Pricing for Digital Channels in the COVID-19 Outbreak

In this video (the third of a three-part series), Valerie Howard interviews Craig Zawada, the Chief Visionary Officer at PROS and author of the Price Advantage, on how the COVID-19 outbreak has accelerated the shift to digital selling and how pricing teams need to support this. You’ll hear Craig’s perspective on why businesses have been hesitant to offer realistic prices for online channels. Craig will share two key trends amongst companies seeing success in digital and why two out of three buyers actually prefer vendors who are pricing dynamically.

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


[00:24]: Valerie offers a quick review of our first and second conversations with Craig.
[01:11]: Craig discusses what researchers had expected for the shift to digital and why the COVID-19 crisis is accelerating those predictions.
[02:07]: Craig points out the similarities between B2B buying and online dating. 
[04:14]: Valerie asks Craig: “Why are so many B2B sellers putting forth unrealistic prices through digital channels?”
[8:27]: Two key trends amongst companies seeing success through their digital channels. 
[10:29]: Craig and Valerie discuss buyer perceptions of trust for companies that practice dynamic pricing.
[12:05]: A final note on how businesses have been forever changed by this crisis.

Full Transcript:

Valerie: Hi everyone, and thanks for joining us today. I'm so thankful to be joined by our chief visionary officer at PROS, Craig Zawada. Craig Zawada is offering his expert advice to pricing professionals during this time of the coronavirus crisis. Craig is well known as the author of one of the best books on price strategy, The Price Advantage. We've had a couple conversations thus far, just generally on addressing price strategy during the coronavirus for short term and longterm perspectives. We've also talked about maintaining price discipline throughout this coronavirus crisis, and why it's so important that you do....

Valerie: Today, we're going to talk about the shift to digital. As we know, a lot of our colleagues, a lot of our families, are stuck at home in quarantine. Businesses are having to go remote. A lot of people are working from home, so the way in which businesses interact with their customers has changed significantly. So Craig, we knew that the shift of digital was coming, but now it's severely accelerated. How capable are businesses today for fulfilling the digital sales shift that's happening?

Craig Zawada: Yeah, well first off Valerie, I just wanted to echo what you said up front, that this has certainly been a shock, but it's really accelerating a trend that has already been happening. So the shift online, we did some research, as you know with Hanover, we found that... We did this research last year, and we found that 40% of B2B buyers were going to shift greater than 50% of their purchases online by 2021. So we knew that shift was happening, and this situation will just accelerate it. We know on the consumer side, I saw some data that Italy, they had an 80% increase in e-commerce purchases during this period, just as an example on the consumer side. And so it's really accelerating this trend, and we know this is happening in the B2B side, but this is just going to accelerate it.

Craig Zawada: You know, if you think of traditional B2B pricing, it was this long, protracted dance for a lot of companies, where a salesperson would negotiate, they'd put out a price, they'd go back and forth. And we know customers just don't want that any more. It's moving more to online dating, where you just... If it's not acceptable, you just scroll. In some of the research, we found that two thirds of customers will actually shift their purchases if they can't get realistic prices online without talking to someone. So that's what our research said in the past. We know this is going to accelerate. And the good news is that buyers will actually pay more for this. So we found, and this is both in the research that we did, but also in working with our customers, that 60% of buyers will pay more in price if they can get a realistic price immediately, without negotiating with the salesperson, without having to go through this dance.

Craig Zawada: Now to your question, Valerie, of where are companies now? Some companies have made the shift, but a lot have not. And there are too many B2B companies that have put prices online, but they're just unrealistic. And I'll give you an example of this, as we did some research, and it was in agricultural and construction attachments. So this is things that go out like skid-steer loaders and farm tractors. And 30% of the suppliers had no price online. And the 70% that had prices online, they were on average 25% more than the actual market price on those attachments. So what a lot of B2B companies have done is, "Okay, yeah, everyone's shifting to digital, I'm going to put prices out there." But they're unrealistic prices. So the key challenge in terms of where companies are is making sure that you have realistic prices online, and moving towards instead of the dance, it's a low touch or no touch interaction with your customers to put your prices out there. So that's really the big challenge.

Valerie: Can you share a little bit about, why is it in such a way that they don't have this realistic pricing? What are they expecting of their customer in those situations?

Craig Zawada: Yeah, I think a lot of it is fear. It's when you have this negotiation that's happened in the past, you want to be able to get the highest price possible as you have as you can. So it's just being uncomfortable, and putting that lack of control or perceived lack of control out there for putting prices where you don't have this opportunity. You know, I laugh, I still see the B2B markets, "Call for price." Okay, why do you want to do that? Are you trying to size me up, to figure out how much I'm going to pay? Are you not confident in your prices? And I think a lot of B2B companies are still like that, and really haven't made the shift to being comfortable in putting prices out there.

Valerie: That's a really great point. So what is your perspective on if businesses are generally prepared for this accelerated shift to digital channels, and if they're not, what are the gaps that you're seeing there?

Craig Zawada: Yeah, I think the gap is really, and what do you do if you're not prepared, is to think about how do you accelerate the prices to online channels. So there's a Forbes article this week, during this crisis, a lot of companies are questioning, "Okay, can we actually accelerate our movement to digital channels, because we know we can't have the in person interactions. How do we accelerate this digital transformation?" And so I think the first gap for pricing professionals is making sure that you're involved in those movements of getting the prices out there.

Craig Zawada: And the second big gap, and what companies need to do, is figure out very quickly what price do you put out there. And this gets to this level of uncomfortableness of the price levels, is really figuring out, what is the price that you put out in the market? And like I said, many companies are too hesitant to do this. They didn't want to lose that few customers that pay the list price out there. But what we've seen in experience with our customers is the benefits of quick immediate pricing far outweigh the cost of losing those few customers that may in fact be paying that unrealistic price. So that's really, as far as the companies that aren't prepared, what they need to do is to really accelerate that movement. Figuring out where your target prices are, that you're willing to go to, and be more willing to put those out through these online channels.

Valerie: Yeah. Online channels, from what we've seen, really accelerate the breadth of audience that you can reach. And it's more efficient sales. And so it is quite incredible what you can achieve, if you can get that realistic price out there, it's possible that you could drive significantly increased demands in that way. So in your perspective, Craig, when it comes to organizations that are seeing success through their digital channels, what's the difference in how they've approached it, versus some of these other organizations that may be struggling?

Craig Zawada: Yeah. I think the two things that they've done is, first of all, looking at the transactions that they have, and how they deliver prices to the market, is many of the companies that have gone through this process, they've started with, if you look at their transactions between high touch, medium touch and low touch, is really categorizing what those are. So high touch is like I said, you put a price out there, it's unrealistic. You have this negotiation back and forth. A medium touch is more of a self-serve model. So I've done some negotiation, I figured out what your your price is, but then I allow you to get that price in a self serve manner. So like you're registering in a website, and I get my specific prices. And then purely instant pricing, no touches, I don't know who you are, but I put a price out there that anyone can have access to.

Craig Zawada: And I think the first thing that companies have done that have really gone through this process is to really understand where are they now. And most companies have found that they're way too way too much in the high touch. So 80% of high touch, and very low amount of transactions, low touch. In going through this process, they've gone with an effort to, "Okay, we're going to tilt that around, we're going to move to more of an 80% instant pricing or a low touch model." And I would say for most B2B companies, they haven't relented in putting just one price out there to the market. So they still have some customer registration that happens, but you deliver that personalized price, you make it as frictionless as possible, but you put it out there where they can self serve. So most companies have moved to really transition a larger portion of their business to a instant pricing or low touch model.

Craig Zawada: And then the second thing that they've done is, they've done this smartly, So what you don't want to do is just put the average price out there, too low of a price, or one price out there. So most companies have used science, artificial intelligence to figure out, "Okay, what is the market price?" Making sure it's relevant and dynamic to the market. Because you mentioned what are some of the gaps, and why companies haven't done this. There's really a shift that has to happen, where you have to be comfortable with the prices that you're putting in the market, that they're relevant, that they're market specific.

Craig Zawada: And this is where science and AI comes into it, of using that to take in all of the inputs. What are the market prices? What are the costs that are happening? What are shifts in supply and demand? And be able to adjust that price dynamically, based on those circumstances. And you really need that to make sure that you have this market relevant price at this time.

Craig Zawada: So the first thing, understand and try to make this shift to more of the no touch or low touch models, and second is to do it smartly, by using science.

Valerie: That's great. So one of the questions that we've, I think looked into as a team before is, do customers appreciate dynamic pricing? What are their thoughts on dynamic pricing? Is that frustrating for customers, that prices may be changing often? What's your perspective on that?

Craig Zawada: Yeah, and this was the research we did. It was a 1200 B2B buyers, and we asked customers' perspectives on how much do you trust algorithmic pricing? So if your supplier told you your price is based on an algorithm, would you trust that? And were actually surprised at how much they preferred it. They found it actually more trustworthy. They found it fair, fairer than negotiation. And it kind of makes sense that, like I said, when you're talking with a salesperson, there's always this dance of, "Am I a better negotiator? Am I paying higher than other prices like me?" Versus an algorithm, which is perceived as having some objectivity. The algorithm, the science determines what is the market price based on competitive prices, based on the availability. And that adjusts, and it was surprising that customers actually prefer this, and two thirds said that they would switch a supplier if they offered instant personalized pricing, versus one that kind of forced them to go through this negotiation, high touch negotiation, which I think was really fascinating.

Craig Zawada: And I think that's the good news in this, is that the customers really want this. So right now there's a need to move prices to digital channels, but the customers absolutely want this, and we think this is something that's going to maintain itself for the longterm, and this acceleration will really continue. It's not like we'll go back to the old practices after this is done.

Valerie: Yeah, absolutely. Absolutely. Well, thanks so much for this meaningful advice, Craig. It's been a pleasure to talk to you. I hope that this advice has been useful and timely for our audience. So if you have more price strategy questions concerning the conditions of today with COVID 19, we are here to support you. We'd love to see you reach out at the link posted below, and we'll answer your questions. Thanks so much. Thank you, Craig, for joining us, and thank you for your time.

Craig Zawada: Thanks, Valerie.

About the Author

Craig Zawada

Craig Zawada is the Chief Visionary Officer at PROS. A widely published author, Zawada is perhaps best well known for co-authoring The Price Advantage, which has been recognized as one of the most pragmatic books available on pricing strategy. Prior to joining PROS, he was a partner and leader in the Marketing and Sales Practice at McKinsey & Company.

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