Decoding Pricing: Mark Peacock's Industry Insights

Discover the power that lies in strategic pricing in our insightful conversation with Mark Peacock, Managing Director of Pricemaker. Gain a new perspective on the role of pricing in driving business growth and profits, and learn about the implications of the current economic climate on pricing strategies from an industry expert. Join us as we delve into Mark's career journey and his unique insights into adopting a customer-centric approach to pricing.

#theproductivityexperts
Register for the Produtivity Forum 2024
Follow us on Twitter @Rethinkp
Connect to Simon on LinkedIn
Follow ReThink on LinkedIn

Transcript

Speaker 1: 0:06

Welcome to the productivity podcast. Today, I am joined by Mark Peacock, who is the managing director of Pricemaker Hi Mark.

Speaker 2: 0:15

Hi, simon, great to be here. Thanks very much for having me and looking forward to the chat today.

Speaker 1: 0:19

No, yeah, I'm fascinated by this one. We did we kind of met, didn't we, early this year at Nottingham Trent Union, when we were both asked to do a session and speak, and I was fascinated by your session Not something I've ever been directly involved in from my days in retail in terms of setting prices, but clearly in our business, in terms of consultancy and professional services, we have to do that. But even for those listening today that aren't actually involved in setting the price, I think this is going to be a fascinating insight into the world of pricing. Clearly, we're in a tough economic environment where things are spiraling upwards. But before we dive into the detail mark, let's find out a bit more about you. So do you want to tell us a bit about yourself, your kind of career background, how you got to be managing director at?

Speaker 2: 1:07

Pricemaker, of course. Yeah, thank you, simon, and thanks for having me here today. So my background is in corporate. I was in corporate life for 25 years working for large brand organizations like DHL and the AA and worked in all sorts of roles in marketing, product management, running sales teams and then running a large division of one of the various companies. So pricing was played a part in what I did, whether it was a marketing promotion, having to come up with a new product and set the price for it, or just understanding the impact of price on your P&L as a P&L owner.

Speaker 2: 1:47

And when I left a few years back now, six years ago, to start my own business, I decided to focus on price because nobody else seems to really talk about it right.

Speaker 2: 1:57

There's loads of business advisors and business coaches and marketing gurus and financial advisors and what have you, and they might touch on the subject of price, but I don't think anybody out there is really looking at it properly from a strategic level, unless you're in the market for advice from you know, the likes of McKinsey or one of the other big four consultants here.

Speaker 2: 2:21

So I work with the small to medium sized end of the market and help companies in that space, improve their pricing because, as we talked about, you know, pricing is one of the most powerful levers you can use to drive growth and increase profits. Yet all too often, business owners, business leaders, are scared to do things with price. They are fearful of making changes, you know, sometimes for good reasons, so they end up not doing anything. And what I like to try and show people is that there are lots of different ways to think about price and there's usually always a better way to think about applying your pricing than you're currently doing today. So hopefully I can share a few ideas today with your listeners to help them with that thinking.

Speaker 1: 3:13

Brilliant, looking forward to it. So, as I touched on in kind of the intro, it's topical, isn't it? Because we're in a climate where costs are going up, the cost of living is going up, interest rates going up I think at the time of recording today it's muted that they're going to go up again, unfortunately, and at some point they'll come down. So it's not forever. But what does that do in terms of from your world? How does that make people start to think about value? Does cheap always win? Is it more about quality? How do all those things then start to come into play when we're in a kind of market where it's all going up?

Speaker 2: 3:56

It's interesting, isn't it? And it's a difficult time for both, you know, consumers, homeowners, and for businesses. I mean, if we just roll back a couple of years and just compare where we are now to pre well, maybe pre COVID, but certainly the spike in energy costs and the rising in interest rates, you know, for the most of the last decade inflation was at practically zero and we just got used as businesses to not thinking about price too much and not really doing much with it. So I think we got stuck in our ways in terms of, you know, managing price and, you know, maybe increasing it once a year for inflation, but not really giving it the attention it deserves. And then, all of a sudden, of course, over the last year and a half, especially in the UK, inflation has shot up and interest rates have shot up, and I think that has forced many businesses to have to put their prices up, whether they like it or not, because they recognize that their costs have increased significantly and if they don't, they'll be going backwards in terms of their net profits. So that's the right thing to do.

Speaker 2: 5:14

So my focus, generally speaking, is always on helping businesses improve their pricing, by which I usually mean increase, but doing it in a way that helps, helps them sell more, and does and allows people to do it in a way that is a customer friendly way.

Speaker 2: 5:36

So that's how I look at it from the business side of things. From the customer side of things, of course, it's very different. You know, we've seen, you know, food prices, you know, for example, shoot up in the last year, and it's very, very difficult for many consumers and many household owners out there. So I think, how do we, how do we deal with this, how do we justify it? How do we, how do we make it better? It's something that we need to pay an awful lot of attention to, and you know, I do worry sometimes that pricing is left to last in our business thinking, because it's so fearful and difficult and scary, and I'd much rather think about coming up with a new product, a new marketing campaign, a productivity improvement or whatever it is to try and drive profit growth than thinking about pricing. So, yeah, so I think there's, you know there's lots of ways to tackle this. Where do you want to start with that conversation or that question, simon?

Speaker 1: 6:48

let me ask you that I think it does. I suppose that there's an underlying bit of. We've been, I suppose in that period you talked around of low inflation and people maybe doing more yearly price changes or more or less reactive stuff driven that value always wins. I'm just resonate with you, I mean.

Speaker 2: 7:13

Well, when we say value here, let's just be clear what we mean when what I think what you're referring to is value ranges of products, like we see with Tesco value range and supermarket. So that's what we're referring to when we say value, in other words cheap. So does cheap always win? Well, it, okay. I mean, I think the the, the received wisdom is that in any given markets there's only room for one or two Players who can win on the on the value basis. So I'll be a little for example.

Speaker 2: 7:54

You know the good examples of organizations that seem to be doing very well for themselves. I think they're Revenue for all these grown by like 19% in the last year. So they very much focus on cost management, limited ranges, no frills in terms of promotions and you know what you're getting. So it can work. But your whole organization has to be geared around that Business strategy, because it is a fundamental, it is a core business strategy.

Speaker 2: 8:27

But make no mistake, there is only only one or two people can be the leaders in the value space. You can't be third, fourth or fifth place and still win, because basically there's always somebody cheaper than you. So how on earth you know what is your competitive advantage. So how, how could somebody attempt to compete with the an Audi equivalent If they're not as cheap as Audi? So it's a guarded yes. It can work differently and clearly does work. About your a your whole organizational strategy has to be built to support it and be. You've got to maintain that market leadership or that first or second place position At all costs, and I think the yeah. Go on, simon.

Speaker 1: 9:21

It must come down to volume, and doesn't it as well, exactly that price point you've got to be putting the volume through to make the margin.

Speaker 2: 9:29

Yeah, exactly, economist of scale, efficiencies, all of those things I mean. Costco is a great example of an organization from a pricing point of view that's really interesting. So their background, their whole ethos, was that they would never charge more than 15% gross margin, which is a tiny amount when you think about it given all their overheads. But they are ruthless in how they manage their organization, their teams, their customer interactions and so on. But their their secret source is the, the fee they charge their, their members, for annual membership. So you have to pay about I think it's about 30 quid a year To be a costco member and I think they make as much or as more money from that price then as they do from all of their retail sales.

Speaker 2: 10:26

So there's ways and means is the point I'm trying to make there. That's known as a kind of two stage pricing approach. Amazon Prime has the same model. You know you have to pay an annual fee to be an Amazon Prime member, but then you get additional benefits on top of that for next day delivery and free access to films and what have you. So there's a degree of creativity, I think, which can really help. Well, it's help those businesses, clearly, but I think I would encourage Listeners to think a little bit outside the box and think well, how else can we monetize what we do in a way that our customers appreciate? Just putting up prices is a really hard thing to do, and we can talk about that in a second. Thinking slightly more creatively about how we price and how we charges, that there's often some nuggets or some Great ways that we can find to make a difference.

Speaker 1: 11:26

You talk there about kind of prices rising. Everybody in retail is always keen to tell you that prices have come down, something to offer, something to sale. I'm sure everybody listening is experienced. Even if you just take your local supermarket walking around and thinking all pastors gone up, all the Triples are gone, all pizzas have gone up and clearly they're not gonna shout about that and tell us so that must take some Difficult decisions to understand whether I'm gonna increase that price by 10%, 20%, 50%. So how do you find creative ways to increase price?

Speaker 2: 12:03

Yeah, so I'm going to a simple example that we see a lot in retail, and particularly supermarkets, is obviously offering a discount, offer, a higher price. So for a tub of butter was one pound, one pound 20, and we want to charge one pound 30. And so we say, well, the headline price is now one pound 50 and there's a 20p reduction and that's how it gets marketed. Obviously, you need to make sure that you're you know there are certain regulations around that. So the the product needs to have been on sale at the headline price for at least 30 days prior to the promotion. So you can't just make stuff up. You've got to follow the rules on this. But the point there is this is about the psychology of how, as consumers, we like to buy things. So as consumers and then I include myself in that so even as a pricing consultant and I know a lot of these tricks, you know, as a shopper, you know we still get. You know we still allow ourselves to be influenced by these tactics. So, for example, the idea of presenting a high price anchor, a headline price for a product and then offering a slightly cheaper price through a discount or a promotion is a very effective tactic of encouraging people to buy the product, because we then have to think about how do people make buying decisions and when it comes to price? So let's assume somebody wants the product, but when it comes to price, how are they judging the value of the price that you're presenting to them? If you just show them one number one pound 20, one pound 30 or whatever the number is, what do they compare that number to? They might compare it, if their memory is good, to the last time they bought the product, I think all it's the same or it's increased. They might compare it to other things on the shelf or in the store. They might compare it to something else that's comparable in their in their mind. So they're looking for a reference price to judge the value of the product you're offering. So you can influence that decision by creating your own reference price, which is the headline figure, the standard retail price that it would have been if without the discount. So just tapping into an understanding of the psychology of pricing and behavioral economics is a really powerful mechanism and once you get your head around it, it's not that difficult to understand and apply.

Speaker 2: 14:48

Just on that subject, there's another rule of thumb that I just wanted to offer your listeners, which is that, when it comes to presenting discounts, is it better to present your discount as a cash saving or as a discount saving? And there's a basic rule of thumb that says if the headline price of your product is over 100 100 pounds you should present the discount as a percentage saving. If it's under 100, you should present it as a cash saving. So let's think of a 50 pound product. We want to discount it by 20%, so the discount saving is 10 pounds. So in that scenario, you're better off presenting the saving as the 20% discount, because as a shopper, as a buyer, we see that the number 20 is bigger than the number 10.

Speaker 2: 15:52

If you think about a 500 pound product where we want to offer a 20% discount, giving a 100 pound saving, it's better to offer or to promote the cash saving by 100 pounds because 100 is bigger than 20. So in our minds, the perceived magnitude of those digits for the 100 pound saving is greater than the 20% discount number. So there's this whole world out there of an understanding of the psychology of buying. There's some great books I could reference for your listeners on that, and there's loads of little tricks that you can pick up on. So I would say have a look at that and see if you can find some ways to change how you present your pricing, rather than just worrying about what the what the change in price is itself.

Speaker 1: 16:52

Yeah, and there's been some press as well lately around, kind of people holding price but reducing quantity, so changing pack size, for example.

Speaker 2: 17:04

Yep shrinkflation as it's called Okay, I didn't know, I had a name, but there you go Yep, yep, so you shrink the size of the item in the package, but the price stays the same. So you know, I don't know, a Mars bar was 80 grams and it's a pound, and it's now 60 grams and it's a pound. So you saved 20% of your unit cost. So your profit margin will have increased. And Am I a fan of this? Well, I think it's okay.

Speaker 2: 17:36

I think as consumers, we've come to accept it and we might crumble a bit the next time we take a box of tea bags off the shelf and there's only 80 bags in the box, whereas last week there was 100. But I think we've kind of come to accept it to a degree. I think the flip side of that is you've just got to be careful that you're not seen as profiteering at the expense of the customer, because if they get a sniff that you are, I think that's a dangerous road to follow and you can quickly lose any loyalty that you might have built up if people think you're profiteering at their expense, particularly in the current climate when household budgets are so hard pressed. So yeah, shrinkflation, that's the name for that trend.

Speaker 1: 18:26

Simon. It always feels a sneaky way of doing it, if I'm honest, because unless you're paying particular attention to the unit price and so the cost per kilogram, per single, you kind of don't really notice because the packaging stays the same Exactly. So I understand the logic, good to know the name as well, but it feels a sneaky way of doing things because it's not, you know, again keen to tell you if there's 20% extra free or the size has got bigger. If we've shrunk and kept the same size, it's done by stealth.

Speaker 2: 19:03

Although, interestingly, on that point, in France, the one of the national supermarket chains I think they're called Car 4, I'm not sure if I pronounced that correctly, but they've taken a stand on this. So they now put notices up in their aisles highlighting their suppliers products where that has happened. So they're taking a moral stance on this, I presume, in the hope that it will engender loyalty with their customers. But they're calling out suppliers who have done this to make you know, to take, I guess, a moral stance on this and to, you know, raise a bit of awareness about the issue. I'm not sure I can't imagine anyone doing that in the UK, to be honest, but maybe it's a French mentality. But yeah, I liked it, I thought it was an interesting development. So we'll see how well that is received by their suppliers in the French supermarkets.

Speaker 1: 19:59

Yep want to keep an eye on and we talked briefly our fair around kind of the news of I'll call it surge price. But there's a particular pub chain that have announced that your drinks are going to get more expensive when it's busier. Which kind of? I suppose Uber do it already. If you think about train tickets, they do it already. So nothing, nothing new in our world, but clearly new in a hospitality and legend.

Speaker 2: 20:28

I say hospitality.

Speaker 1: 20:29

Hotel rooms get busier when it's busier. So right, I'll tell you about it's out there, but there seem to generate some interesting press around that concept.

Speaker 2: 20:39

Yeah, and I think this is a really interesting development because the pub market, which is where the store is based, so it's one of the national chains, so they own slug and lettuce and pubs pubs like that so fairly well known brand so they've taken the decision to put up their prices by up to 20 pp a pint at peak times and they explain the reasons for this. So in the pubs where this is happening there's a board up that gives all of the reasons. So it's to pay for more staff, is to make sure the cleaning protocols are followed, and a few other reasons I can't quite remember now, but you know there's four or five reasons as to why this was necessary. So I think the initial reaction, certainly from customers on social media, was pretty negative. But I actually quite like it as a pricing strategy, because demand, you know, on peak off, peak pricing has been around for decades. Right, we're used to it when we buy a train ticket or a bus ticket. It's very common now in hotels, but it's more usually known as dynamic pricing, where you know the price of a room changes based on the demand for the product. So again, as consumers we're getting more used to that as a way of pricing. So I think, as long as it's communicated clearly and transparently and that customers and shoppers have a choice so as long as I'm aware that it's going to cost me more when I go down to the pub on Friday night, I can choose not to go yeah, or I can choose somewhere else. So, as long as it's done with full transparency, I think it's probably quite a smart move. I'd love to know what the average selling price and the average profit margin is on their pints or their takings during those peak hours than compared with off peak.

Speaker 2: 22:47

I mean, the flip side of the argument, of course, is why don't you reduce your prices when times are quiet? But of course, I think it's reasonable to say well, look, those are our standard prices which we just hold throughout the week. But then at busy times there's a very small increase. I mean, and again I think, 20p on a pint. Is it a lot? Possibly not. I think once the initial reaction is absorbed, people will just take it and say OK, fine, two more pints please. So the price increase itself is low enough not to be problematic, which is the other trick, of course, is don't be too greedy. So yeah, I think it's an interesting development. And well, either it'll fall flat on its face and they'll stop the promotion or the price initiative, or the whole industry will adopt it. So I wouldn't be surprised if, in a year or two's time, most pubs are offering or following that practice of increasing pricing during busy times. We shall see.

Speaker 1: 23:55

Yeah, and, like you say, you try and book a hotel room when I don't know Coldplay, taylor Swift and Outs beenrels in Liverpool. It will, it will work and everyone will follow suit. You could then see it splashing over into the coffee industry. So you know, there's lots of applications where you start to think I think, as a consumer, my, I just hold them to account of. If you're charging me more than I expect not to be queuing for a long time, I expect it to be clean because otherwise we're back to the kind of shrink flation bit you've just put.

Speaker 2: 24:57

the prices up. Yeah, yeah, I want fast service to the bar. I expect you know everything fully stocked bars and clean, clean environments and etc. Etc. You know it's got to work properly, it's got to work well If I'm going to accept those hard prices. But yeah, I completely agree on that.

Speaker 1: 25:17

Interesting. So we dynamic, dynamic pricing yeah, I think you would call it surge pricing, but ultimately it's all. It's all roughly the same thing. Yes, it is. And it brings me on to that and again we talked about this, I think you kind of covered it a little bit when we're in Nottingham, trent, uni, ranged, complexity and it. And again, I was in my local supermarket early this week and I think we had the example of 24 jams and ironically, I was walked down the aisle and looked at it again and thought, oh, there's. You know, how do you pick a strawberry jam when there's eight different brands? Four different styles are same with things like peanut butter, you know, sweet and unsweetened crunchy smooth, this brand, that brand, there's too much. And for me, as if I suppose it as my consumer brain, I just look at it and think, well, that's too confusing, I'll buy middle of the road or the one that's on offer. Yeah, yeah, is that complexity?

Speaker 2: 26:17

a barrier it is. So there's the paradox of too much choice. There's a famous experiment it was done in America where they tested, they put on sale at a market stall the farmers markets on day one, a selection of 24 different types of jam and they you know they measured the sales and the you know the takings at the end of the day. And then they did the same thing again next, the next day. But they only offered six varieties of jam and they sold more on the second day. And that's because, you know, when it comes to making a buying decision, if there's too much choice, it's really really hard to make a decision, and we've all experienced this. Right, you could be browsing on Amazon for a you know some electrical item, and there's hundreds of them and it's oh my God, I can't even work out which one's the best one. So, as you say, you either pick the cheapest one or kind of one in the middle of the pack. But if you're able, if you're. So this doesn't really apply to super markets because they, you know, have all of their category management approaches. But if you're in control of the number of products that you offer to your market, don't overdo it, right, I mean the ideal is three, three price points a high, a medium and a low priced product, so that you're kind of forcing the consumer to make a faster, quicker decision and if you can enable that to happen, they're more likely to buy the product.

Speaker 2: 27:54

So I think in that jam experiment, the you know, the takings were 20% higher when they reduced the number of products and items for sale. And there was another similar experiment with a jar of cookies. But it comes to the same conclusion. So you know, if the temptation, of course, is to show all of your products in the hope that somebody will buy something, but be careful you're not putting too much stress onto the customer in terms of the buying decision you're inviting them to make, because too much choice can be counterproductive. So you try and focus on, you know, the key, the key products, the key items in your range that are really going to be valuable and more likely to people. I would say.

Speaker 1: 28:49

You're kind of back to the discounted model or the Audi in the middle, aren't you A good, better, best. So an unknown brand, an unknown brand and something in the middle.

Speaker 2: 28:59

Yeah, exactly, and that's a great technique. You know good, better, best. So they've got a good enough product at the lowest price, a middle product, slightly better product at a medium sized price and the best product at a premium price. So we don't expect many people to buy the premium product. But it's really important that you show that in your range Because, again, it acts as a price anchor and that's how customers, that's how we all, judge prices.

Speaker 2: 29:28

So if I see a price and expensive price, a 10 pound product, a five pound product and a two pound product, 99% of people won't buy the 10 pound product. And for most people the question is well, which of the other two best meets my needs? At a price I'm willing to pay the three pound product or the five pound product. And most of the time people pick the middle option because it's the least risky one. I don't want the cheapest, because it's not good enough, I can't afford the most expensive. So I'm going to take the middle priced option and that's a really, really. And that idea works pretty much in any business, whether it's retail, consulting services, events, whatever. The kind of good, better, best approach to your product offering and your pricing can be very effective, so that's well worth looking at as well.

Speaker 1: 30:18

Simon, yeah, definitely, yeah, I love that one, I think for me the most, the three most confusing markets trying to buy insurance, mortgages and cars because you can read all the reviews, you can look at all the price points and there's always something slightly better or something with, and you can go on forever and almost never commit.

Speaker 2: 30:40

Exactly it's. Yeah, I mean, they're hugely complex markets with thousands of different options, so it is very difficult, yeah, and you end up making shortcuts. As a customer, when you're making a buying decision, you either go with a brand that somebody's recommended to you an insurance brand or you go with a car choice because you sat in your mate's car the other week and it was nice, or whatever. So we tend to end up using shortcuts mental shortcuts, which are known as heuristics to come to a decision which aren't necessary. And that decision isn't necessarily based on completely rational logic. It's more often based on the emotional biases that we all have, which lead us to a decision that you might not otherwise have expected if you were just looking at it rationally. But that's a whole other topic.

Speaker 1: 31:35

Absolutely so. Before we close, do you want to tell us about the book that you've written?

Speaker 2: 31:41

Oh, yes, I will Thank you. So I published my book earlier this year called Pricing for Success. It's got the seven step plan for winning more customers at better prices, so it's very easy to read. There's no complicated maths or charts in there. It's very much designed with the small to medium sized business owner in mind. There's lots of examples and lots of templates and sets of questions and ideas that you can then think about using in your business. So the aim is that you get some ideas or some hints or tips from it that can help you with your business. Available on Amazon in both paperback and Kindle versions. So, yeah, it's called Pricing for Success by Mark Peacock, that's me Good.

Speaker 1: 32:31

Thank you very much, mark's been a fantastic chat. It reminds me of some of the things we went through when you presented it at Nottingham Union. It was a fascinating kind of hour, hour and a half listening to you, so really appreciate your time coming on. If people want to reach out to you and find out more, where's the best place for them to get in touch? Yeah?

Speaker 2: 32:51

they can go to my website, which is pricemakercouk.

Speaker 1: 32:56

Brilliant, and we'll put a link to your LinkedIn profile on the show notes as well, so people can connect there. Thank you, absolute pleasure, mark. As always, look after yourself and we'll catch you soon.

Speaker 2: 33:06

Thank you, Simon. Yeah, indeed.