How to Gain the Competitive Edge by Always Meeting Customer Expectations

Both B2B and B2C customers are influenced by their e-commerce experiences. They want a seamless and easy digital experience with great service levels and delivery, and the same applies to pricing. There's a lot of pressure on distribution companies, who typically sit in the middle of that value chain, to up their game and compete more effectively in a space that's become very tight.

Join Gabe Smith and Stephanie Yee, Management Consultant at Bain & Company, as they discuss how by looking at and learning from other industries, and applying some of their principles, you can achieve innovation and, at the same time, optimize the path to meeting customer expectations.

Transcript

Gabe Smith  0:00  

Hi, everyone, and welcome to Pricing Matters. Today we are pleased to have Stephanie Yee, a pricing expert and associate partner at Bain Consulting. Welcome, Stephanie, and thanks for joining us.

Stephanie Yee  0:10  

Thanks for having me, Gabe, I really appreciate it.

Gabe Smith  0:13  

It's our pleasure. And before we kind of get into some of the deeper pricing topics, why don't we start off, for folks that don't know you, we can talk a little bit about your experience and background.

Stephanie Yee  0:22  

I started my career in consulting. I was at Deloitte for a number of years out of their New York office. When I joined Deloitte, I actually joined them in their technology practice. And so for a number of years, I was working mostly in the sales and marketing tech stack space but doing work for a number of different industries. So think small, medium-sized software companies, government. Did quite a bit of work with telco, mostly helping them think about their CRM and ERP systems, but also too, customer market analytics, and all of those kinds of things. So really worked with the business teams who are thinking about how do they think about this space and enable it with technology and all of that good stuff. So started my career there and then moved into industry, I actually was working for the client on the consulting side, and then had an opportunity present itself to join the client team. The client I was with at the time was Sysco Foods Distribution, a very large foodservice distribution company headquartered out of Houston. They had asked me to come join and lead their pricing work. At the time, I had never done any pricing work before. But they were really excited to have me on the team and kind of said, like, our pricing is super complex. So whoever took on this role would have to learn it anyway. And so ended up over there for a number of different years. At my time, at Sysco, I played an operator type role, I really helped the company stand up their revenue management and pricing functions, worked very closely with sales, as you can imagine, because you know, all pricing work at the end of the day ends up in the hands of sales to execute. In the last couple years I was there, led their sales transformation efforts, as well as they were thinking about, really their go-to market model and how they might want to do things differently from a customer-centricity standpoint, was doing work over there, and then happened to come across Bain at a pricing conference, and had a chance to speak over there, met with the global leader of pricing at Bain. And so, you know, we kind of started discussions around what a path and career might look like at Bain, and then decided to join Bain about a year and a half ago now.

Gabe Smith  2:42  

So what's that like going from consulting to industry and back to consulting? I think usually people go one way or the other.

Stephanie Yee  2:47  

Yeah, it's interesting, because I think there's definitely different parts of each that I've really enjoyed from a career perspective. I think starting the career in consulting, I'm actually a really big fan of that, because I think it's a good way to very quickly see a whole lot of different sets of industries, lots of different sets of problems. And I think one of the things that I really loved about consulting was, you learn a good base level skill set around framing up problems, how to solve them, and all those kinds of things that they think actually serves you quite well, no matter where you go. I think for me, you know, my initial decision to leave consulting had a lot to do with more of the personal life aspects at the time. I was traveling and on the road quite a bit. And you know, wanted to start a family and be home more, and all those kinds of things. And also too wanted to build some deeper industry expertise and subject matter expertise. Because I think in the early years of consulting, oftentimes, you're in this kind of generalist tech model, where you're running a lot of different things, which makes you pretty rounded, but you're not very deep in a particular topic. So, we're the industry to do and get some of those kinds of experiences, and I'll tell you that there's some certain things that I experienced being in industry that I really enjoyed. I mean, the two biggest things I would say is, one is that you really get to see any program, or work that you do, from designing, to solving to actually implementing and keeping the lights on and water running and all that good stuff. So there's definitely been some real tangible results from the work that you're doing because you can kind of see how that evolves over time. But I think my favorite part of being in the industry is you really get to, at least I was fortunate enough to build a team. And you get to really mentor individuals and seeing them progress their career over a long timeframe, you know, so you can bring somebody in at a certain level of capability and see over the years, because you're there for a long time for them, to really grow and be a part of that career progression and development. That's very, very rewarding. But I think I found myself at a space where, I had been at Sysco for eight to nine years, had developed really deep expertise in that industry and in a certain topic area, and I wanted to really see that apply across other industries and learn new and different things. And consulting is just, it's a great place when you want to learn on different topics, get exposure to more industries and things like that. So I decided to go back.

Gabe Smith  5:14  

That's really what I like about our industry is the same thing, you get exposed to all these different industries. And you're focused on a specific problem around price optimization, CPQ, that whole quote to cash space, but you get to see it across a lot of different industries and companies and see how they do it. By doing that, you can oftentimes use things that you learn in one industry in another one that people haven't thought of. And that's really cool when you can bring something from one industry to another and really, kind of leverage that more holistic view.

Stephanie Yee  5:42  

Completely agree! Because that's, that's actually quite fun, right? Because if that's the creativity, of learning, and seeing what one industry is doing, and then being able to say, oh, well, this is kind of like this other industry in certain ways, not exactly the same. But here's how the same like principles actually apply. And I think that that's where sometimes innovation in an industry comes from is just seeing what others are doing, and then think like, how does that really work?

Gabe Smith  6:07  

You know, being in the distribution space, I think we're seeing a fair amount of that play out right in b2b and in distribution with, you know, Amazon coming in, and a lot of digital first and channel disruption happening. So let's focus in on distribution a little bit, since that's where a lot of your industry experience is. When you look at kind of pricing or like quote to cash or just in general, what do you think the top kind of challenges that distributors are facing today, kind of going forward?

Stephanie Yee  6:31  

I think there's a lot of different things, I think, then in distribution, there's compression, I think, all along the value chain, right. So you've got the suppliers on the back end of it. And you know, you're seeing more and more digital disruption, digital natives and things like that. And so what I would say is, like, suppliers have more choice than ever, in terms of who they go to, to help distribute their products. And some of these digital tools are making it a lot easier for them, to directly access the customer and work with different players, than they might have historically. And so I think from that perspective, you know, distributors are facing some challenges from a compression standpoint. I think on the customer side, especially where you've got customers that are smaller and things like that, as well, all of us are being influenced by the way in which we're able to shop on e-commerce, what we have come to know and expect is a good buying experience. And I think people are bringing in those kinds of experience and coming to expect, Well, if I'm going to interact with you, you know, I want it to be seamless, easy, digital, you know, all of these kinds of things. And also too again, you know, with more and more players, like Amazon and other folks in this space, there's become much more, I think, higher expectations in terms of service levels, deliveries, and all those kinds of things. But I also think that, you know, with more of these e-commerce type channels, there's little bit more transparency in the marketplace, in industries that have been typically been pretty opaque, especially when it's come to pricing. And all of this to me is that there's a lot of pressure on both ends of the spectrum from distribution, those companies typically sit in the middle of that value chain and both up their game. And to really compete more effectively in a space that's become very tight,

Gabe Smith  8:15  

Especially with 2020, you see a huge growth in direct-to-consumer activity, right. And so it really magnified some of the challenges that distributors were already facing, especially then when you put in the supply chain disruption issues that are happening, and then the demand disruption or demand increases that are happening on the other side of it. So it's, it's a pretty interesting time to be a distributor right now. The ones that are thriving are really able to grow profitably. They're able to do that by really focusing on the customers' value and kind of pricing their not only products, but services and the whole service level and the whole experience around that customer expectation and meeting that more effectively than their competition.

Stephanie Yee  8:55  

Yeah, than the competition, , agreed.

Gabe Smith  8:58  

Business agility is a huge thing, right? So margin compression, to combat margin compression, you really have to be agile in your pricing and in all your strategy and tactics as a distributor, but as a business in general. Can you talk about like how maybe some of your experience in helping distributors be more agile with regards to their go-to market, their pricing, their commercial strategy and tactics?

Stephanie Yee  9:20  

Definitely. So I think what we're seeing as we work with our clients is, there's historically been in this space, okay, I'm going to set my prices and I'll forget it for a while and all this kind of good stuff. There's not a lot of discipline around sometimes even updating the pricing. There's all kinds of levels of maturity I've seen as we work with different clients. And the thinking is how do you move towards a model where market competitive dynamics begin to influence the way that you think about updating your pricing? If you think about the other end of the extreme in some of what we experienced in our b2c kind of shopping experiences is that you'll see that depending on the market, what's happening with other e-commerce sites and things like that, you'll see price adjust multiple times throughout the day like, say on Amazon or whatever the case may be. Not saying that b2b companies need to be on that end of the spectrum, the thinking is that as market competitive drivers change locally, that you think that you update your pricing on a more regular basis, your cost inputs, all those kinds of things, so that you have the most relevant price that you can you're optimizing it the best you can. And so that's kind of the agility that I would think about from a pricing perspective, how do you think about the levers that matter most your profitability, and make sure that you really have a mechanism in place that helps you update it that in a scaled way, in a regular way? I think the same thing around how you think about your sales organization, I think that using more analytics and more understanding of like, where are your customers that you care about the most, your most valued customers? Where are those profit pools moving? Where's your opportunity in terms of like whitespace, and your best customers, and then allocating your sales force to really cover those market spaces, in the best and most efficient way is probably, I think, some of the agility that in the sales organization, you need to make sure that they're your most prized resources, like direct sellers, are pointed towards your best opportunities, and refreshing that on a regular basis, so that you've got a current way of thinking about that. And I would say that one of the things I see companies doing a much better job at and companies that are doing better at responding to the marketplace, there's a little bit of organizational agility, which means they've got an ability to really focus on the things that they know will really matter and move the needle, but they have a good way of bringing together cross-functional teams against these priority type big initiatives. And having those teams work together in a very targeted and focused fashion on going after the big rock opportunities.

Gabe Smith  11:59  

That cross-functional collaboration is really key in pushing change at an organization, any organization really. Can you talk about how companies can foster more collaboration and more trust between those teams and more of a sense of hey, we're all trying to accomplish the same goals here? But not just like, in theory, but actual in practice?

Stephanie Yee  12:18  

This is a topic I'm super passionate about. I think it starts with really working together alongside the sales teams to develop actual solutions. So what I see oftentimes is, hey, pricing has a team, they're working on the next pricing program or updates to pricing and they're doing that kind of on their own in their own kind of silo and function, I think that's a recipe for disaster. Where I've seen it work really well is at the start of it, sales is already involved in the conversation, we have a common goal here, we're trying to increase profitability revenue, you know, for the company. And so let's work together around what that solution needs to look like. And a lot of times, that means sales and pricing, working alongside each other to actually co-develop some of these solutions. And I've seen that when the teams are involved together with a common goal. And they're both trying to solve towards the same problems in the field, you know, not at the corporate headquarters, but like, actually, you know, working with the folks that are working with customers on a day to day basis, there's a richness in the feedback and in the solutions that then really we know work in the field. And so I would say definitely, there's this co-creation aspect that's really important from the start. And then I think it's working alongside their teams in order to develop that proof of concept to scale. And then refining and iterating, based on what we're finding what works, doesn't work alongside with each other. And so you end up with this over time, like this end product, where you've got both these teams working together for a solution that works best for the company. And they've already had their input and design and their feedback incorporated into that solution. And so when it then hits the field for everybody else, it's like, okay, well, we know this works, because we've been working with the field and sales teams, to really make sure that this is a solution that works. And you put some early wins on the board, and you make sure to celebrate them so that people can see kind of, you know, the results.

Gabe Smith  14:20  

I agree. I mean, when I've seen change management work the best in implementing pricing software solutions, it's always been, one, getting into leadership buying in the commercial organization to kind of drive it but also taking the mindset that it's not just pricing that we're trying to make better. We're also trying to make the commercial teams life better and prioritizing some of their requirements in addition to what you're trying to do from a pricing perspective, right? And then taking an iterative approach and say, hey, this isn't done, when we roll it out. It's just the beginning of it. We're going to get your feedback and we're going to make adjustments and some of our customers have been really successful in doing that. And I always try to encourage our other customers when they're thinking about that journey, to take that kind of approach. To get the feedback and not just say, hey, we're going to dictate what we're going to do, because, you know, we know best, right, and I'm going to operate in an ivory tower, but really take that holistic approach and get those commercial teams' not only buy-in, but feedback, pricing and quoting and getting approvals, it can be a real pain for those commercial teams. So if you can make that process more efficient and more effective, then they're gonna be glad that you did, especially if you can do it in a way that you're providing more guidance to them in a way that they understand. Right? They can really get behind, then they're not scared of it, right? They're not, well, I'm not going to be able to make the sale at that, well, you aren't going to be able to make the sale at that. Because look at all your peers and look at what we're asking compares to the pricing that's out in the market right now. It's not unreasonable. And so those kinds of things can go a long way, I think in the effectiveness of pricing.

Stephanie Yee  15:45  

I really agree. I think we started in working with sales, one of the big things that we try to focus in on was what pain can we remove by the work that we're doing, and I think you hit the nail right on the head. I mean, one of the things is that, fundamentally, you want your sellers busy selling, and not figuring out how to price and the number of deals and going through spreadsheets, or whatever it is that they're using to try to figure that out. And I think also too, honestly, with new sellers, it's daunting, you know, to try to figure out, like, how do I actually price all this, and I think that especially for some of those newer sellers, they were always kind of a little bit relieved to know that, okay, I've got a system that I can trust, that can help me through this. And it takes a lot of the guesswork out. And it takes a lot of the ramp up time out in terms of getting somebody up to speed. I think you also raise a good point around leadership buy-in, I think it's great to get leadership buy-in at the start. But the reality is, a lot of times you don't even necessarily have that, oftentimes, senior sales leaders are also a little bit skeptical or wary of, you know, pricing changes as well. And so I think that's where, you know, what I shared in terms of like, early wins is super important. Let's start small in a place where, you know, we're not going to drive this thing off a cliff and allow us to like, kind of test and learn and some other things. But I think also too, oftentimes, sales leaders have lieutenants, or people that they in the field feel like they highly respect, or highly regard the way that they think about things. And so oftentimes a conversation early on with some of those sales leaders to say, okay, well, who do you think is the best important in this space in your organization that you trust? I'm a part of the team and the counsel of the group of the folks that we work with. And I think that helps as well.

Gabe Smith  17:30  

Absolutely, yeah, getting those kind of ambassadors within the commercial organization that are respected and kind of can help talk them through and say, hey, this isn't a bad thing. I'm doing it. Absolutely. That's a big part of it. One of the things I think that also you help do and we help do is for companies and distributors is reduce margin leakage, right? By getting more visibility into all of the things beyond just the price that I'm putting on the invoice. But like for a distributor or for manufacturers too or retailers, that there's a lot of things that influence the profitability of a transaction. So it could be what buy-side rebates? What are the vendor allowances and vendor rebates that are going into this? What are my costs to serve this client? What are the cost of goods? And how do those vary? What are my variable manufacturing costs that are coming out of this, and bringing all of those things together into kind of a waterfall view, and being able to use that when you're negotiating is something that we help a lot of our clients do it, but actually, very few companies in the world actually have that ability. Like we were just talking about this the other day, with our CEO, he told this story of one of our early clients that had a sit down with the president of the division where we have rolled out and he said, you know, I really have to thank you Marcin, because for the first time in our company's history, I can actually see the end to end profitability of a customer. And we could never do that before. And I know coming from my experience at Cisco Systems, there were all of these different factors and groups that had an influence on the profitability of a deal that we were negotiating with a client, but you couldn't see all of those things together. So can you talk about how you've been able to help companies do that, or what you've seen in terms of like systems and processes that help enable that type of view?

Stephanie Yee  19:08  

Yeah, absolutely. And I couldn't agree with you more. I think that this is a space in terms of end-to-end like what margin waterfall profitability, very few companies, I've been to have had that. But we've helped companies build that view. And it's always been a tremendous unlock for the companies because then it helps them think through, oh well, first of all answer the questions, I'm surprised at how many folks don't really know which are the most profitable segments of customers and customers to serve, but helps you have better decisions then around understanding flow profitability. Where do I have people that are customers that are laggards where I want to move them to a different quadrant or a different level of profitability? And how do I think about which levers to use to really do that? It helps us understand if our most profitable customers do I want to treat them a little bit different in terms of coverage, service levels, tiers and all of those kinds of things. I think one of the most challenging parts is that oftentimes, you know, it takes a lot of systems, mashing together information from a lot of disparate systems, to bring together this full view of everything that's happening from pricing all the way down to the cost to serve for the customers. And there's often too quite a bit of debate around how to allocate costs to customers with buying, and all of that kind of stuff. And so for all of those different reasons, you see that a lot of companies don't put that together. But when they do, it's very, very powerful. Because you can imagine a world in which your say, I can see by lever now where I'm having revenue leakage, and then be able to start to think about programs you designed to close up that leakage. So in distribution, for example, one of them may be delivery expenses, one of the biggest expenses and distribution business model. And if I'm often doing expedited delivery, and things like that, and that's increasing my cost to serve, but I'm not capturing any value of doing that with my customer. That's an opportunity for me. And so I think that that can be very helpful. I think the other thing is that there are also too, you know, rebates and incentive programs and things like that, that show up in that waterfall as well. And I think sometimes people tend to underestimate the level of investment we're making in a customer on some of those off-invoice and rebates, and they kind of sit to the side. And I think that there's often not very strong discipline around understanding, if I provide a rebate to try to drive these certain customer purchase volume behaviors or private label brand behaviors, or whatever it is that behavior is, there's not a lot of rigor around looking at whether or not those incentives actually deliver the results, there's a ton of opportunities there as well.

Gabe Smith  21:49  

Yeah, we have some clients that are really trying to actually incorporate some of the net price, so inclusive of the off-invoice incentives at the time that they're providing the price to the customer, so they kind of get credit for it. Because if you're doing an apples-to-apples comparison, or trying to, and one of your providers is giving you a rebate and the other's not, then you don't really understand what that is unless they can actually kind of do that real-time calculation. But on the flip side of that, having accounting for that, when you're looking at a customer's profitability, you're setting a price, it's absolutely a must. And then as you mentioned, there's a ton of opportunity at most companies on tracking the effectiveness and the whole accruals and credit memo generation process. A lot of times, that's just kind of a group and sales finance that's off doing that. And they don't even think about it as being part of the price-setting process. But it is, I mean, it's affecting the net price that the customers are paying. So you should both be able to show that when you're quoting to a customer, account for it in the profitability and the revenue for that customer. And then automate the process around administering and managing those. You need systems to be able to do that, right? We added on some of that capability. We are additionally focused on price setting, analytics, optimization, then we got into CPQ, but then we also got into this rebate side because clients were thinking about it holistically. Because when you start to put together a waterfall, like okay, it's great to have that visibility. But if I'm just like, not able to manage that part of it, then you're not getting as much impact as you could otherwise. Well. Thanks so much for your time.

Stephanie Yee  23:20  

Thanks, Gabe!

Gabe Smith  23:20  

Thanks, everyone for tuning in to Pricing Matters.