Pricing has always interested me. Ever since I realised, when charging for guitar lessons in my early twenties, that a lot of students were unable to afford private one on one tuition. So I offered them a reduced ‘bring a friend along’ rate to make the lessons more affordable. What I discovered was that students got just as much value learning in pairs as on their own. The outcome was that the actual revenues per lesson increased and more students were learning guitar.
So, after finishing my business studies, I started working at a large Australian food manufacturing business. I quickly discovered that in relation to pricing, no one really knew what they were talking about.
One morning there was a panicked 7am meeting after it was discovered that one product promotion in one large retailer clashed with a promotion for the same product in another large retailer. Basically, the price clash mean that the product was 20c cheaper at one of the retailers. This retailer had therefore written the business an angry letter accusing it of embarrassing them in the market and deducted the difference between the prices from their remittance. This ended up being a loss of $300,000 in pure profit. So many recriminations and accusations were made at this meeting and it became clear to me that there was a lot of confusion about what the appropriate price was to set for this product and how to manage these prices in the marketplace.
It also became clear to me that the arguments put forth by my colleagues were based on perceived truths about pricing and markets, rather than facts. I was shocked that there was no clear pricing strategy based on data. A loss of $300,000 was a very real number to me starting out in business, especially when I calculated that the business would need to generate $5 million in sales to make up that loss.
I was determined to find out more about what the right price for the product should be to improve profits for the business. So I set to work researching and this led to a presentation to the national sales director on the optimal prices for the products. I was able to demonstrate that the business would miss its budget with its current pricing plan. I discovered that there was too much discounting on the wrong price inelastic products and suboptimal price points for the right products that responded to discounts. Metaphorically, the pricing plan was on autopilot with the program set to land the plane 10 feet below the Earth’s surface – the business was going to crash.
I was asked to work on pricing full-time and made head of pricing at the age of 27 with a team of 5 analysts. We set to work building pricing models, analysing price promotions, getting control of the promotional program across 45 different key accounts, and working with supply chain to ensure forecasts were accurate. In the first year of operation, we were able to generate an extra $5 million for the business. It was an amazing time. I knew what I wanted to do and that was build a career in pricing.
The experience convinced me of the power of data, statistics and financial modelling brought together in a coordinated way could have a major impact on a business’ profit outcomes. On the flip side, it also became apparent that a business that does not have a clear pricing strategy and control over pricing tactics risks substantial margin impairment and achieving earnings forecast. A business culture where everyone can make pricing decisions independently and without accountability is a recipe for margin disaster.
We need to build a culture based on value and ensure that everyone is skilled to define, communicate and capture value. It’s better to cut through the bullshit that only leads to waste and lost opportunity and accept that there are parts of pricing you can control, measure, model and strategize. It’s not all up to the market.
Establishment of Pricing Insight
I started Pricing Insight in March 2007 following a situation where I was offered three pricing manager positions at three different companies. I wanted to help all three companies and also by this time, I had already been a pricing manager for 10 years and wanted a new challenge. So starting my own pricing consulting business was the next logical step.
I also had in mind to capture all my learning about pricing I’d accumulated over the last 10 years. I realised that my approach to pricing was unique after attending an international pricing conference. I found the conference speakers to be too theoretical or generic in their descriptions of good pricing and far from my own experience and practical approaches needed to solve real world pricing problems. It was more economics and finance driven and I couldn’t relate to it in a practical sense. So I decided to write my own course and became the first person to teach value based pricing in Australia.
That became the basis for my business when I started to educate people on pricing. And from there, people asked me to help them with their specific pricing issues within their companies. So education has always been part of the philosophy of Pricing Insight from day one. And as I’ve worked with 100+ companies now and educated over 2,500 executives and now see that education and learning are a crucial pillar to ensuring that good pricing practices are undertaken within a business.
The Pricing Insight business model is built on empowering the staff within the client company to understand the issues, develop the skills to solve those issues, and then be accountable to implement those issues in a structured way. This contrasts with traditional consulting where a team of consultants spending 12 weeks on-site, and then write a presentation that is handed over with a series of recommendations that may or may not be followed up.
Pricing has real world consequences
An experience that really illustrated to me how pricing has real world consequences and how important it is to get pricing right was when I worked in a building materials company. Around the 20th of December one year, I heard that 55 workers were being let go and I was shocked that these workers’ families were approaching Christmas with no employment. The reason the company gave was that it was not as profitable as it should have been. When I looked into it, I realised that the company would be extraordinarily profitable if they had charged an extra 2c per lineal metre more for timber. We’re talking about timber that’s sold for $1.20 to $1.50 a lineal metre. And an extra 2c was all that was required for the company to afford full-time employment for those 55 workers for the next year.
The music of pricing
I became interested in pricing algorithms because I was curious about finding a methodology to solve complex pricing problems. I believe that you can use frameworks and systems to capture data and seemingly random events. That’s probably driven by my training in music. I completed a music teaching diploma at the Sydney Conservatorium of Music before I studied business. I made it my focus to understand music theory and harmony and be able to write and read music. And I realised that systematic way of thinking in music could be translated to pricing. This allowed me to look at random pricing events and think about how they might be notated down, like music on a page. Musical notation is a system that tries to capture a very esoteric art form with many dynamic elements, such as pitch, tempo, rhythm, harmony and orchestration. I think that pricing, like music, can be notated and articulated, it needs interpretation and, of course, it needs to be performed.
Pricing Insight today
I’m always interested in the pricing world and what’s going on both domestically and overseas. And because I speak to so many people across so many industries, I get to see what’s actually happening. I study my clients in detail to understand what their challenges are. But I also look at what’s happening overseas to ensure that that the changes in organisational design and organisational structures, the impact of technology, the disruption of digital and the internet, are all being channelled into the impact to pricing and pricing strategy within a business.
I enjoy the discovery of something new and also working with other people who are committed to transformation.
I have learned from my clients the importance to balance out competing demands. So something that might appear to be a number one priority, will in fact have to be number two or three.
Clients have often asked me to come back into their business on multiple occasions because as they
go down this margin and price value pricing improvement journey, they realise how much more there is to know.
As the Founder and Director of Pricing Insight and one of Australia’s leading pricing experts, Ron is a regular speaker for the International CEO Forum, International CFO Forum, American Chamber of Commerce and Chartered Institute of Procurement & Supply. He is also the author of Pricing Insight’s executive training program, Pricing Masterclass.
Ron has trained over two thousand senior executives in value based pricing techniques and margin enhancement strategies, and has devised unique and internationally recognised programs, equipping executives with the skills needed to deal with pricing challenges in a practical and pragmatic way.
His unique approach to consulting is the result of delivering real world pricing solutions for over fifteen years to ASX and NYSE listed companies in Australasia, South East Asia and the USA. His experiences span industries of manufacturing, financial services, construction, capital equipment, metals, retail FMCG, air freight, tourism and agriculture.
His commercial experience spans Australia, New Zealand, Singapore, Thailand, Malaysia and the United States, as well as working with businesses from Italy, Netherlands, United Kingdom, Indonesia, Vietnam and French Polynesia.
His consulting clients include some of Australia’s largest Private Equity, ASX and Fortune 500 listed companies and he works with C-level and senior sales, marketing and finance executives to build commercially effective margin improvement solutions.
Ron works closely with sales, marketing and commercial teams to develop value based pricing solutions to generate margin and profit improvement.
Keynote Speaker Services
Ron is available to speak at conferences and public events in the area of value and pricing strategy.
Previous speaking engagements include:
- Sandvik International CEO Conference, WTC Amsterdam
- CFO Forum, Sydney
- CEO Forum, Sydney & Melbourne
- CEO Institute
- CIPSA, Melbourne
- American Chamber of Commerce Conference, Sydney