Pricing Strategies – Mark Stiving

Mark Stiving:
Last time you got on an airplane, do you think the person sitting next to you paid the same price that you did? That’s price segmentation, right? It happens all the time. But imagine what Netflix did, by the way, they didn’t do this. But imagine what they did was they looked at people who are actually using their Netflix accounts and raise prices. And on the website they said, hey, here’s the new price. It’s $22 a month or whatever the heck it is. And they looked at people who weren’t using Netflix much, and they left the price at $19. It just didn’t say anything. You don’t have to charge everybody the exact same price.

Mark Stiving:
Why wouldn’t you charge someone with a more expensive house a higher price than someone with a less expensive house?

Dana Robinson:
Exit Plan is a podcast for business owners and those who want to be business owners. I’m always in search of the lesser known stories of entrepreneurship. In the exit Plan podcast, you’ll hear stories from startup to sale and hear from the professionals who helped business owners achieve their exit. Hosted by me, author and private equity manager Dana Robinson, along with my co hosts and guests, you’ll hear real stories, tips, and tools that will help you plan for the exit you want, whether you are still working at a day job or running a business. Let’s get started with this episode of the Exit Plan podcast. Hey, everybody, it’s Dana Robinson coming at you with the exit plan. And today’s podcast guest is Mark Steveen, PhD, a doctor of pricing, if you can believe that. And I’m excited.

Dana Robinson:
I actually have an anecdote I’m going to tell that I haven’t warned Mark about. So we’re going to put him on the spot in a minute. But welcome, Mark. Thanks for coming.

Mark Stiving:
Hey, thanks, Dana. This is going to be fun, I hope.

Dana Robinson:
It should be fun. And I do try to preview a little bit about what to expect in the beginning because I don’t want people to get bored right away and realize that it’s going to get exciting. So I’ll start off with. I’ll start right into a story. It’s a story I tell a lot of small business owners about pricing, and I don’t have a PhD. So I’m going to let you tell me why this is true. I was part of an h vac and plumbing roll up, and we bought businesses that were, in some cases, struggling. The one that I managed was struggling.

Dana Robinson:
And we decided in that business, we were going to rip the band aid off and apply our branding, our pricing, and our methodology, sales method, everything from the beginning. So no easing into this business, it was automatically going to throw itself into doubling its pricing. So imagine, Mark, the team of people who are running this business are used to selling an air conditioning system for $6,000. And they’d send a guy out with a clipboard to bid and negotiate and haggle and all of that to chase that price down sometimes into the fives. Our policy was no guy with a clipboard. We expect to be the most expensive, so we don’t go competitively bidding, and we doubled the price of everything because that’s what our financial models told us we needed to sell at in order to deliver the promises that we made as a brand. My first line of resistance was not the customer, it was the humans who said, this is impossible. We can’t do this.

Dana Robinson:
People will not buy it. I don’t want to have to try. So it took a lot of evangelism to convince the team. And then the people who really, really cared about the customer needed to be shown, not just told. And so our first big win several weeks into this new pricing model was that we got our lead technician to believe us that we were doing something special and we’re going to deliver. In fact, we had all kinds of bumps in the road, and at every opportunity there was to fail. We owned and were responsible for the failure, and at the end had a happy customer. And the technician at each point where he was used to old owners of businesses saying, no, we’re not making that concession.

Dana Robinson:
No, we’re not going to go back and fix it. No, we’re not going to do this or that. And throughout we said, we charge more and we promise more and we deliver on the promises. When we delivered, we had the happy customer, but more importantly, we had a team of people that said, okay, I get it. I see why we’re charging more and we’re doing more than any other owner of a business is going to do to deliver this the way they promised. And at that point, we could start running a profitable business. Now, I tell that story to a lot of people in the service industry, and they really want to believe it, but they just don’t have the nerve. I think they feel they’re going to lose too much and walk away from the income that they feel they need.

Dana Robinson:
But when you really look at their p and l, you often see that they’re not making any money and you think, well, why do you keep wanting to generate revenue on which you lose money? You don’t need it that bad. You need to make money and keep some because that’s how you keep your promises to your clients and to your employees. All right, there’s the long story, everybody. But Mark, I know I’m right, because you know that’s the reason I know I’m right. I don’t have a PhD in it. So talk to me. You probably know a lot more about this. And am I right? This is a super common problem.

Dana Robinson:
And are there other solutions besides the one I took?

Mark Stiving:
Well, super common problem. And let me describe what happened. But I’m going to use frameworks and teach frameworks as we go through what happened, if that’s okay.

Dana Robinson:
Yeah.

Mark Stiving:
First and foremost, every company out there is afraid to raise prices. Everybody. There’s not an exception to that because probably the single most common thing I do now is teach companies how to raise prices. And there’s no doubt that everybody’s afraid. It isn’t just the fear of what’s my customer going to say or my potential buyer going to say. It’s the fear of what are people inside the company? What are my salespeople going to say? Can I get them to go tell the story that I want them to tell? And so there’s just this ton of fear that’s built up and what we have to do. You did it differently than I would have done it. But what we have to do is convince everybody that there’s value here, right.

Mark Stiving:
That we’re delivering a ton of value to a customer. Now, what you did was you went out and delivered the value and then said, see, look what we did. What I probably would have done was said, hey, let’s figure out how to articulate what the value is we’re going to deliver, and this is how we justify the prices that we want. Now, the other thing that happened, which I find fascinating, is there are people that you quoted at double the price and they didn’t buy from you, and that’s okay. You didn’t lose money on them. Right. There are people that bought you at double the price and they had a high expectation, hey, I expect a high quality product because, well, price is a great indicator of quality. And so if you’re delivering a great quality product and you charge a high price for it, even if it’s the highest price, you’ve got a set of buyers out there that want to buy that from you, you.

Mark Stiving:
And so you’re doing that. And then here’s the third thing that happened. In almost all of our businesses, there are some people who never compare prices. And so they called you for a quote, and they just assumed that it was a fair quote that was the same as everybody else’s quote, and they bought from you because they didn’t go get three quotes to say, hey, I want the one in the middle.

Dana Robinson:
Yeah.

Mark Stiving:
Those are what we call will I buyers or will I decisions. And they’re not price sensitive. Price isn’t driving the decision. Why not pick some of those up along the way?

Dana Robinson:
Right. So I love that everyone is stuck here, I think, of the smallest service business. I mean, I ran a law practice that I don’t, luckily have to run now, but it was really a challenge each year to go well. I feel like, will people be okay with this increase? And, you know, my costs are rising, and my experience is going up, and raising that Price was still always a psychological challenge for me. And then I actually had, at one point, a friend who was a lawyer tell me he couldn’t feed me corporate work from a big national bank because I was too cheap. He actually said, we can’t hire you. Our cheapest per hour lawyer is $1,100. You’re charging 425.

Dana Robinson:
People will think I’ve gone mad. And right on up to a blue collar business where people who have been doing that feel like they’re taking advantage of someone by charging a high price. And so, in some sense, they’re equally undervaluing themselves, the value of their time and the quality that they bring from their experiences.

Mark Stiving:
Yeah, I think solopreneurs are often the hardest at figuring out what their value is because they’re pricing themselves, and there’s such a lack of confidence, a lack of self confidence. So let’s be honest. Most people have one of two different problems. They’re overconfident or they’re underconfident. Very few people have the right level of confidence. And how do you know if you are or not? I have no idea. But I can tell you that a lot more people are underconfident than overconfident when they’re setting their prices. And by the way, here’s how I know that’s true.

Mark Stiving:
You’re winning business.

Dana Robinson:
Yeah, I just halfway through a book, useful delusion, I think, is what it’s called. Useful delusions by the podcaster does hidden brain, and he’s talking about the success of men over women on crowdfunding platforms. And it is from the male slant toward probably from male privilege to believe they can and sort of a lean toward delusion can be an advantage. To really believe you can and to overestimate yourself and if you repeatedly do that, then your outcome actually at the end of the day is net positive.

Mark Stiving:
Yeah, I would argue that in my work, as I see solopreneurs coach some solopreneurs, there’s no doubt that men have an easier time with self confidence than women do. Women have a very hard time pricing themselves high and raising their prices and saying, hey, I’m worth it. Maybe that’s a willingness to hear no, because I can tell you my world changed when I pseudo retired and said, look, I really don’t care if I win a customer or nothing. And I just raised prices.

Dana Robinson:
And then they kept saying, okay, we’ll pay it. Right.

Mark Stiving:
Exactly, exactly. And so the fear of losing customers drives people to keep prices down. And if you’re willing to say, look, it’s okay if I don’t win that customer, then it’s much, much easier to raise prices and test it and see what happens.

Dana Robinson:
Yeah, well, what else goes into the whole thinking through and the process of raising prices? Because again, like mine’s just anecdotal. The company that I was was working for said, this is what we’re going to do here. And I got behind it and I served the Kool Aid. And a lot of that was really just the emphatically promising to the employees and then eventually showing them, as you said, that we will fulfill our promises, so then they can embrace that as a belief system of sorts. There’s got to be a better process, and you walk people through it. So maybe start with, we’re talking about solopreneurs and people that are on their own. Maybe we talk about if it’s different, the sort of small versus large process of price increase.

Mark Stiving:
Yeah, I think it’s the similar concepts because I think and live in frameworks. And one of the problems that companies often have is we solopreneurs companies doesn’t matter. We think every customer is the same, every situation is the same. And the way I think about price increases is I want to know who’s getting the most value from what I’m doing. And if I can identify some customers that get more value than others, those are the ones I’m going to raise prices on. If I can identify some situations where people indicate that they’re getting more value than others, those are the situations I’m going to raise prices on. And by the way, product wise, maybe there’s some products that customers get a lot more value from than other products. Those are the products I’m going to raise prices on.

Mark Stiving:
Instead of thinking I’m going to raise prices across the board to everybody and everything, which is scary as heck. What if we said, I’m going to raise prices on the right products, the right customers and the right situations?

Dana Robinson:
What about productization in the trades? One of the things, and I’m not sure we even called it that, but one of the things we insisted on was only selling what was dictated and what we had as a price book. So we withdrew what would be discretion for a technician to figure it out. It was like, if it’s not in that price book, we don’t sell it. And then on top of that, we were able to keep the sales process on track by being sure that there was only a limited number of products to offer. So then you’d say, like Mister Stuyveen, I have three options for you. I’ve got the silver, the gold and the platinum. And that gives you some feeling of agency. But they’re still productized, they’re packaged even though it’s a service.

Dana Robinson:
We’re going to come out, going to rip the system out, we’re going to put in a new one. But the bundle, as it were, is not like cost plus in the mind of the consumer. And it’s easier to keep your sales process in sort of a replicable order because you don’t have salespeople inventing what they’re selling on the spot.

Mark Stiving:
Yep, that’s brilliant. And that’s what you should be doing when you do projects, when you’re going to make a proposal or a bid. I love making three different proposals. So I always say the words good, better, best. I think in good, better, best. And just for everybody to know, most people buy the one in the middle, and here’s why they buy the one in the middle. Just like you’re afraid to raise prices, they’re afraid to make a mistake. And they think if they buy the cheap one, it may not be good enough.

Mark Stiving:
If they buy the expensive one, they may be wasting money. So they just buy the one in the middle because it’s easier and they’re less likely to make a mistake. And so always three.

Dana Robinson:
I love that. You know, what I found was the, depending on the business you’re in, the person selling might have been raised without a lot of means. I was raised by a wonderful homemaker and a phone man, and we would never have shopped at Nordstrom. We shopped at the equivalent to Walmart at the, the time of Fedco or some such thing. So a salesperson who has a sort of poverty mentality, if they have the good, better best. It gives the buyer the freedom to be free to buy what they want. And this is always a surprise. And it’s also a piece that I’ve taught some salespeople that just from my own upbringing, people sometimes feel they deserve the best.

Dana Robinson:
And why don’t you let them spend the most on themselves that they can by giving them a really premium option? And you don’t need to give a good deal, a bro deal, an insider deal to everybody the way that you may have been raised, which was always to like, well, I got to get you the best deal. People sometimes don’t want a deal. They walk into Nordstrom and say, I’m going to take care of myself today. I’m buying myself, treat myself the best I can. And that’s true of air conditioners. It’s true of redoing the pool in the backyard. It’s true of the choices you have for the roof, the windows, any of the trades. And I would guess that that’s probably true across a lot of different services, where the good, better best isn’t all about the customer.

Dana Robinson:
It also gives, it keeps your salespeople from underselling, maybe.

Mark Stiving:
Yeah. So I agree with 99% of what you said. Can I tell you what I disagree with?

Dana Robinson:
Yeah, please. I love disagreement.

Mark Stiving:
I have never met a person who didn’t want a deal. Now, you may be buying the best, but when I buy my new yacht, I want a discount. I’m going to negotiate a discount for my new yacht.

Dana Robinson:
Yes, that’s true. That’s true. That’s true. Given that you say that this is where a good sales manager comes into play at sort of the point of closing. You know that person and they’re fishing for something, and sometimes it doesn’t mean knocking something off as much as like, do you know that premium air conditioner upgrade for $1,000 if you get this, the platinum? We’re just going to throw that into the deal right there. So sometimes it’s just getting something that makes them feel satisfied that they got something for being the customer willing to buy the top grade product. So, yeah, good observation. Thanks to even the people who want to treat themselves are going to look at the tag and wonder if they’re getting a deal and still go shopping when it’s the seasonal sale or can.

Mark Stiving:
I get a discount or whatever it is. I like to say, although this isn’t true, I like to say rich people didn’t get rich by spending their money.

Dana Robinson:
That’s true. Yes. Yeah. Yeah. They’re thinking about they’re thinking about their money, the so so good better best great piece of the ability to raise prices, but give people a feeling of agency. And to be honest, there are plenty of people who just say all I got is the, is the good good is good enough for me and that’s still fine for them. But what are some of the other things that go into the, you know, how you think of the frameworks around pricing?

Mark Stiving:
Yes. So I think we’re talking about productization for a second. And so I want to take that up a level for just a second because it’s very feasible to create a good better best product line. But it turns out it’s much easier and better to do good better best once you’ve identified a specific market segment. And so a market segment I think of as they actually are solving different problems, they’ve got different reasons for buying different use cases for what they’re doing. And so if you could package up into a use case or a market segment and then say oh, I’ve got good better best for you, since we’re talking about H Vac, and I don’t know that business anywhere near as well as you do, but I can imagine there’s h vac residential problems and there’s h vac commercial problems and very different sets of problems. And I might create good better best for residential and good better best for commercial and say this is, or I might say I’ve got good better best for hotels. I could imagine.

Mark Stiving:
Now that’s a very different business with each room has its own controls and.

Dana Robinson:
Yep, yeah no, great, great observation. So the, yeah you’re right. The productization has to fit the, your avatar, your customer in particular. Right. And one business that does both needs to have a productization that’s different for each.

Mark Stiving:
Right. Youve thought through each of those market segments and in fact what I often work with clients on is to say look, how do you find a new market segment? Can you identify to me someone who would have paid you a lot of money and now can we say thats a market segment and lets craft a series of products to go after people like that, whatever that was.

Dana Robinson:
Yeah, im sure that you dont want to talk specifically about clients of yours and I don’t want you publicly disclosing things that you’re not supposed to, but I’m using the examples from my own history. Do you have any more universal examples of what you do in the context of products or services that you find easy to talk about universally?

Mark Stiving:
Yeah. So can I give you my all time favorite company for how they do pricing, and that is LinkedIn. So most of us plan LinkedIn. It could be that h vac people don’t because it’s not their place. But I think most business people are playing on accounts on LinkedIn. We live on LinkedIn. If you think about LinkedIn for a second, and let’s go back 1520 years when they first founded, people are putting their resumes up there. LinkedIn, even today, is resume storage and search.

Mark Stiving:
That’s what LinkedIn really is. There’s other stuff, but it’s really resume storage and search. Now, LinkedIn has collected a whole bunch of different resumes. Most people are free. Maybe we could charge a premium. Hey, do you want to have access to a little bit more? But then they said, well, what market segment gets the most value from having access to all these different resumes? It turns out that market segment happens to be recruiters. And so they crafted a package for recruiters, and they’ve got good, better, best packages targeted specifically at recruiters. And then they said, well, what’s the next package? What’s the next market segment? And then they said, well, salespeople are going to get a ton of value.

Mark Stiving:
Many of us on LinkedIn use sales Navigator, or have used sales Navigator as a version of what we do. And so they’ve created good, better best in the world of salespeople. And so this is exactly what we’re talking about, is saying, hey, how do you go figure out where that value really is in your product, and then how do you craft the portfolio, the good, better, best portfolio that says, hey, I’m going after that segment. So I dearly love the way they do pricing.

Dana Robinson:
Yeah, shameless plug. People probably know it if they followed me. I have about a dozen courses on LinkedIn learning. I’ve created some of those when it was Lynda.com, before LinkedIn, actually, pretty smooth move before they transacted to Microsoft bought Lynda.com, which was one of the largest monthly fee, single fee for unlimited, all you can eat learning. And so that platform actually was a really smart play, because then if you buy premium for your subscription, you get access to 20,000 courses or whatever it is on LinkedIn learning that are all unique upskill, high quality from renowned experts and whatnot. So really smart people running that business and have been able to, you’re right. Like, think about who’s on here and what’s the right thing. We can sell them.

Dana Robinson:
Because, you know, if you’re, you have a job and your employer pays for you to be able to have all this learning. Aren’t you going to use it and get value out of it and upskill yourself? Which is only going to help your employer and help you. Dana Robinson here. Quick plug for my book, the King’s Fly Swatter. You can see it here behind me. If you’re watching this, I’ve got it in my hand. It’s beautiful. A hardcover book printed to make it giftable.

Dana Robinson:
Something that you can share with a family member buy as a gift. So this latest book, it’s a fable about a person who has a really crappy job. Let’s just start there. This is a book that most people can relate to because we’ve all had crappy jobs. This is the story of Ubar, a servant in the court of a babylonian king who masters his boring, monotonous job and then learns to listen to the king, hearing him rule the kingdom while quietly swatting flies behind a cane. Eventually, Ubar becomes the wisest and most successful man in the kingdom. The story is fun, and it’s easy to read, but it’s not mythology. It’s my story.

Dana Robinson:
And as I shared the idea with colleagues and friends, I learned that it was their story. And guess what? It’s your story if you’re at a job of any kind, one that you love, one that you hate, one that’s just enough to get by. This little book gives fresh perspective on how to leverage that job to get you something greater than a paycheck. The lessons in this parable are entrepreneurial lessons, but not what you might think from the current entrepreneurial zeitgeist. If you or someone you know are looking for a real pathway to entrepreneurship, here’s the secret. Your job is the way out of your job. It’s counterintuitive, but once you see how it works, you can’t unsee it. Learn the way of the fly swatter from the parable of Hbar and from the stories I share from my 30 year business journey.

Dana Robinson:
You can get a free copy of the King’s Fly Swatter by going to danarobinson.com.

Mark Stiving:
Yeah, that’s absolutely right. Absolutely right. So I love that company. One of the things that we haven’t talked much about, which shocks me because it’s the most important thing when I think about pricing and productization, and that is, can you articulate the value that your customers are getting? And this is hard to do. It is really hard to do. And if you think about it, you’ve built a product or you’ve built a service, you’ve built something, and the only reason you built it is because it solves a problem for a customer. That’s it. And so can you articulate that problem? And it turns out very few people can articulate the problem that they solve for a customer.

Mark Stiving:
I’m shocked by this. It really is fascinating to me most. The number one reason is we have the curse of knowledge. So I’m a pricing expert. I could say, what problem do you solve? Well, people don’t set prices. Right. I got to tell you, that’s not a problem. And so, can you articulate that in a way that’s truly a problem that resonates with somebody? The problem could be, hey, what we wanted to talk about today, the problem could be, I’m managing my business, I’m thinking about selling, and I think that I could get a higher valuation if we had a better pricing and packaging strategy.

Mark Stiving:
Now, that feels like a problem.

Dana Robinson:
Yeah. And so your solving of that problem is helping them gain value while they own the business. That will let them extract more value when they exit that business. So they know, like with h Vac, I mean, I’m circling around and hanging out in the industry, and I’m telling people, raise your prices before you sell to private equity. And so that perks their interest because it’s kind of like, well, shouldn’t you get some of that? All the private equity is going to do is hire someone like Mark and reprice and sell to fewer of your customers at a higher price. You could just do that. And you get to keep some of that value now. And if you’re selling at five or six times EBITDA, every hundred thousand dollars of increase in what you’re selling at the top, if that flows down through the same cost structure, is half a million dollars in value to your company?

Mark Stiving:
Well, here’s what’s good is in price increases, there’s no cost. That’s all profit.

Dana Robinson:
Yeah. So do you go through an exercise with clients to get to the identifying and communicating the problem that you solve? Is that, is that a sort of gating piece of your walking them through, getting to price increases?

Mark Stiving:
So I actually walk them through. I call that a value table. And we just went through two columns of the value table, the solution and the problem. The next column is the result. So if I solve your problem, what’s a result you might expect? And if you are in the B two B space, so you and I tend to hang out in the b two B space a lot. I’m selling to companies. So in the world of b two B, that result should be a KPI. So given the conversation you and I are just having, that KPI could be earnings, that KPI could be valuation exits.

Mark Stiving:
So what’s the KPI I’m about to help you move when we go do this work. And you want to think about this. For every product or important feature that you offer, every capability that you do, how does that change a KPI? And what’s the KPI you’re about to change for your customer? In B two C, we don’t get to do KPI’s. I don’t buy shirts because I have something I’m measuring. So what’s the result I’m after? I want more respect. I want people to turn their heads when I walk by. I want to not be embarrassed when I’m out in public, whatever the heck it is. There’s some result that I’m after, but it’s not a KPI.

Dana Robinson:
Go ahead, I summarize because that sounds like this is the first step before you get to pricing. So this take an opportunity like you’re filling these in orally, but you probably would have some visual aid for these three parts.

Mark Stiving:
Yeah, and there’s a fourth part too, by the way. And the fourth part, it doesn’t fit in the example that we’re using. But in the fourth part is value. The fourth column is value. And so given that I helped you achieve a result, and usually that result is a KPI, like increased productivity, more click throughs, higher conversion rates. There’s some result that I’m going to help you get. Then can we articulate how much profit you make because you got that result? We’re just using business acumen to then say we’re going to turn that into profit. What’s the real profitability there in the world of b, two B value is measured in incremental profit.

Mark Stiving:
The only reason a b, two B company buys from you is because they think they’re going to make more money after they bought your product than before they bought your product.

Dana Robinson:
Right?

Mark Stiving:
So can you articulate what that is and how they’re going to get there? And that’s really what that exercise is all about. Right? Can you truly identify the problem that you’re solving? What’s the result they get if they solve that problem? And then what’s that worth to them? How much, how much more profit will they make?

Dana Robinson:
Right? So that’s the. If you, once you capture that you can articulate that, then you’re going to be able to drive the higher price that you’re going to help one of your clients set.

Mark Stiving:
Absolutely.

Dana Robinson:
Until then, you’re just raising prices and you’re going to, you think you’re going to have negative results from raising prices before doing that.

Mark Stiving:
Yeah. What often happens is I work with companies to do this exercise, and when they get done, they’re like, well, we’re not charging enough to our customers. It’s like, yeah, that’s right.

Dana Robinson:
Right. Yes. Yeah, that is objectively, it’s, it’s, in small businesses, it’s easy because you actually have to just force them to look at their own p and l. And then, you know where they say, look, I’m making $180,000, you say, no, you’re paying yourself $180,000. If you paid that to someone else, you’d be making nothing. So let’s, you know, build a business where you actually deliver value, and you, you retain some of that. So you get the client to realize they should be charging more by the time you get through this piece of the exercise. And then what else goes into the price increase kind of decision from there?

Mark Stiving:
Well, I mentioned that we want to identify market segments, and so when I say I want to raise it on the buyers who get the most value, that almost always starts with market segments. And so there’s a great exercise that I do with clients. You across the top of a, think of an Excel spreadsheet for a second, and across the top, you list ten different customers. And then down the side, you list all the features that you have as your product, your service, whatever it is that you think is really amazing. And then in each of those cells, how much does that customer value that feature on a scale of one to five? Five meaning they value it a lot, one meaning they don’t value it hardly at all. And what you’ll end up finding is that there are some types of customers who value some features a lot. And now if we jump back to the value table we talked about just a second ago, we build features to solve problems. People who love the feature have the same problem.

Mark Stiving:
So now we can start to say which customers have the problems. And how do we think about crafting products to solve that problem for those customers at a higher price point? Or how do we think about packaging our current features into a product that fits that customer or that market segment at a higher price point? Because those are the ones with the highest willingness to pay.

Dana Robinson:
And do you find, how universal is this? Sounds very like a SaaS reevaluating a b, two b. SaaS or a consulting service, but fill in the blanks. Are there more applications to that?

Mark Stiving:
Well, so the idea of understanding your market segments is important for every customer, every company. The idea of being able to quickly move features around into packages works best if you’re a SaaS company or a software company. It works best if you’re a service organization where you can easily say, we offer this service. We don’t offer this service. We put this in here, in this package or that package. It’s harder for hardware products. But can I say that once you understand that, then you can say, hey, I’m crafting a product for this market segment. I worked in the semiconductor industry a lot, and one of the things that we did, I’m almost embarrassed to say this, but we would take a part and we would sell the exact same part to aerospace and NASA.

Mark Stiving:
We called them space parts and we charged them like a hundred times the price. And the only real difference is after we made the part, we put it in a burn in oven, we exercised it for 100 hours so that we would get rid of any early failures. So it had a higher reliability rate. So, I mean, it was a different part, but it was a dramatically higher price. And why? Because they would pay for it.

Dana Robinson:
Right? Yeah. They value that exercise that you push that product through, because that eliminating that failure rate or diminishing it is incredible value to them, but it costs very little for you to do to transform one product into another.

Mark Stiving:
Right. And so until you start to understand where the value is, what types of customers value your products, then you can’t do that. And that’s your future product development. That’s where you’re thinking, where am I going to put my engineering efforts?

Dana Robinson:
Interesting. Yeah, I love that. That’s brilliant. You’ve got a couple of bullets that I’ve seen on your pitch to some of your experience. And just say that I said in the beginning that every owner I’ve met is afraid of losing customers. How do you raise the prices without losing customers? Is there a simple answer to the person that’s just still shaking their head and saying, can’t, can’t I, that can’t afford the risk I buy bills to pay.

Mark Stiving:
So first off, let’s be fair. And that really is targeted at SaaS, or let’s call it recurring revenue type business, because if I haven’t won a customer, then I haven’t lost a customer. And so I’m really saying, hey, how do you raise prices on your current customers without losing them? That’s the point? And the answer is pretty straightforward. There’s a couple, couple of very important answers. The first answer is only raise prices on the ones who get the most value from your product. Okay, so let me give you a fabulous example. You look like you’re in great shape. I’ll bet you go to the gym every week.

Mark Stiving:
You pay multiple times a week. You pay the gym $50 a month, and they call you and say, hey, Dana, we’re raising your price to $60. And you go, dang it. But it’s worth it because I go three times a week, and it’s my life. It’s built into my program. Now, I, on the other hand, I’m kind of like a slob, slovenly guy, and I pay my $50 a month to go to the gym, but I haven’t been in six months. And they raise my price and say, hey, mark, we’re raising your price to $60. What do you think? I do?

Dana Robinson:
Yeah. You’re like, I don’t need this. I’m already overpaying. I don’t use it. I don’t value it. So, you know, for you, it pushes you out.

Mark Stiving:
So I quit. So, in other words, could the gym look at who’s actually showing up at the gym and raise prices? And look at people who aren’t showing up at the gym and not raise prices. And now we’ve got an easy way to raise prices on people who actually get value from our product, not just people who pay us every month, which is a huge deal.

Dana Robinson:
Yeah.

Mark Stiving:
By the way, if youre a Netflix subscriber, you just got a Netflix price increase within the last six months. All of us did. And I guarantee you that when you got that price increase, this is what you thought, am I watching Netflix enough to justify paying for this or not?

Dana Robinson:
Yeah, I did. Youre reading my mind. I have a family account, and my daughter, who lives in across the coast, is on that. And so we had that existential discussion. Are we utilizing this enough in light of the fact that we pay apple and peacock and whatever, Amazon prime? So we have the discussion. Which one do we do? We kill one? And if so, is it this new one that just raised their price?

Mark Stiving:
Yeah. And what was fascinating was you didn’t have that discussion until they raised the price. And so when you raise prices on customers, they rethink the decision, am I making a good decision or not? And we want to make sure we only raise prices on people who are going to say, yes, I’m making a good decision and not raise prices on those who say, yeah, I’m probably not.

Dana Robinson:
Getting enough value from that now, in that model. Is, is there, are there common ways to charge the people who use it the most more, but not lose the other people and just keep them floating along the gym? Example or a SaaS? Sure. Could Netflix have said, we see these are aggressive users, we’re raising all their prices, and we’re going to leave everyone else into a new plan b, which only lets them have access to a limited library.

Mark Stiving:
So they could do that. There’s also something that’s just called price segmentation, which means we charge different prices to different customers for the exact same thing. Last time you got on an airplane, do you think the person sitting next to you paid the same price that you did?

Dana Robinson:
Of course not. Right? Yeah.

Mark Stiving:
So that’s price segmentation. It happens all the time. We see it around us all the time. So imagine what Netflix did, by the way. They didn’t do this, but imagine what they did was they looked at people who are actually using their Netflix accounts and raise prices on the website. They said, hey, here’s the new price. It’s $22 a month or whatever the heck it is. And they looked at people who weren’t using Netflix much, weren’t watching it, and they left the price at $19.

Mark Stiving:
They just didn’t say anything. You don’t have to charge everybody the exact same price.

Dana Robinson:
Right? Yeah. Our concept is that you must. But you’re right, most industries don’t.

Mark Stiving:
Well, if we go back to h vac for just a second, why wouldn’t. I hate saying these words out loud? Why wouldn’t you charge someone with a more expensive house a higher price than someone with a less expensive house?

Dana Robinson:
Yeah. I mean, you certainly could approach the house you’re going to with different, even segmented products. You could just say, this is our product line for up to 1500 square feet, and this is our product line for homes that are larger, and they just bring them through a different sales process with different products.

Mark Stiving:
I’m going to push back on you for a second, Dana, although I agree with what you said, that missed the point. I’ve got two different houses. Both of them are 2000 sqft. One’s in a bad neighborhood, one’s in a good neighborhood, the one in a bad neighborhood, the house sells for $300,000. The one in a good neighborhood, the house is $600,000.

Dana Robinson:
Yeah. So you can charge what you want to.

Mark Stiving:
You can charge whatever the heck you want. And one of my, one of the most common things I hear as I talk through this concept with people is, well, what if they find out I charged them more? Right? What if someone finds out? And I got a couple answers to that. First answer is, when’s the last time you shared how much you paid for anything with somebody else? It just doesn’t happen. We have this fear, but it doesn’t happen very often at all. And if it ever does happen, and it puts you in a bad situation, so it’s a recurring customer. You’re selling something to them month after month, and they say, why am I paying more than this other company is paying me? That’s an easy answer. They didn’t buy the same thing. They didn’t buy it at the same time.

Mark Stiving:
They bought it when it was on sale. They bought it early on in the process. They bought when I needed a customer, agreed to be a reference or whatever, whatever the heck it is. They didn’t buy the same thing.

Dana Robinson:
Yeah. So the people’s sense of fairness is really only squares up against you when there’s no plausible differentiation. Just like the airline seats, the timing matters. The buying a car at the end of the year apparently matters. You’re paying the exact same amount, paying a totally different amount for the exact same car by a lot based on when you buy it.

Mark Stiving:
Yep, that’s exactly right.

Dana Robinson:
I love it. The unlocking the secrets of your buyer’s mind is one of your catchphrases. Can you unpack that for me?

Mark Stiving:
Yeah, let me. This concept of value, I think in the world of value based pricing and value based pricing is all about understanding what does value mean to a customer? And this is a really hard concept. We went through a value table for b, two b sales, or b, two b opportunities, and said, hey, how’s someone thinking about the value of something? Now, it turns out our customers don’t actually think that way. If we help them and hold their hand, they will think that way and they’ll love it, but they don’t actually think that way. So we need to help guide them as we do that. But there are a lot of things that are going through buyers minds as they’re making decisions. Here’s my favorite one, and that is what I call a will I and a which one decision. Most of the time when people buy something, doesn’t matter what it is.

Mark Stiving:
They first ask themselves, will I buy something in that product category? And then they go on to say, after they said yes, they go on to say, which one I buy. So, sticking with our h vac story, I’m actually not in the market to buy an h vac system right now. My heater, my air conditioner, they all work great. But what if my air conditioner broke tomorrow? Suddenly I just said yes to the will I decision. Yeah, I’m going to go buy a new air conditioner. I got to get that in here. So what do I do next? Well, most of the time I’ll go to call several different companies and I’ll say, hey, can I get three quotes? What’s it going to cost me? It turns out that I actually have a really good relationship with a company called Sierra Air here. Odds are good.

Mark Stiving:
I’ll call them and they’ll come out and quote something and I’ll buy it from them. What that means is I didn’t make a which one decision. I just said, yes, I’m going to buy something from you. And when a buyer doesn’t make a which one decision, they’re nothing price sensitive. Price isn’t driving that decision. So let me give you some examples that might, might resonate. First would be a popcorn at the movie theater, right? Why don’t you get away charging $10 for a box of popcorn? Because you don’t have a choice. If you want popcorn, you’re buying it here.

Mark Stiving:
Right? It’s a will I decision. There’s no competitive alternative. How about you’re driving out the middle of the desert, you see the sign? This is last gas, 75 miles. You glance down, you got an 8th of a tank of gas. The price of gas is four times the price in the city. Are you buying gas?

Dana Robinson:
Yeah, you’re buying gas, right?

Mark Stiving:
That’s a will I decision. There is no which one decision about it. Here’s my all time favorite example, though. Apple iPhone. If you are an iPhone user, you are probably thinking to yourself, should I upgrade to the new iPhone 15 or not? But you’re not thinking, should I upgrade to the new iPhone or switch to Android?

Dana Robinson:
Right?

Mark Stiving:
If you happen to be an Android user and you want to upgrade, you say, yes, I want to upgrade. You’re thinking, well, am I going to buy Huawei or LG or Nokia or I, or Samsung or. There’s a bunch of competitive alternatives. So if you’re buying an iPhone, you’re making a will I decision. Now, here’s what’s fascinating about that. Android has 72% market share worldwide. In the mobile phone market, Apple makes 85% of the profit. Is that incredible or what? And that’s because we don’t consider competitive alternatives when we buy the next iPhone.

Dana Robinson:
Right? Okay, so does that mean that a company should be looking to position themselves for will I not? Which one?

Mark Stiving:
Yeah. So the answer is yes. Kind of. Here’s what happens, is a company wants to be looking for will I products and will I situations. So will I products are products like popcorn at the movie theater. Actually, that’s not true. An iPhone is more of a will I product. Right.

Mark Stiving:
Where it’s a product that tends not to have competition. Usually what ends up happening. We’ll go back to our h vac story. I love applying these concepts to different industries. We go back to our h vac story. So we’re in the middle of the installation. They, you know, they compared us to multiple alternatives. They beat us up on price.

Mark Stiving:
We came in with a good quote. We’re in there, we’ve got everything torn apart. And they say to us, you know, I’d really like that vent moved over here. Are they now making a will I decision or a which one decision.

Dana Robinson:
Right. Because they’re not going to call someone else to come in and move events. They’re just going to say it’s a yes or a no. And if it’s a yes, it’s you.

Mark Stiving:
And so therefore the customer is not price sensitive. Price isn’t driving that decision.

Dana Robinson:
Right, right.

Mark Stiving:
And so that’s a will I product. Right. Because it’s an add on. Right. When I’m doing an add on, when I’m doing an expansion, an option, something like that. If you sold an h vac system, I don’t even know, are there options to h vacs that I can retrofit later?

Dana Robinson:
Yeah. Yeah, you can. You can get a two stage, a multistage, you know, variable speed. There’s a lot of upgrades in that you can choose within your h vac array of quality and options.

Mark Stiving:
Yeah. So if I install my h vac and then I say, hey, I really need it upgraded. Not a whole new h vac system, but just an upgrade to something I’m going to call the same company who installed it. It.

Dana Robinson:
Right, right. Yeah. Which is indoor air quality, the new ventilation system, cleaning your vents, all of those things are going to go to. And you’re right, they’re not price sensitive. And in the industry has a higher gross margin price on those because they’re not competitively bid. So you’re right. I’ll give you one you might not have known in landscape maintenance, your gross margin on recurring maintenance revenues between 45 and 50%. Gross margin on an enhancement sale.

Dana Robinson:
You want some flowers? Would you like us to fix the sprinkler is 60% to 65%. And you’re right. It’s a choice of, am I going to do it or not? And not should I get a bunch of prices and make a choice from different sources?

Mark Stiving:
Yep, exactly right. Exactly right. And so that’s a will I. Let’s say that as a will I product, because it’s the add on the option. And then there, then there are times where we have a will I situation. Right. So will I situation is, can I get my product in a place or in a distribution or in a sales situation where the customer doesn’t look at a competitive alternative even though they could. Right.

Mark Stiving:
And so this is the last gas. They can’t look at competitors out there. This is popcorn at the movie theater. What if I’m looking to put in a new h vac system? I call my next door neighbor, who just had one put in. They said, oh, I love this company. They did a great job. I pick up the phone and call, the company said, hey, my neighbor referred you. Come give me a quote.

Mark Stiving:
Am I going out for three quotes? I mean, maybe, but maybe not, right?

Dana Robinson:
Yeah. You might have just been making your choice, and you’ve chosen that trust transferred from your neighbor versus the trust you have for your historic maintenance company that’s been taking care of you.

Mark Stiving:
Yep. And so when I do that, that’s just a will I decision. You don’t have to be overly price aggressive in situations like that.

Dana Robinson:
How much does belief matter in all of this? I’m thinking of the examples. You believing that the service you’ve used is, is just worth making that choice. Believing, transferring belief from your neighbor, believing that you, as the one you’ve selected to do the air conditioning, are capable to do reduct a house or whatnot. Is belief part of your process at all, or is it just sort of inherent in the nature of human consumers?

Mark Stiving:
Yeah. So belief is crucial. I use the word perception. So value is, let’s think of value as having two different components, perceived value and real value. So real value is how much value did I truly deliver? And sometimes people don’t even know the answer that after I’ve delivered the value, it’s just not possible to figure out. But perceived value, what do I believe that you’re about to do? So that could come from the way you’ve done advertising, it could come from how your salesperson is dressed when they walk in the front door, could come from the fact that my neighbor loved you, could come from what we interacted in the past, but we all have perceptions of value from different customers, different things we want to buy. And so perception, the perceived value, is the only thing people have when they make a purchase decision the first time. There’s nothing else that they can decide on.

Dana Robinson:
The, and as you said before, as sort of a gating mechanism before you raise prices, you need to assess what that value is. Is there a communication that’s important to that? Like you bring your client through an existential evaluation, you walk them through problem solution, the value that’s created by what they do. They say, oh, that’s what we’re doing for people. We ought to be charging more. Is there a requirement or a benefit from then taking that and saying, hey, we need to message our sales or marketing side or both differently to be sure that we’re conveying what people need to perceive or believe.

Mark Stiving:
Can I say, absolutely. You’re so spot on here. Look at almost any company’s website and what they talk about is their product and their features. I would bet you that if I go look at a landscape website, it’s talking about the things that they can do, the capabilities they have, and it’s all about them. And here’s my favorite saying when it comes to product, and that is nobody cares about your product. And yet that’s what we talk about all the time. Here’s what people actually care about. They care about solving the problems they have and the results they might achieve.

Mark Stiving:
And so when you go through that exercise that I walked you through, those two middle columns, problem and result, that’s what salespeople had better be able to talk to. That’s what marketing needs to be putting on our websites, on our collateral, whatever we’re going to be doing, it’s always our customers problems and the results they might achieve.

Dana Robinson:
I love it. As we wrap up toward the end here, a couple of things I want to be sure of. One is the opportunity for you to tell how people can connect with you. And kind of, if you say, you said you keep trying to not have to work and people keep hiring you. So if you connect with your customer avatar, who’s listening, let’s learn more about it. But also, I talk a lot in my own podcast and I guess I can because mine. But did I miss anything that you think is important? Good partying shot. That is your expertise that we didn’t talk about?

Mark Stiving:
No, I think we touched on a lot of what I do. And selling value is a big piece, but you can only sell value after you’ve figured out what value is. So that’s the biggest one. So if people want to reach out to me, they can get me pretty easily. I’m on LinkedIn all the time, so at least every day I’m on LinkedIn. Also, you can email me. My email address is markpricing.com dot. I work with companies.

Mark Stiving:
Here’s what I typically do is I do boot camps. I help companies go figure out. I teach them a lot in a short, in a three hour window. And then I say, okay, let’s go figure out how to apply these to your company. And we spend an entire day just going through exercises. How do we apply each of these concepts to your company? How does this apply to you? And people walk out of that saying, okay, now I can raise prices, or I’m more comfortable raising prices. Maybe they restructure their product portfolio or their market segmentation, something like that. But that’s the business I live in.

Mark Stiving:
And so you have to ask yourself, if you could raise prices. I’m going to say 5%, which is a tiny number, right? You could raise prices more than that. But if you could raise prices 5%, then how much profit is that? And is that worth hiring me?

Dana Robinson:
Yeah. And for those that have listened to me talk about exiting businesses, you’re going to sell your business at a multiple of EBITDA. That is something times your net profit. However calculated, all of the price increase, if done right, flows straight to the bottom, which means that it is that times your exit multiple in terms of the value you’re creating for yourself. So certainly worth the effort and worth whether they do it through a consultant like you, mark, or whether they just buck up and take the bull by the horns and do it. Definitely worth doing. Don’t give your company to someone else just to have them create the value. If you can extract some of that value while you’re the owner.

Mark Stiving:
Can I make one last comment, Dan, if you don’t mind, since you just said that, I just have to say, most of my clients are hired to I get because PE firms hired me to do this after they acquired them.

Dana Robinson:
Okay, well, all the more reason that, you know, if a company is thinking of transacting anytime in the next couple of years, they ought to be spending the money to do that themselves. They’ll recoup all of that investment and realign their business. And to be honest, I think the process we talked about you forcing people through is a proper existential analysis that’s going to realign their marketing, that’s going to realign their sales process and the way they characterize their and probably force them into some productization that also would be something that private equity would be doing to their business, that if you do it, you get the value.

Mark Stiving:
Absolutely right.

Dana Robinson:
Mark, thanks for coming on the exit Plan podcast. Everyone who’s listening, don’t forget to reach out to me at hello@danarobinson.com. mark, have a great evening. Thanks for joining me on this episode of the Exit Plan podcast. I’d love to hear from you. Feel free to hit me up with questions or comments by emailing me at hello@danarobinson.com. or leave comments and questions by calling 858-252-7785 call 858-252-7785 and leave a message.