the cost has gotten far too high. So that's the first thing I would say. The second thing I would say is from a supply chain management perspective. Companies need to be developing relationships with suppliers, personal relationships. And by that, what I mean is know who your supplier really is, know where they're located, know what options exist for you, because if you [00:18:00] can't get a product, it really doesn't matter if you can deliver the price or not.
It's not going to get sold. So I think it's incumbent that we become very aware of what's in our own supply chains. I want to know that I can reach out to Lindsay, not just to a company or a phone number when I have a problem with my supply and understand what my options are to get that supply back in house or if I'm not going to get it any time soon, when can I expect it, which allows me to be in control of the decisions I make, about what I can offer my customers.
And then I think the last thing is having these conversations and keeping them top of mind. So we're kind of coming full circle here and going back to being proactive, it's very hard to want to be proactive in terms of strategy and planning and looking at technology because all of those things are time-consuming, they're heavy lifting, right?
It's business process, it's policy development, it's governance, all of those things [00:19:00] have to be done to ensure that technology is populated as robustly as possible for that end goal of a specific price to a specific segmented customer. But if we're only reacting to today's latest fire, we're not going to find ourselves in any better position a year from now.
And in fact, I would say companies that are doing that and are being purely reactive may not be around next year because their profits are not going to be able to sustain the impact of dramatic cost increases that we continue to see in the market.
Lindsay Duran: Indeed. We, I think we made a similar prediction last year, that companies that invested in their pricing software and pricing processes would come out of the pandemic stronger than their competition. How would you say that prediction has panned out?
Lydia DiLiello: I would say that's a hundred percent true, that it is more true than I could have ever expected relative to order of magnitude. So companies that invested in pricing [00:20:00] software are many margin points stronger than their competition, who has not. I'm seeing gaps of 10 margin points and more.
Lindsay Duran: Wow. In talking with our customers, certainly passing costs through and doing that intelligently is really key. Not only for them to make sure they don't lose margin, but volatility actually presents a bit of an opportunity to get some additional margin in the market as well.
We tend to advocate not using a peanut butter spread approach on cost increases. What have you seen work well in terms of companies being more surgical or thoughtful about how they pass costs, increases onto their customers?
Lydia DiLiello: Well, some of the recommendations that I give clients are because I agree with you, the peanut butter spread, while it's functional to maintain margins, [00:21:00] certainly doesn't give much opportunity to lift margin.
And so what I suggest to clients, is it a premium product? Is it a flagship product? And if so, you can take more margin there. You can add on. So that cost, if you will, to get more margin lift there, is it something that is considered more ubiquitous in the marketplace? You can easily get hold of it.
There's plenty of supply. Then I would be very careful about how much cost increase I add to that product. You don't want to send your customer shopping at this point in time, right? You want to keep them happy on the products that tend to have very high volume. And again, that's where that communication and transparency about cost comes in. And I don't mean saying, “Hey, my costs went up 10 cents.” What I do mean is like the gourmet client, who's letting their customers know at the door, our food costs went up. So FYI, you're going to see it on the menu. That's what I'm referring to in terms of transparency and [00:22:00] communication. But I would say on parts that don't move often or on a service or something that just generally has low volume, certainly those are opportunities to take more margin and better allocate the overall cost spread that you're seeing.
Lindsay Duran: Lydia, what are some of the lessons that we learned over the course of the last year and a half that you believe are still highly relevant for companies to take with them going forward?
Lydia DiLiello: So I think the first one is plan for the unexpected. And by that, I mean, to the extent possible, I think the pandemic has taught all of us that there's ways we are able to do things that we never dreamed possible. None of us would have ever believed that we could maintain business over virtual networks.
And yet we found a way to make it happen. And so what I would say is be willing to try something that doesn't sound like it may be the best idea. But if you [00:23:00] can't find any specific reason where it's going to be detrimental to your business, then be willing to entertain it. You might just hit on the next big thing. So to speak. The second thing I would say is be rigorous in your processes and don't get sloppy. And this is not a sexy or a fun idea, but it's critical for business in good times and most especially in bad times, if we're not connecting in the processes that we use, if we create six different ways to approve a price deviation, for example, we've given ourselves six different leakage points.
So I would say the second thing is be very vigilant about how we are managing our prices and most especially how we're managing those discounts because equally important in capturing our costs is to make sure we're not letting it go on the other end. So it does us no good to go through all of these iterations to ensure that we're capturing that cost to then turn around and discount it and find out at the end of the [00:24:00] month, we're really no better off.
And then the third thing is really what I mentioned previously about supply chain, which is, I believe every company now must understand their supply chain thoroughly and know the name of the person who is supplying the product to them and the company. And I believe that for all of us having more local supply chain, at least some portion of our supply chain is now critical.
And prior to the pandemic, that was not the case. But I believe now to function it with some sense of security, which also then helps us secure a more consistent price to our end customers is understanding that supply chain and to the extent possible keeping some portion of it local.
Lindsay Duran: I think that's a great point. We're also interdependent and given the economic volatility and the pandemics impacts around the world, I think the importance [00:25:00] of relying on local suppliers is probably key and something to your point, that many companies have overlooked. Lydia, how can our listeners get in touch with you?
Lydia DiLiello: So they can certainly use my mobile phone, which is (300) 283-5273. They can also email me at lydia@capitalpricingconsultants.com.
Lindsay Duran: Are there any parting words that you would like to share with our listeners?
Lydia DiLiello: One last thought Lindsay. And that's the idea that it is so important for all of us to teach our customers that price increases are a normal part of doing business.
And that if we haven't been doing that all along, unfortunately, we're going to have to get really good at it quickly. Right now. I believe Warren Buffet was once quoted as saying that if you have [00:26:00] to have a prayer session before you raise your prices 10%, you've got a terrible business. And so I share that with the listeners, because I think if we're building our brands properly and developing our relationships with our customers, part of that is also the ability to raise those prices and know that our customers see the value in the brand that we're bringing to them.
Lindsay Duran: I think that's an excellent point for us to end on today. Lydia, I'd like to thank you for joining us for this episode of B2B Reimagined and I hope you will come back again.
Lydia DiLiello: Thanks so much, Lindsay. I appreciate it very much.
Lindsay Duran: And if you're interested in learning additional strategies to deal with cost increases and inflation, I encourage you to check out the show notes for a link to a white paper about pricing during inflationary periods.
Please also take a moment to review and rate B2B Reimagined on your favorite podcast player if you are enjoying the content. And I hope that you will join us for [00:27:00] the next episode.
