Episode Transcript
[00:00:00] Speaker A: And now we got to figure out how the pricing will work and how can we migrate people, the biggest issue for us was how do you migrate? You get billion dollars in revenue. How do you migrate them from this old way to the new way, from this old product to new product?
[00:00:13] Speaker B: Yo, Mike check. What's up, everybody? You're listening to the street pricing podcast, the only show where proven SaaS leaders share their mindset and mistakes in pricing so we can all stop guessing and start growing. Enjoy. Subscribe and tell a friend. Now, let's break it down with your host and sought after Slayer of bad pricing, Marcos Rivera.
[00:00:36] Speaker C: What's up? And welcome to the Street Pricing podcast. I'm Marcos Rivera, author, founder and pricing coach, and today's guest is a fellow pricing point Dexter. I get really excited when I find somebody else who's just as passionate about pricing as I am. So today's guest is Karen Sud, and he is the director of sales operations and the pricing leader at Rakuten Kobo. Karen, I want to welcome you to the show, man.
[00:00:59] Speaker A: Thanks, Ranafield, thanks for having me. It's a pleasure to be here. No, thanks for coming.
[00:01:03] Speaker C: And I think everyone's in for a big treat if they follow you right now on LinkedIn and see some of your posts. They are so well written, well broken down. I think it's really exposing the power of pricing to a lot of people. If you're not following Karen yet, you.
[00:01:16] Speaker A: Should be following him.
[00:01:17] Speaker C: But why don't you give everybody just a quick one too, on a little.
[00:01:20] Speaker A: Bit about you and what you do. I'm one of those people who sort of grew up in pricing in a way that my first role was in pricing. In the last 15 years, I worked in pricing in different industries. I worked in automotive, I worked in CPG, I worked in electronic sector, and I worked in advertising, print and digital advertising. So I worked through a lot of different industries. I've seen pricing move from very cost based 15 years ago to more value conversation when they first started to happen, like middle of 2000, and then into more of the future where we're headed. So I have this opinion on pricing because I think I've seen it all in terms of what kind of issues come up, how to rectify them, people's perspective on pricing. Having worked in supply chain, having worked in finance, having worked in marketing, having worked in sales, I've sat in every team. So I've had this weird perspective on pricing from different angles. And that's why I have this opinionated perspective that I have on pricing and why it's so important for people to believe in it.
[00:02:23] Speaker C: I love it, Karen. And I'll tell you what, I love someone with an opinion.
[00:02:26] Speaker A: Right.
[00:02:26] Speaker C: So we can get a little bit back and forth together to talk about some really big topics in pricing today. I think folks are going to learn a lot. Right. So are you ready to get street with me?
[00:02:35] Speaker A: Yep.
[00:02:35] Speaker C: All right, let's do this right. So real quick roadmap for everybody. This show is based on the book street pricing, right? So we format it in the same way. We'll go rewind, and then we'll come to play, and then we'll look in the future for fast forward. And so in rewind, let's get into a story of a pricing struggle or success, something that we could all learn from.
[00:02:53] Speaker A: We'll get into that first, and then.
[00:02:55] Speaker C: We'Ll bring it to the present. Big topics for today, what's going on today? And then we'll talk about the future in fast forward. What's next in pricing?
[00:03:02] Speaker A: How does that sound? Yeah, sounds perfect. All right.
[00:03:05] Speaker C: Fantastic. And I have one more favorite question for you towards the end. So that's going to be a little bit of fun to unpack. Who is Kieran? But if we can get started now, let's jump into your story in the past. Give us a pricing success or struggle you can share.
[00:03:19] Speaker A: Yeah, I mean, as I said, I started working in pricing in 2007, and I started my career in the automotive industry. And the automotive industry is notorious for very cost based pricing. And I started doing parts and accessory pricing back in 2007, and I kid you not, it was basically using, we had a cost, we applied a very fixed markup that we sort of calculated by different segments of products, and then we just got the pricing out the door. It was as simple as that. So the struggle there was that there was no notion of pricing lifecycle into those products. Like, at what point does a product that you're putting into a car? So we put parts into a car, we put windshield, we put wipers, we put brake pads. At what point do you own something that's proprietary, that only you have to a point where everyone has it? So it's almost like, hey, you have to go from something that you're pricing based upon your expertise to something that's going to become generic in a few years. So if you look at cars, a new model comes out, everything is very specific to the car. No one has it. You go to the dealership for that car, and guess what? Three years down the line, every mechanic that's out there that knows that car in and out has access to cheaper parts in and out. But pricing never reflects that. And that's why you hear people say, hey, dealerships are so expensive. They are so expensive because they're built on this old notion of parts and accessories being priced at the same price throughout the lifecycle. And what I realized early on in my career was that, hey, that needs to change a little bit because parts are proprietary at the early stage. Even things that are very competitive, like windshield wipers and windshields, are very specific to you. But in three years, there's going to be a whole lot of whole new industry of manufacturers that are going to break that product and they're going to make it commoditized, they're going to make it more competitive. And at that point, your pricing should reflect what the market can bear, what's out there. And that's why we need to have pricing lifecycle with your product lifecycle. And that sort of moves in the same curve that, hey, early on you have the advantage and then you get to a peak advantage and from there it starts to go down where you have to be more mindful of competition that's out there and what other companies are doing that. For example, if you were to today go and change your wiper place, you don't need to go to a dealership or brake pads. You don't need to go to a dealership. You can go to Canadian Tire or any small mechanic shop and they'll change it for you and they'll bring you a part that's probably like for like what you already have on there. And that's never reflected in pricing in a lot of the big Oems. That's something I learned very early on and tried to incorporate that into pricing very early on. So that's, I would say, was one learning. And then very early on in the career when I moved from automotive to print advertising, talk about selling directories. Directories, and this is 15 years ago now, right. And people still used to question as to, hey, directories, who's using them in the world of Google. And as we tell them every time that, hey, it's a billion dollar company still. So there's still a lot.
[00:06:27] Speaker C: Are you serious?
[00:06:28] Speaker A: Yeah. Back in 2010, even the canadian, not even forget about the US version of this thing. The canadian version was a billion dollar company, a billion dollar in revenue and a very high margin company.
[00:06:40] Speaker C: I had no idea. This is fascinating because I also found out there's still like billions of faxes being sent around in the world today too. It's still there, man.
[00:06:49] Speaker A: The entire healthcare industry depends on faxes. Even right now, most dental offices, most medical offices are using fax as the medium to send your requisition from one place to another. They're not even set up for email yet, let alone anything else. So there is a lot of old technology out there. Print directories are still getting published to kind of think of, they're still getting published. If there was no value in it, they wouldn't be getting published right now. But there's some, all those trees.
When I joined the industry, that's where the transition was happening. So print, we obviously knew print is going to die. At some point it's going to collapse. But at the same time online, we got to start moving online. And it's almost like selling, if you think about this transitioning from one product to a new digital product. So it's almost like even going from old ways of selling SaaS to new ways of selling SaaS. Selling software as an on premise installation to more of a software on a cloud and software as a service, right? That's what Salesforce did, right? They said, hey, you go, you want to buy software like back in the days or you want to buy it on the cloud with me now like we do now. So it's almost like that, right? So we are transitioning from friend to online and now we got to figure out how the pricing will work and how can we migrate people, the biggest issue for us was how do you migrate? You get billion dollars in revenue. How do you migrate them from this old way to the new way, from this old product to new product? And then there were some very smart people on our team that I used to work with who basically said, hey, okay, we got to figure out a migration path where we're going to basically use this new product as a value driver. We're going to keep the customer share of wallet. What we're going to do is we're going to basically take the new products, we're going to take the old products, we're going to try and give them a deal and a discount on the old products, take that money that they just saved and put that into the new product. And that way within six months to a year when our online product starts cranking our value, they can go back to the customer and say, hey, you know that online migration of revenue we did from you, from the old product to the new product, look at all the results.
[00:08:54] Speaker C: It's driving.
[00:08:55] Speaker A: Look at all the clicks and the searches and the website visits and the calls is driving to you. And we used to measure value, which has to have all sort of call tracking studies and measuring their clicks and measuring their website visits and trying to convert them into value. For example, if you're a plumber, we give you 100 website visits, you probably convert 25% of them and their value for each of those leads is $500. So we probably made you $25,000 in this month for this $500 ad. That's almost value based pricing. You take, basically you generate value and you're taking experts in out of the value and putting that into a price. And we then transition all the spend from print to online in this fashion. So over a three to four year period, we went from purely 100% print to more like 60% online and 40% print at some point. I don't remember.
[00:09:47] Speaker C: But that's a billion dollar book of business, Karen.
[00:09:49] Speaker A: Right.
[00:09:50] Speaker C: I mean, listen, I want everybody to understand this because I think we are, yes, the print industry, right. There was this, times have changed, things have evolved, and there's commoditization happening, or at least the new evolution of advertising.
[00:10:04] Speaker A: Right.
[00:10:04] Speaker C: If I were to think about what you just said and going back to even the lifecycle of value and price you just mentioned a minute ago.
[00:10:10] Speaker A: Right, so you had print that was.
[00:10:12] Speaker C: Maybe on the tail end of its lifecycle, but everyone's familiar with it, they get it, they use it.
[00:10:18] Speaker A: Right?
[00:10:18] Speaker C: And that still had a billion dollars.
[00:10:19] Speaker A: Of business running around in there.
[00:10:21] Speaker C: Then you had the cloud and the transition here, what you did is you gave them an incentive to move to the new version and then you started really just plowing in and reinforcing the value of the new. And that was kind of bringing that and sort of creating momentum to shift over. And it's not an overnight thing. You said it took years to get that over. And when I do this in SaaS, when I move from on prem to cloud or from an old legacy to new, it generally takes 12, 18, 24 months to get the base over there, depending on the size and all that. But it's not an overnight thing. But it's that reinforcement of value over time to build that momentum and leverage to get them over to the new product. So did you run into any hiccups in doing that transition? I want to hear about anything along the way.
[00:11:04] Speaker A: And you say, you say it takes two years. We didn't have the luxury of time as much when the transition started really happened. We didn't have the luxury because you have social media popping up, you have SEM and SEO popping up. So you are really going, your share of wallet is shrinking. They are in the customer's face day in, day out, in the Google searches, in their SEM and their SEO, they're right there. So we did have a time constraint to us. But at the same time, the bigger issue for us was just this whole notion of change management. This is directories you're selling to small and medium businesses, you're selling to tradespeople, you're selling to plumbers. First of all, don't have the time. Second, also lack the expertise to really understand the new products, how they are priced, how the value is created. There's a whole lot of change management. So the biggest issue now became how do you take all these salespeople who are trained on selling a certain way and you bring them up to speed with a new way of selling and selling these new products, new age products and getting them on that learning curve, right. And that's where the training really comes in. We had a phenomenal training team and a go to market team.
In fact, I was fascinated. And looking back, I used to think, why does it take us this much time to price, but it takes us another month to create the training materials for it. But now I realize that without that training, without that change management and getting your salespeople trained on the new way of selling, of getting them to understand that, hey, this is how you showcase value. And then they used to complain that, hey, they need more arms to go talk to the customers. So what we started doing was we started doing case studies. We printed one after another after another case study for customers based on their industry vertical because on their size and said, hey, if you want to have this value conversation with the customer, go take this case study, show them the value that. This is what happened with X customer. This is how we showcase value, this is how your product will work and then start to migrate. And then we started measuring them at the same time, right? Then we started measuring them on the performance of migration. They used to get incentivized on migration. So as they migrate, everyone makes more money. So that is a concept we don't use enough. We almost think compensation is an HR thing, but sometimes the compensation is a pricing and sales strategy thing, right? And that's why they all sort of glide at that point where we said, hey, we are incentivizing you on migrating to the new product. We're going to give you all the case studies you want and here's a new pricing structure. So then it all starts to come together. Then people realize, okay, this is how I sell value, okay, this is how I make more money doing this. And they know they're getting measured, and what gets measured gets improved. And that's how we transition from a fully print company.
At some point, almost.
[00:13:52] Speaker C: I did want to point a couple of things. There's two layers of change management going on. There's the customers themselves, like the end user, the end customers realizing, like, okay, this cloud thing. And I want the hard, tangible, what happened to my book, my directories? And then you have to get them over to understand why this is better. But then you have your internal folks who are used to selling the old ways and the ways that they're accustomed to, have to now sell new types of value, right? Beginning of curve. You have to sell the value, let folks understand it, and then feel it, right? And that has this self perpetuating cycle within it as well. Because then when you, as the sales rep, see the testimonials, even, you start to believe a lot more into it. And when you believe a lot more into it, then you can sell it and let the end users believe, right? There's that two tier system, but we're all humans, right? And so that kind of stuff takes time. It doesn't just magically happen with a light switch. And then the incentives start to reinforce that behavior. It's just good old fashioned conditioning, right? Ooh, I do this, I get rewarded. I do that, I get rewarded and then begins to create momentum from there. And it sounds like, well, gee, Marcus, is this about pricing? About psychology? But there's actually a very strong interconnections.
[00:15:04] Speaker A: Between the two, right.
[00:15:05] Speaker C: In perceptions of value and behavior and what you're willing to pay for and not and so on. So that is a very grounded, fundamental lesson for anybody. And I know we talk about SaaS and technology pricing here, but even there, all the lessons that you picked up in that transition, I think matter.
[00:15:21] Speaker A: No matter what you're selling. No, I think that it goes back to this whole basics of pricing and the first principles of pricing, almost to basically say, hey, you got value, you got behavior to fix, you got value to measure, value to communicate, and cost to worry about. As much as we say, pricing is not about cost, it is about margin. You have to make sure whatever strategy that you're putting in place is margin maximizing. You want to come out ahead in the long run. You want to create shareholder value. So you got to put all those principles into play. That's why I see pricing people to be at the center of this whole process where if they want to, they can build a line of sight from pricing to finance and pricing to sales training, from pricing to product, from pricing to sales, from pricing to supply chain or where our customer success, they have the ability to make that connection. Not a lot of teams can basically say that. And that's why I'm very passionate and I want pricing professionals to improve on that area that hey, be the cross functional leader that can put these pieces together.
[00:16:30] Speaker C: Yeah, it does take a team to capture that extra value. I will say that. And instead, honestly that just not sexy, repetitive, like grinding work, to track everything, to crystallize those case studies, to pass them over, to read them, to train, to communicate, to keep tweaking the compensation model. Like all these little things that in and of itself just is like, all right, this isn't something that's glamorous, right? But all those things accumulate together to help you capture the value in that new process transition.
[00:17:01] Speaker A: That's beautiful. I got to ask you though, if.
[00:17:02] Speaker C: The one big takeaway from all that and just that whole several years of migrating folks from the old to the new, what do you want folks to.
[00:17:10] Speaker A: Take away from that? Keep an eye on how your industry is evolving and where your customer spend is going, right. That's something that a lot of companies who are industry leaders, like directory companies were industry leaders in advertising, right? There was a time when people would regang the phone out of the wall because if you don't have a print directory, right? So think about that. But their words start to change and you got to keep pace with how fast that word is changing. Who's your competitor? Where are they priced at? Because sometimes a competitor could come from totally different industry. Like Kodak never thought that their biggest competitor is going to be an iPhone. They probably thought their biggest competitor was going to be a Sony digital camera, but their biggest competitor became the iPhone, something that they probably didn't even think about, right? So your competition can come out from anywhere, from any different industry. Know that for us, for directory companies came from SCMSe or it came from GoDaddy and Vix. And the combination of all these made life harder.
And social media and advertising on social media and influencers and all these things made things difficult and content selling made things difficult for them. And that's you got to be mindful of and keep pace with that change and make sure your pricing strategy keeps pace with that change. Your pricing has a lifecycle. Make sure you know what that lifecycle looks like, and make sure it goes with your product lifecycle.
[00:18:33] Speaker C: That's a big one. Because these things can catch you off guard if you're not watching or if you're not paying attention to the trends. Some folks will look at direct competitors, right? These are the guys in my RFP, always trying to steal food from my plate type of thing. But then there's these other areas that if you're not watching, the trends can completely eclipse and swoop in and take a ton of share or just change the way people buy and think, which completely then shifts the market away from you. So you got to watch and double click on that. I think most folks forget. That's a really valuable lesson, Kieran. But now let's bring it from the past to the present.
[00:19:06] Speaker A: Let's talk a little bit about big.
[00:19:08] Speaker C: Monetization pricing topics today. And you post a lot of great stuff on LinkedIn, man. I follow you. I really like your material, man.
[00:19:16] Speaker A: You put some good thought into that.
[00:19:18] Speaker C: But there was one the other day, I'm not going to repeat it all the way through in detail, but it was about the concept of understanding different types of value, right. And understanding perceived value versus economic value. And the job of marketing to get that perceived value up. Right. The job of finance to make sure you cover your cost, right. And it stirred up a little bit of the pot. I saw some responses in there and people are like, hey, well, wait a minute. I think this value is more important than that. Value and this and that. But really, the thing is, I want you to break it down for us. Layman terms, man. Layman terms. Let's break it down. Make believe I'm that plumber, right? Let's walk through perceived value versus economic value.
[00:19:54] Speaker A: What is all that stuff for sure, right? And that was a very passionate thread. I don't think I've seen a more passionate thread about pricing than that. Brought a lot of people out. So the whole notion of value based pricing started what, like, I think late 90s, right? And there are like two people who are sort of pioneers in that whole building that whole case for value based pricing. One is obviously Thomas Nagle. We know Thomas Nagle. He's an industry expert on pricing. And one other person that people don't talk often enough about is his name is Robert Dolan. He's a Harvard professor. He's the one who sort of early 90s coined the term value based selling. And he has a very fantastic paper out there on that topic. And he basically said that there are two notions with a product. You have a product, it does two things. The one thing it does is this creates this concept of total economic value. So which basically means, what are you doing with this product and how is it creating value for your customer? And that concept is called total economic value. So for example, let's say for you are a company that sort of sells software that generates, that helps power plants per second, okay. The software that generates, helps power plants run. And you're more efficient than your competitor. How much more efficient are you?
Are you 40% more efficient? Are you 50% more efficient? Do you have less downturn with your equipment or with your software? Do you have more efficiency? Are you more sustainable? So the concept of total economic value basically says that, hey, you have to quantify the value you create for your customers. When people say value based pricing, sometimes they sort of say, oh, it means what my customer is willing to pay? No, it basically means you got to quantify, first of all, how much value you are creating for your customer. And it could be millions of dollars. Sometimes as a business, you're creating millions and millions of dollars of value for a customer. So that is the concept of total economical, total economic value, which is what is the higher end of the value that you're creating for your customer.
[00:22:02] Speaker C: So what is it, like intangible dollars and cents?
[00:22:05] Speaker A: Like, what is in cost savings in revenue that you're making for them, in efficiency that you're creating for them? And there's always a way, especially in b to b, there's always a way to quantify that value. Like, hey, how many hours are you saving them? How much more revenue are you creating for them? Is it more efficient? Are you 20% more efficient? What does that really mean in terms of cost? And there is a mathematical way to do it, right? Like you basically take your inputs, you apply some level of, hey, did my product does this thing this much better? Then you quantify it. So that's your total economical value.
[00:22:37] Speaker C: So you say, hey, okay, so that's the ceiling.
[00:22:41] Speaker A: My product creates $10 million worth of value for you every year. That's your total economic value. Now comes into this notion of perceived value. So what does your customer perceives that value at? Like, hey, they're obviously not going to pay you $10 million. Maybe they're willing to pay you a million dollars. So we always say the value capture in value based pricing is somewhere around five to 10%, maybe as high as 20% in some cases. So that's where your perceived value sets as to what your customer is willing to pay for that value compared to the economic value, right. This is what. And sales, those are different. And those are different. Those are two different. This is the total economic value which you are generating for the customer and this is what the customer is willing to pay you for out of that total value. And sales role is to make sure that you try and capture that perceived value day in, day out. Like, hey, you're going to get your customer as high in that perceived value or as close. So you base your pricing based on your perceived value that hey, I'm going to capture 10% of that $10 million I am creating for my customer. So my pricing is going to be around a million dollars. And sales role is to hit that million dollars every day, day in, day out, close enough. In some days they'll probably use some discretionary discount and bring it down. But that's their job. Now there's that and there's the total economical value and there's this big delta in between that you're creating for the customer that's surplus for them. That customer is basically cashing in on that $9 million that they're saving. Basically, this is where marketing comes in. Marketing's role in this is to raise that floor. They know the ceiling, they know the floor and now they got to make sure that they close the wall then basically. And that's where marketing's value is, to basically say, hey, how can I increase the perceived value of this product? And you increase the perceived value of the products by doing all the traditional things as showing your value, customer success stories, creating ways for them to use your products.
This is what customer success really means, right? This is what customer, how do you make, and in the SaaS world you talk about customer success a lot. Customer success teams. The role of that customer success team is to make sure that you maximize the value you are generating with your software, with your service, right. And that's marketing and customer services role to bring that value up, the perceived value from a million to million, five to 2 million.
And then the product's role is to keep increasing, to make the product better, to keep raising the ceiling on that economic value. So hey, next year side, got it. Next year our software is going to, Snowflake was talking about how they're sort of making the product more efficient next year right now. So they are basically increasing the ceiling of their product, right. They're basically saying, hey, my product is going to get delivered incremental value next year. So they raise the ceiling and marketing and customer success is going to make sure that the floor keeps moving and you have finance, who basically is covering its cost. And that's basically value based selling in a nutshell. And that's how it was designed to work. Yeah.
[00:25:46] Speaker C: From the folks who actually created the concepts. I've read Dr. Nagel's.
[00:25:51] Speaker A: It's a fascinating concept. I'll throw in when the episode comes out. I'll throw in the link to the paper that Robert Dolan wrote on this. It's a very fascinating paper. Ten pages of pure berlins there.
[00:26:07] Speaker C: And it changed the way we looked at it. I looked at capturing value.
[00:26:11] Speaker A: Right.
[00:26:11] Speaker C: I'm going to add a little marcoism in this one.
[00:26:14] Speaker A: Right.
[00:26:14] Speaker C: So you explained the economic value. It's like that top, like you calculated out, this thing is saving you this much or producing this much revenue or whatever it is. There's always some revenue or cost or something implication there. And then you have the perceived value, which tends to be anchored quite a bit. Right. Whether it's the alternative that you can pay for, whether it's marketing, framing it better, there's lots of things that could influence that perceived value. And so I understand your point about doing everything you can, marketing sales to influence the perceived value. When you mentioned customer success, I had a slightly different view of that one. Similar. But then there's perceived value and then there's realized value. And if your realized value is lower than perceived value, boom, you churn.
[00:26:56] Speaker A: Right?
[00:26:56] Speaker C: And so the idea of customer success is maybe there's a perceived value that this thing's going to save me a million bucks, but maybe I'm not using it right. Maybe I'm not using the right features or been configured it wrong or whatever it is, or didn't get the right training. And you actually don't get to a million dollars in savings. You get to like two hundred k. And at that stage now you're like, all right, well, I don't think I want to use this thing anymore because it's not producing the value that I perceived and therefore I don't want it. And there's, to me, something to watch out for, which is the way humans adopt things, products, software, they may not always use it the way you think, right? And they may build muscle memory around it. And then that creates another sort of that realized value that they're getting. I think it's a flavor of perceived.
[00:27:42] Speaker A: But think about it as what they.
[00:27:43] Speaker C: Thought they were going to get versus what they're getting. And then over time, you need to close that gap. But if you can raise it, then that opens up the avenue for capturing more economic value because listening is way.
[00:27:54] Speaker A: Better than I thought. I think you're on point.
That's exactly what happens. And I think you made a very interesting point around like, hey, people have this muscle memory and get used to doing certain things a certain way without realizing the full benefit of it, right? And then it takes some effort from customer success teams or whosoever is trying to bring that value up that, hey, use it this way. Create new use cases for them, get more users into the platform so that they can actually capture more value, et cetera.
Obviously, I fully agree with what you said. I think there's this notion of perceived, but there's also this notion of realized and making sure that realized goes up as well.
[00:28:36] Speaker C: No, thanks for agreeing. Otherwise I would just have to edit you to pretend that you agreed with me.
[00:28:39] Speaker A: Right?
[00:28:39] Speaker C: No, I'm kidding.
[00:28:40] Speaker A: No, I don't think I do.
[00:28:43] Speaker C: Thanks for bringing this and breaking it down that way, man. The fast forward piece, I want to keep this one pretty straightforward here. Listen, pricing has been evolving over time. It kind of tends to take shape to our human behavior, the technology that's out there, all those key things. What's the biggest change coming next for pricing? What's going to happen here? Clearly we've been talking a lot about in the industry with usage, consumption base and all this other stuff, but what do you think is going to happen next, man?
[00:29:09] Speaker A: Yes, I am very biased on that one. Right. A lot of people right now talk about this whole notion of usage based pricing. And yes, usage based pricing is happening. And then people talk about hybrid models as well. You got your seat and you got your usage and you're trying to mix the both, right? And which is fine. That's the flavor that right now is going to keep on happening this year. It's going to keep on happening next year. But I think the future really is outcome based pricing. This is a conversation that has now started to happen and it's an extension of where value based pricing is. So as we say, value based pricing is this. Here you create value and you try and capture some of it, right? And this outcome based pricing is an extension where you basically say, hey, you get paid as a service when the outcome is delivered, which is how we do everything in life. And every product and service is sort of based on that premise that, hey, it's solving a problem for you and you pay for that. But now I think we have this opportunity to take it a step further and go from this value based notion, usage based notion, to more of this outcome based pricing where you get paid when the outcome is delivered, and it's only going to happen at this point of time. We didn't have the technology, the infrastructure, or the people. Do it back 1015 years ago or five, even five years ago. I think now with AI coming in the mix and AI basically being this now almost also in a lot of places, replacing people as the, in any process, the key stakeholder is people, or even execution of anything. The key thing that sort of drives success is people. But now when you take people out and you make it AI driven, you're going to take a lot of nuance of execution out of it. It's going to make measurement of these, measurement of value and measurement of what the product is doing much easier because it's very AI based. So we are at this point where AI tools and technology will make it easier for us to basically say, hey, the outcome that you are arriving at was possible because of this tool and this product. And we will then go from capturing whatever percentage of value we are capturing right now from value based pricing to a higher value with an outcome based pricing where you can say, hey, because we can stand behind the value this outcome is generating. What I will ask as a value capture will be higher. But this also comes with risk, because if you didn't deliver the outcome, you have this potential of this revenue going down to almost nothing because you didn't deliver the outcome. And this is where the infrastructure and the legal requirements and everything will come in. But I feel at some point we will have AI talking to AI and we will just be in the middle as spectators and they'll deliver whatever they want to deliver as an outcome. They'll figure out what the value capture is and they will say, hey, here's your check for $100,000 for what you did as a value capture. And there you go. So I think the outcome based pricing is going to start popping up more and more in the next few years.
[00:32:07] Speaker C: That's fascinating. I mean, if you think about it, I kind of agree with that, because if you look at the evolution of how you capture value, especially in technology, right? You have the access to the software, licenses, seats, just get it. And then you have the activity within the software, which is kind of what we're seeing now, usage, consumption based. What are you doing in there? Because we can measure it now. And then if you go now, fast forward to the future with AI, the outcome based, because with AI you can get more precise in how to measure it. And that way that's where you can now really tie. And those different things we were just talking about, those thresholds of value, the economic and the perceived and realized all start to get a little bit closer together. And I think that's super interesting. Outcome based price. We'll see what happens, right? I mean, things are moving faster than the speed of light here, so we'll see how that unfolds, man. But listen, I want to thank you for coming in, giving me the real breakdown of value pricing, going back there, the transition of that billion dollar book of business, right. Getting into it with me. I appreciate you and all the thoughts that you share. So I want to give you a big high five for dropping the knowledge today, man. Thank you so much for.
[00:33:14] Speaker A: Thanks. Thanks, Marco. It's a pleasure. I always love the reason I do this and the reason I am so vocal is because, obviously, is that when I started in pricing, I didn't get sort of advice. No one told me what a good pricing strategy was like, because my first boss was in supply chain. All he knew was forecasting purse and accessories. And I was like, I was on my own. So now what I would love is people to follow people like you who are dishing so much knowledge out every day in different formats and different shapes and as profession, just improve our roles and improve what we do and be more valuable to organizations. I love it.
[00:33:58] Speaker C: And in the end, it is values in the center of a lot of that. How do we capture it? I got to ask you this, man, because you are also a fellow hip hop head like me. I know you enjoy all kinds of music, but I got to ask you, man, what is your favorite jam growing up?
[00:34:15] Speaker A: Give it to me. I'm a big fan of biggie small. I am a big fan of him.
[00:34:21] Speaker C: I knew I liked you for a reason.
[00:34:25] Speaker A: If he was alive, he probably would have been the biggest artist we could have seen in generations. He was getting there. It's taken too soon, but I think that was one of those. We lost a great voice. He was a phenomenal artist. I think he would have been great. So I love listening to his jam, listening to him.
My daughter can recognize him now, but, yeah, so that would be my jam.
[00:34:54] Speaker C: That would be your jam? Well, I don't let my kids listen to biggie, but, man, he is, to me, like, the most phenomenal voice of hip hop. That was ahead of his time back then, and his jams are still playing right now, know so many decades later, which kind of goes to show his impact, man. So thank you for coming in here. And dropping those knowledge and team listen. If you're not following Karen, go into LinkedIn.
[00:35:18] Speaker A: Follow him now.
[00:35:19] Speaker C: The stuff he puts out is very thoughtful. If you really want to understand pricing and get a really good point of view and perspective, follow on LinkedIn and all these lessons today I want you to take and put into action. And remember, stop guessing and start growing. Until next time, thank you and much.
[00:35:37] Speaker B: Love for listening to the street pricing podcast with Marcos Rivera. We hope you enjoyed this episode and don't forget to like and subscribe. If you want to learn more about capturing value, pick up a copy of street pricing on Amazon. Until next time.
