Valerie Howard interviews Andy Dvorocsik, the West Region Pricing Practice Leader at Ernst and Young, on how companies are protecting, growing, and innovating their business through the economic downturn. Andy shares that pricing leaders have unique capabilities that are invaluable in turbulent times.
[00:27]: Valerie introduces Ernst and Young’s West Region Pricing Practice Leader Andy Dvorocsik.
[01:25]: Andy shares perspective on the pressing questions he’s hearing from his clients.
[02:52]: Valerie asks Andy about what his food industry clients are doing to manage pricing responsibly in the face of heightened demand.
[04:00]: Andy discusses the three key efforts that businesses facing a lack of demand should be focusing on now.
[04:58]: Valerie asks Andy why pricing leaders play such a pivotal role in this crisis.
[05:25]: Valerie and Andy expand on the importance of transparency in pricing – from both internal and external perspectives.
[08:15] Andy shares examples of how businesses are shifting from transactional price models to outcomes-based price models.
[09:04]: Valerie asks Andy about who is investing in innovation during these crisis times.
Valerie Howard (00:00): So hi, everyone. Thanks for joining us here. If you've been following along, we've been having conversations about pricing strategy, amidst the coronavirus crisis. We've talked about what it takes to maintain agile pricing in these times of unique market volatility. We've talked about maintaining disciplined, responsible pricing and we've talked about the immediate pricing actions you need to be thinking about taking....
Valerie Howard (00:27): I'm really excited to have one of our pricing experts, a colleague from Ernst and Young, Managing Director there, Andy Dvorocsik, joining us here today. Andy leads the West Region pricing practice at Ernst and Young, and we are so pleased to have him and his expertise here today.
Valerie Howard (00:48): Andy, would you mind telling us a little bit about the pricing practice at Ernst and Young?
Andy Dvorocsik (00:52): Sure. Our practice is a global practice and we focus on strategy, analytics, process and technology, different things with different clients, but really taking a pragmatic approach and having a value led perspective, where we focus on outcomes for our clients and their results.
Valerie Howard (01:11): So Andy, I know you've been working in pricing for quite some time. What are you hearing from pricing leaders at this time? What questions are they asking you, in the unique conditions of today's economy?
Andy Dvorocsik (01:25): Well, it really varies by industry to industry. All of our clients, in all companies are experiencing huge shifts in both supply and demand. I think that's something that makes this crisis a little bit different than prior ones we've experienced and that is... early on, there was a lot of uncertainty of where my supply is coming from, what's happening to my demand. So I think, some of the key questions are, "Where is demand going to go? Where is supply going to go? How do I think about the future, where strong companies are looking to grow and scale their businesses?"
Andy Dvorocsik (02:02): We've worked with one chemical industry client, who just lost all transparency to market price. What we actually did with them, was built a app that each of their sales force could input what they were seeing in the marketplace, the prices that they were getting, the competitive prices as they were understanding them, and so that could be aggregated to the central point to set the pricing rules for that company.
Valerie Howard (02:26): So it sounds like, in today's unique conditions, they couldn't reflect so much on the historical prices, and they really had to get a new landscape of what the prices were in the new conditions, quickly.
Andy Dvorocsik (02:38): Yes, that's for sure. They had a very robust way of tracking and projecting and predicting market price, based on a number of factors. Those models are all being revised, or have been revised, in the recent weeks.
Valerie Howard (02:48): So I know we talked a little bit earlier, before the call, about how you've also been working with companies that are seeing high demand, as well in this new environment, and how are they responding to that from a price strategy perspective?
Andy Dvorocsik (03:02): Well, from a price strategy perspective, one of my clients in the food industry is actually seeing quite increased demand. They make parts that support the industry and they publish an annual catalog. So they're already looking at the January, 2021 pricing and what they're going to do there, in a very responsible manner, but acknowledging the fact that while supply has remained the same, or potentially even globally reduced a bit, there is increased demand and they take responsible action to manage those price increases for the upcoming calendar year.
Valerie Howard (03:37): So, they haven't taken any action to perhaps move that price increase, or price update, sooner.
Andy Dvorocsik (03:43): No. Many of their largest channel partners are contracted and on an annual basis. So, they're locked in for this year.
Valerie Howard (03:51): That makes sense. That makes sense. So, what about some of these businesses that might be hunkering down, might not have a lot of demand?
Andy Dvorocsik (04:00): So I think, what companies that are hunkering down are really trying to protect their business... that has three parts to it. There's making sure their pricing rules are effective, make sure they're communicating out to the field what the those pricing rules are, and then of course, making sure they've got their customers and channel segmentation most appropriate.
Valerie Howard (04:20): So, it's really interesting what you're saying about communicating out to the field, and what are some important factors in thinking about communicating pricing in this time, when actually a lot of us have gone to siloed working environments, when a lot of us are working from home.
Andy Dvorocsik (04:36): Well, communication of pricing rules is important in any and all times, but particularly in these times. You don't want individual salespeople in the field, who are setting pricing rules, or cutting deals, or thinking they have just their little corner of the world. Because what occurs in one market, has a direct effect in others.
Valerie Howard (04:58): Well, I want to come back to why pricing leaders are playing such a key role at this time.
Andy Dvorocsik (05:01): Pricing leaders are trying to break the insights, based on data, to the business. And I think a key part of that is having the right insights. So, "Do you understand the market? Do you understand the different customer segments? How are you working with your channel partners that allow them to make the right investment decisions and make the right market decisions?" Because, every industry has been upended to some degree.
Valerie Howard (05:25): Absolutely. We find that having transparency across all your sales channels, across all your sales teams, is really key to helping make better pricing decisions. We also find that transparency helps improve your relationships with your customers, right? When they better understand where your pricing comes from, why a price may be different through one channel versus another, and as long as it's rational and it seems to be consistent in approach, maybe not consistent in price, it seems to be more fair to the end customer. The question that I have is, what kind of advice do you give to your clients about getting better transparency into the channel? In today's environment, businesses are selling through more and more channels, especially when so much is going digital.
Andy Dvorocsik (06:10): For sure. And being able to assemble and collate that data, and present it in a meaningful way is absolutely critical. And so, having the technology to support the processes of collecting that competitive information, and understanding the market price, and seeing the variation that's occurring across segments and across channels, having those kinds of dashboards and then translating those dashboards into action. So, it's not just about having the analytics, it's about having the insight and having the strength to make a decision.
Andy Dvorocsik (06:43): One of the other things that we see quite a bit is, this is going to be an opportunity for innovation across all sectors. From a pricing perspective, there's new revenue models, there's outcome-based pricing and there's really understanding that online sales is here for good. We all knew that. I think the big transformation that's going to come out of this current crisis, is online service and being able to support your customers remotely, in a way that has historically not been the case.
Andy Dvorocsik (07:15): And so, a remote service call might drive as much value, if not more, for your customer then an in-person service call. How do you charge for that? Many aftermarket parts companies have relied on service as a big part of their business and typically use a rate times hours approach to pricing. Well, if you're only doing it remotely, do you use that same pricing model? You have the opportunity to shift that to more value-based. You have opportunity to shift that to more subscription based pricing. How do you price that model that is appropriate for your customer and also creates the appropriate margins for yourself? And working through all those things, I look at this as an opportunity for pricers to have a big impact in influencing new business models. In a very challenging time, there are opportunities to be found.
Valerie Howard (08:08): Absolutely. What are you seeing, as far as business models and pricing models, changed to accommodate outcomes-based scenarios?
Andy Dvorocsik (08:15): What we're seeing is companies really shifting to performance-based outcome-based metrics. So, instead of charging for service calls, you're charging for, what's the uptime. And so, to use the example from before, if your pump has a 99.8% uptime, that's a certain fee. If it has a 95% uptime, it's a much lower fee. So we are seeing many companies looking to shift to outcomes-based pricing. That's a big shift from time and materials service calls, to more subscription pricing, more uptime evaluation, and figuring out how the customer is perceiving the value, is a big part of that. So value and use pricing, along with outcome-based is driving changes.
Valerie Howard (09:04): How interesting. So, we're obviously in the midst of incredibly volatile times, and as you mentioned at the beginning, some businesses are facing increased demand, some businesses are hunkering down. When it comes to, who's focused on innovating right now, can you give me some perspective as to who's investing in innovations like IOT right now, or thinking about outcomes-based pricing?
Andy Dvorocsik (09:28): I think everyone is, and by necessity. Companies that are hunkering down, are looking to how they're going to come out of the recovery most effectively. And revenue models have been disrupted everywhere. And understanding what your customer really values, and understanding how your customers are different, and providing the right value propositions that become tailored to customers in segments, in channels, becomes even more important.
Valerie Howard (09:55): So, what we're hearing is that companies across the gamut are investing today, whether they're in times of hunkering down or times of high demand, right? Through necessity, they're investing because they need to be preparing for the market's recovery, or perhaps just preparing for a better foundation to manage through market volatility.
Andy Dvorocsik (10:15): Yes. As in, leading companies have to be nimble and react appropriately to what they're seeing in the market to protect their business, grow their business and innovate their business.
Valerie Howard (10:25): Thanks so much, Andy. Now, how the Pros and EY work together on helping clients to better understand client value and help them to be more nimble when it comes to pricing strategy?
Andy Dvorocsik (10:38): Sure. Our alliance with Pros works, because we're both very collaborative in nature and have similar cultures that put the customer first. It really focused on client value creation. We work on the process technology side of things, as well as analytics, to deliver clients the ability to make fast decisions and make better decisions.
Valerie Howard (10:59): Absolutely. It's a fantastic partnership. We're glad to partner with you. It's been such a pleasure to talk to you, Andy, to get better insight into what you're seeing in the marketplace, where you're seeing businesses facing lots of different conditions and how they're managing through that in this time of a lot of volatile change. But it's really fantastic to also hear that businesses are focusing on their innovation, despite perhaps a lot of uncertainty in the marketplace today. So thank you, for sharing your experts insights with our audience, and we look forward to talking to you again soon.
Andy Dvorocsik (11:30): Thank you, Valerie. I've enjoyed it.
Valerie Howard (11:32): Thank you