Expert Pricing Advice for the COVID Outbreak

Valerie Howard interviews Craig Zawada, the Chief Visionary Officer at PROS and author of the Price Advantage, on how businesses can responsibly and responsively manage pricing through uncertain, volatile market conditions brought on by the global COVID-19 outbreak. You’ll hear Craig’s advice for short term considerations as well as how to establish the foundational agility a business needs to adjust commercial strategy quickly.

Other resources on how to navigate disruption through COVID-19:

Highlights

[00:50]: Craig shares his perspectives on how the Coronavirus outbreak compares to previous economic downturns.
[04:34]: Craig answers: “Should I lower my price to accommodate for the lack of demand?”
[07:21]: How businesses can tune into the changing needs of customers through the outbreak.
[08:36]: Craig answers: “How should businesses facing demand surges approach their price strategy?”
[10:07]: How are businesses adjusting to meet the demand that is shifting online?
[13:48]: Key takeaways on managing pricing through a great deal of uncertainty

Full Transcript

Valerie: So today, Friday, March 20th, and we're facing unprecedented conditions due to the coronavirus on a global scale. While our personal and professional lives have been upended in many ways, I'm thankful to have the privilege of speaking to Craig Zawada here today. He's our Chief Visionary Officer here at PROS and author of The Price Advantage. Craig offers some perspective on what we can learn from previous economic downturns as we face significant market challenges today in the marketplace....

Valerie: So Craig, as our daily routines change around the globe and we're shifting to homebound activities, and the consumer demand for some entire industries is coming to a halt, what pricing advice can you give to organizations facing severe declines in their demand today?

Craig Zawada: Great, thanks Valerie. I think the first thing I would say about this, and as I was preparing for this, I was hearkening back to past downturns that we had and what are some of the pricing actions that have been successful then? And I think I'd just say upfront that this one is very different than past downturns. And so I'm going to give some ideas that will hopefully be helpful and relevant to companies, but it may not be applicable to every company. In this situation you have cases where industries are just... It's not just a downturn, it's shutting down. And you have other industries that there's higher demand. And before this we talked about the demand for paint for example, lots of people home, they're sick of staring at their walls, the color, and they decide they want to change it.

Craig Zawada: So actually things like paint sales are increasing. So this the situation I think I'll give some ideas, but generic advice is probably not going to be relevant for everyone. And that's one of the things I'd say up front at PROS that we've decided, and you'll hear more about this, is make ourselves available. If you're listening to this, if you have some specific questions or some unique situations that you're facing with respect to pricing, we at no charged are making available a number of our experts myself, I'll be included in these as well, to help strategize and give some ideas on how we can be helpful during this time.

Craig Zawada: So whether you're a customer, non-customer, we're making this available. So getting to your question Valerie, I think the first thing I'd start with is you need to define your objectives of how you want to respond to this. And I think the two obvious ones are you want to try to avoid unnecessary price erosion. And second, you want to protect your volume of your business as much as possible.

Craig Zawada: The third one that I think is very important and we'll talk about later, which is really laying the foundation for the future because we believe some of the changes that are going to happen have already been changing with respect to moving to digital channels. And so I think it's viewing this as an opportunity to maybe accelerate some of those initiatives to move pricing to digital. This will be a good time to do it because you're going to be forced to do it in a lot of cases. And so instead of having, "Okay, I just want to get through this and protect volume and protect price, how can I make some changes that will respond immediately?" But also position you for the future where we see there are probably going to be pretty significant changes about how people want to buy. They're going to recognize that, "Hey, I don't need to talk to someone or me to someone. I just want to get prices right away."

Craig Zawada: So I think the third objective of all of this should be how do you lay the foundation so you can benefit from changes that you make now over the long-term. So to get to your question specifically, what are some strategies that you can take? I'll talk first on these short term strategies. On the transaction side, what we've seen from past downturns is it's very important to up the ante on basic pricing discipline. So what you don't want to have happen is that, you're seeing sales go down in certain areas or there's a lot of concern in the sales force and it leads to unnecessary price erosion. And we've seen this happen in other downturns of thinking that price response is going to spur demand. And we know in many cases that does not happen.

Craig Zawada: People aren't going to require restaurant supplies for example, if you lower price, not going to buy more or they may pantry load and stock up, but there's not demand there. So price isn't necessarily going to spur demand of those types of products. So the first thing on the transaction side of think about your price protection mechanisms and make sure that your sales force, that your product management is not taking price reductions that are going to hurt you from a price erosion standpoint. So it could be reviews of deals that are happening or putting certain rules on discounts that are happening. It's very important to think about what are some potential leakages in price and what are ways to strengthen those during this time.

Craig Zawada: The second area of recommendation, and we've seen this from other downturns, is really trying to get a read of the market of how the customer value, what they benefit from you is changing. And to give you an example of this on terms and conditions, in 2008, 2009 when the auto industry faced a huge reduction in demand, instead of lowering price, they did things like 0% financing or better payment terms. And what they found is that the value to the customer was much greater than the cost of providing those types of terms and conditions. So they protected price by understanding what are the changes in what customers value and making those changes as opposed to addressing the base price.

Craig Zawada: It could be things on product mix. So you may have the steady state of how people are buying. Maybe they're buying less quantities because they're unsure of their own demand. And so you have to think of, okay, the value of smaller package size and there's going to be more demand shifting there. Or they may be buying greater quantities because they have less supplies available. And so understanding how those product mix or changes and really closely monitoring those and figuring out, okay, how can we use price to potentially shift or maybe don't discount the small product size like you have in the past.

Valerie: That makes sense. [crosstalk 00:06:57] Can you share some ways in which some of them our audience might be able to kind of tune into what shifting, right? Because what are the ways in which the auto manufacturer was able to better understand that the terms and conditions were what really buyers were concerned with, with what consumers who were afraid of losing their jobs we're concerned with?
Craig Zawada: Yeah. So Valerie, I think in this case, you don't have time to do a market research. You don't have weeks or months to do it. So I think it's some simple things of making sure there's a feedback mechanism from sales. For example, what are people asking for, valuing, having calls with them to figure out, okay, what's changing in the market? Of course, tracking the sales from a product mix standpoint, I think that's very important at this time because you're likely... a lot of industries going to see pretty dramatic shifts from the past. So I think looking at the data on product mix changes is important. And then another idea is around exceptions. So looking at exceptions that are coming in, so requests, special requests, and I think by those types of mechanisms you can start getting a read on what the customer value, how they're changing and how you might want to respond to that.

Valerie: That's great, very helpful. Thank you Craig. Well then, so we've talked a little bit about businesses facing downturns and declines in demand. How about businesses that may be seeing surges in demand? What pricing advice would you give to those businesses?

Craig Zawada: Yeah, so that one, I think, especially during this time and the fact that the type of crisis that it is, you have to be very careful. So in surges in demand, and there are laws against this around price gouging. So not necessarily responding with price, but maybe not approving exceptions that come on to the price, so there's less discounting that happens on those surges in demand than others. So I think at this point you have to be very careful on, especially with your price increases and going forward just, from a legal perspective but also from a long-term brand value perspective of how that might be perceived in the market. So I think that's an area to be careful. I think in the long-term, looking at potential long-term effects of this, it's going to be very important.

Craig Zawada: So an example is auto parts. So a lot of auto parts companies, they're continually faced with offshore competitors that have a very low price. And in the past the supply chains on those providers have been fairly stable and it has allowed them to put price pressure on those areas. I think there's a question long-term, is that going to be possible, and are customer is going to be less willing to buy from those types of providers? And so thinking longer term on surges and demand I think is certainly on the table, but we need to be very careful in the short-term.

Valerie: That's really helpful. Well one of the other topics that we've talked about recently in our conversations over the last few days is about how a lot of demand is actually shifting online because a lot of us are homebound or even businesses, their workers are home bound. So can you share with us a bit about what you've seen in the shift over the last week and how businesses are adjusting to meet the demands of buyers moving online?

Craig Zawada: Right. And Valerie, I think this goes to what I had talked about initially thinking of the short-term actions that you can take, but also laying the foundation for longer term. And some of the short term things that we've seen, I was in a McKinsey and company alumni call yesterday, and some of the data they've seen from Italy coming out is an 80% surge in eCommerce orders during this outbreak, which I think we're going to see that across many industries, both consumer and B2B. And we've seen this previously. If you remember the research we did with Hanover about a year ago, 40% of companies believe that over 50% of their B2B purchases were going to move to an eCommerce channel in the next two years. I believe we're going to see that shift dramatically in the near term out of necessity. But in the long-term, companies are going to say, "Hey, this is an easier way to buy."

Craig Zawada: Many companies I've talked to have seen productivity from virtual work actually increase, not decrease. And I think that's going to apply to the sales situation as well with buying. Now, from a pricing standpoint, this is absolutely critical because what we see, a lot of companies are not prepared to offer this digital pricing. So historically in the B2B context, there's been negotiation back and forth prices online. Okay, we'll put prices online, but it's the list price and it's not a realistic market price. So I think it's a critical thing. And this goes into the category of laying the foundation that many companies need to really think about how do you move to a no touch or a low touch model? How do you get the prices into your digital channels quickly so you don't have to talk to the customer, you don't have to negotiate with the customer?

Craig Zawada: And the good news from this is our research shows that there's a benefit to that and companies are willing to pay a premium for that to not have to go through this negotiation. So this comes into the category of laying the foundation. I think pricing professionals now need to think of look at your business. How does it categorize? What pricing is done where it's a back and forth negotiation, it's not in a digital form? And what do you need to do to put those prices into your digital channels quickly that's available to your customers that want to buy now from those virtual and digital channels?

Craig Zawada: So an example of this is a lot of companies, they have deal desk and they already have target prices. So they don't put those online, but they have them. They understand what they're willing to go to and thinking very quickly of how do you insert those into your channels to make them available as people want to buy?

Craig Zawada: And the benefit of doing that will be for the long-term because we know this is where customers want to move in terms of their buying process. So this is a real opportunity for a lot of companies. And by necessity you need to do this very quickly.

Valerie: Thanks so much Craig. That's immensely helpful advice, especially in these uncertain times. The advice of experts like you really, really helps. My primary takeaway from this, that even though we're in a situation where there's a lot of unknowns, when we can respond effectively to what we do know, that will help us stay in tune with our customers, what their perceptions of value are changing and help us to manage our price strategy amidst these uncertain conditions.

Valerie: We hope that you found this information timely and useful. Should you have more price strategy questions concerning today's unprecedented conditions, PROS is here to support you. Reach out at the link posted below. You can ask us a question directly. We'll respond, or if you'd like, you can set up some time with one of our experts and we'll talk to you about today's situations and how you might approach your price strategy to address them. Thanks so much for your time today, Craig. It's been a pleasure to talk to you.

Craig Zawada: Yes, thanks Valerie.

About the Author

Craig Zawada

Craig is responsible for creating the vision for how PROS uses data and technology to help companies drive their business strategy. A widely published author, Zawada is perhaps best well known for co-authoring The Price Advantage, which has been recognized as one of the most pragmatic books available on pricing strategy. Prior to joining PROS, he was a partner and leader in the Marketing and Sales Practice at McKinsey & Company.

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