Episode Transcript
[00:00:00] Speaker A: I hate AI. Can I just say that I hate AI? So I don't really, because I use it way too much. Nowadays. You don't understand the value the way your customers understand the value. And that's what you have to go figure out. Every decision you make should be based on customer value.
[00:00:14] Speaker B: So I talked to some of our customers who were mostly like banks and insurance companies and things like that. And one of the things that some of them even said is, I like that he charged me by the user because. And he said this to my face. He said, because if I just, you know, consolidate my team, I get to pay you less. He actually said that I'm old.
[00:00:31] Speaker A: When I first started hiring new VAs to help run this business that I have, they're like, oh, you gotta go use this technology. Oh, you gotta use this technology. And we're just adding more and more technology in my stack. And I'm like, no, I don't want anything new, right? Just stop it. My favorite pricing company is PayPal, right? Because they charge a percentage of revenue, and I cannot wait until I owe them a million dollars.
[00:00:56] Speaker B: That would be a good thing.
[00:00:57] Speaker C: Yo, Mic 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.
[00:01:19] Speaker B: What's up and welcome to the Street Pricing Podcast. I'm Marcos Rivera, CEO of Pricing IO and And today's guest is the man behind the impact, Mark Stiving. He is the chief pricing educator of impact pricing. Mark, welcome to the show, man.
[00:01:32] Speaker A: Hey, thanks, Marcos. This is gonna be fun.
[00:01:36] Speaker B: I don't see how you cannot have fun where two pricing experts go toe to toe talking about the biggest topics altogether, man. But before we jump into things, I want you to take a second and tell the audience a little bit about you and what you do.
[00:01:47] Speaker A: So all I do is teach pricing to people.
I love running bootcamps. It's my favorite thing. So we do a deep dive with clients and they walk away saying, hey, here's a couple new that we can go implement and make a huge difference.
[00:01:59] Speaker B: I love that. I love that the boot camp, a little bit of it sounds like it's intense, but someone walks away with something, and I think that's the piece that probably pleases folks like you and myself. I love teaching. I think that when you see that Light bulb go off. There's no better feeling, right?
[00:02:15] Speaker A: Absolutely right. And it shocks me. You know, I've been in this for forever, and it shocks me how hard pricing really is. It feels easy to me, and it probably feels easy to you, too. But when we watch other people, even though you get it, it's just. It's like, how do I go do that? How do I make it happen? And so it's. It's fascinating to watch.
[00:02:35] Speaker B: It is fascinating to watch. Distilling it down to the step by step is a leap for many. For folks like me and you, though, we love bridging that gap. I think that's one of the big pieces that motivate us in what we do. And so if you're ready, man, are you ready to get street with me?
[00:02:48] Speaker A: Let's go.
[00:02:50] Speaker B: Okay, let's do this. Listen, audience, a quick roadmap for y' all here. This show is based on the book Street Pricing. So we're going to break it down into three sections. Rewind. We're going to dive into a story, Mark's very rich past of pricing stories. We're going to get a struggle or success that's going to teach you all a lesson. And then we're going to bring it to play, which is what's going on today, and where are some of the big trends? What are things moving the pricing needle? And then we're going to talk fast forward. What's next? Where is pricing going? And I think Mark has a lot to say about all that, so we're going to jump right in here. Mark, why don't you kick us off, man, with just a pricing story that you want to share.
[00:03:26] Speaker A: So I'll share one that isn't even me, believe it or not.
And so it's fascinating. This is why I do boot camps today. There was a company that I think they started around 2011, and a couple people had bought a relatively small services company, and they struggled with a couple years, and then they said, hey, we could go raise prices. And it worked out really well for them. And then they said, hey, you know, we could do some price segmentation and charge different types of customers different prices. And then they changed the way they did sales compensation, and they got salespeople to sell it higher prices. And then they changed the way they did their product portfolio, right where they started crafting good, better, best in the product portfolio. And this was over the course of eight, 10 years. So it was a really slow process.
Turns out this was all funded by a private equity firm. And the private equity firm looked back and said, oh my gosh, look at what they just did with pricing. Right. Over the course of 10 years, they multiplied their valuation 70 times 7, 070.
And they give a full third of that credit in this pricing world. And so this private equity firm said, why don't we do this with more companies?
And so they came to me and asked, hey, can we create a pricing boot camp? And so we did that together to essentially craft what this one company went through, to say, how do we teach companies to do this? How do we hold their hand? How do we say, look, there's more than just raising prices? And so it was just, it's fascinating to see that whole thing happen. And so now as we do boot camps, we get to watch that, we get to see where our companies in their own process. And you know, we almost always raise prices. I don't know if you've had this experience. No company is charging enough and there's room to raise prices somewhere on something. And so we do that first and then it's like, what's the next step? What are we going to do after that?
[00:05:16] Speaker B: Yeah, I love that for a lot of reasons. One, because you probably know I worked in the private equity world for so long with, with Vista and a bunch of folks. Others, there is a natural kind of desire to raise prices or try to maximize renewals, introduce clauses and contracts for price increases. The price increase is not a new playbook for pe, but I think where you're coming from, I really like the fact that you guys crafted a boot camp so you can sort of replicate and spread that skill across the other companies.
PE finds something that works, they immediately want to take it and multiply it across all the other portfolio companies, right? And I think that's one of the big keys there. So in your workshop that you guys designed and you did, I'm really curious here because it sounds impactful and you probably have a really nice like down patch structure of the whole thing, right? Like, let's, let's not bullshit anybody here. You've done this for a really long time. You probably have a really smart process.
What part of that boot camp is your favorite?
[00:06:14] Speaker A: You think, oh, okay, so this is a no brainer for me. I crafted an exercise I call valuable features. Now let me. In order to get to valuable features, let me teach you one other quick, I don't know, teach you. Marcos, I don't think I'm teaching you anything. Let me explain one concept that I use.
And so that starts with Value tables. Everything I do is talking about value. How does a customer perceive the value of our product? How does a customer receive the value of our product? It's always value. And so when I start thinking about value tables, what does value actually mean? And so I've defined value. I don't know if you've ever been part of these debates that we pricing people have about what does value mean.
So I finally divided, defined it myself in a way that I really love. And that is value is the result of solving problems. I want to say that again. Value is the result of solving problems. And so what that really means, what that really means is that we have to understand our customers problems. Okay, so now let me jump back to valuable features. This is my favorite exercise. So I asked my clients, list 10 customers across the top of a spreadsheet and now list 10 or 20 features down the side. And on a scale of 0 to 5, how much does each customer value each feature?
Right? So, so now what you see is you end up with rows where someone doesn't value it at all and someone thinks it's a five. Well, what does that row tell you? Well, we build features to solve problems. So someone who has a zero doesn't have the problem. Someone who has a five has that problem a lot. We end up using that table, that valuable features table to start doing things like market segmentation. If the problem is big enough, we do it for a product portfolio definition. Right? So what's the scope of the problems and which customers have the same types of problems? We can even do it for pricing segmentation where we say, hey, can we recognize who has what problems and charge different prices at the point of sale? And so it's just, just to me, that's my all time favorite exercise.
[00:08:17] Speaker B: That is super valuable A, because I think it's easy enough for people to pull off during a boot camp or a session. But it, it helps in a couple ways. One is the way what I'm seeing is, is you're, you're making this leap or transition from features to problems or this connection maybe is the better way to put it. And that is a big leap for a lot of companies. They either look at their feature list and I'm like, all right, who wants these features? It's not about who wants these features, it's about what problems they have and the features that you used to, to solve them. Right? It's just a means to an end at the end of the day. But folks get fixated on the feature list and you'll see it on even pricing pages today. You'll see. I call this the feature vomit, right? Where it's just like, hey, look at all these features you get. Don't you just want to pay more? Now here's the problem. And you tell me if you've seen this and if you haven't, I will, I will take your different point of view. Okay?
But, but I think sometimes the mind of an entrepreneur or an operator goes to more features equals more value. I actually don't think that is always the case. I actually think sometimes you can just pile on all these features and it actually is not going to add a lot of value, especially because it's not solving their problem. It may even reduce their willingness to pay because it muddies things. Now, do you see it that way? Because that is a number one. The first thing I do is I start ripping shit out of their their packages. Like what is this even for? Right? So what is, what are some of your points of view on too many features? Is there such a thing?
[00:09:40] Speaker A: Oh, I think you're spot on. Right.
And even if you had a product that had all those features, why in the world would you tell everybody about them? All you're going to do is confuse them, right? You could put them in extra menu someplace where you want the advanced features. Great, let's go look at those or figure those out. In the end, when we start thinking about either market segmentation or even product portfolio, good, better, best. It's really about what are the problems you're solving? And you can't be solving 7 million problems. You're solving 1, 2, 3 really big problems for your customers. And when you can articulate that, now you've got people coming towards you. And so when you think about laying out your pricing page, your good, better, best pricing page, and you want to list features and you say, hey, better has everything good has plus more. Well, here's the question. Do the things you added to better actually solve a different problem or is it just more stuff you threw into better? And so oftentimes when I'm working with clients on their pricing page or even their homepage, it's really, let's stop talking about the features. What are the problems we're solving? Why does someone care about this one versus that one?
[00:10:46] Speaker B: Now let me get a little more nuanced on you then, right? Because I think people pay to get their problem solved. At the end of the day, that's what they want.
But then you have a faction out there that talks a lot about jobs to Be done. Now, I use jobs to be done a lot. When I was a product manager and I was building products and I was outlining my jobs to be done agile and all that stuff. But people are using it in the pricing world as, hey, you're.
You should be defining the jobs to be done and then you should be pricing for those jobs. How do you feel about that in comparison to this, solving problems? Are they the same? Are they different?
[00:11:20] Speaker A: So can I say I don't know?
Honestly, I've been teaching and thinking problems and solutions or problems and results for a very, very long time. And when I think about jobs to be done in almost every jtbd, I can turn around and say, oh, here's the problem that it was and here's the result they were looking for. And so I can almost always translate jobs to be done to problems and results. I can't always go the other way. Right. I can't always say, here's a problem we're trying to solve now, what was the job to be done? Now, it could just be that I don't understand jobs to be done as well as people who are truly experts in the field do. But I could say that to me, I can do almost anything we need to do just thinking about problems and result.
[00:12:01] Speaker B: Yeah. You see, I think problems and results is just more intuitive in my view. Right. The Jobs to be done framework has an actor doing something to achieve a reason they can't do it. Right. They have this whole layout and this whole structure, and it's easy to help build out, you know, different definitions I've done and cases and all that stuff for coding. But when it comes down to it, why do you want this, why you want to hire something to do this job, is because you have a problem, you can't do it yourself, you want to do it faster, whatever that is. And so from my point of view, I think problems and solutions, to me, which is where everything originated, is a much simpler, more straightforward way to attack it. But what if you walk into the room smart, let's just say a company out there and you're consulting with them, or you're coaching them, you're teaching them something new, but they can't quite distill the problem down. Can you give me some of your techniques that are like, all right, here's how I help companies reframe so they can, you know, really pin down the problem?
[00:12:55] Speaker A: Yeah. So can I say that is without a doubt the single hardest thing that people try to do. And so here's the problem with companies is we all have what we call what I call the curse of knowledge, or what's called the curse of knowledge. We understand our products so well, we have forgotten what it's like to not know. Right. And so we think all of our customers are experts in what we sell. So when we say a feature that automatically means, oh, they can, they know what problems it solves, what results they're going to get. The truth is they don't. We're not selling to experts, we're selling to non experts, people who say, look, what does that do for me? And now we have to go back to what's the problem and what's the result. And so when I start thinking of problems, people almost always start with the phrase I need a. Okay, so that's, I need a feature that's not a problem. And so I always say, I don't think I've ever worked with a client where I didn't say the words that's not a problem. All right, that's not a problem. And so we have to come back to what's the actual problem? And it's hard. There's no doubt. And there's also layers of problems. Have you heard the Ted. Have you heard Ted Levitt coined a phrase in the 1960s called nobody wants to buy a quarter inch drill? What they want to buy is a quarter inch hole. I mean, I got to tell you, nobody wants to buy a quarter inch hole either. What they want to buy is the ability to hang a nice looking picture over the fireplace. Well, actually, nobody wants to buy the ability to hang a picture over the fireplace. What they want is a nice looking living room. Right. And so we have these layers of problems that we could go through. And, and eventually what we're looking for is what's that level of problem that resonates with a whole customer base, but it truly resonates. People would say, yeah, I got that problem. And, and so that's really challenging. It is hard. One of the things I did, I put together my own little mini pricing GPT. It's on chatgpt. If you search for it, you can find it. But I put in a, I put in a little agent. So if you type comma, problem and then you write a problem statement, whatever you think it needs to be, it will tell you, hey, does, does Mark think that's a good problem statement? So it'll evaluate it based on these four criteria that I use and then it'll rewrite it and then it'll give you a suggestion for a more specific problem and it'll give you a suggestion for a less specific problem. So it's just a way to start playing with problems. It's, you know, chatgpt, we'll talk about AI probably later. Is never right. Right. I never assume it's right, but it's great at giving you ways to think. And so I think this is a, it's a nice little agent to just get you thinking about problems.
[00:15:25] Speaker B: Oh, man, you just opened up Pandora's box. But I was playing with your agent the other day.
[00:15:30] Speaker A: Oh, were you?
[00:15:31] Speaker B: A little bit. What I think, I want to tell you a little bit, I think. But it's a segue into the play, which let's just, let's just play around with AI here in the next section. But before we do that, let's wrap up a nice brief. BO this arc here of having success with that service company and then replicating it across the portfolio. Building a boot camp that helps kind of unlock folks and leaders to think more about the customer, about the problem versus features and business goals and things like that. Those are all important. But when it comes to solving the pricing problem, in the end, you really have to get real intimate with what problems they want to solve, they want the results for. And if you had a. Again, given your. You've been doing this so many times, you could probably do this blindfolded in your sleep. But if you had to give, you know, the big takeaway for a group that you just talked to and they, they will remember the last thing you said. What is the last thing you're going to tell this group in your price?
[00:16:23] Speaker A: Yep. It is that you don't understand the value the way your customers understand the value. And that's what you have to go figure out.
Not only does that impact your pricing, it impacts everything in your company. Right. Every decision you make should be based on customer value. That's what we would think of as a customer centric company.
[00:16:40] Speaker B: Yeah, I think that is a very, very V1O or just base statement that you don't understand the value, your customers understand it differently. That is something that happens well before you decide what number to put on your pricing page. Right. All that has to happen first. I'm with you 1000% on that one, man. But I'm eager to unpack a little bit of this AI stuff with you. Okay, let's jam a minute on pricing AI monetizing AI whatever the hell you want to call it. It's here. It's not going anywhere. It's only get moving faster and I can barely keep up. I don't know about you and all the news and changes and models and, you know, grok this and llama that and Gwen and all these.
So they've come into the. They've come into the space, not just in the pricing space, they've come in all spaces. And at first there was a lot of reactionary, oh, shit, right? Which is like, what are we going to do? Pricing is over. There will be no more pricing. Right? That, that kind of died down real quick. Yes. There's still going to be a need for. For expertise and pricing and things like that. But now it was like, well, then how do we harness the value of an AI and capture and share value and all that fun stuff? And it's hard, right, because what's, what's really happening here is like AI is again, it's another tool. And I've been equating AI just to share this with you a little bit. Almost like, do you remember when the iPhone and smartphones started coming into play?
So the iPhone and smartphones didn't invent calling anybody, right? Or even looking on your phone. You remember the Palm Pilot and all that stuff. But it really just unlocked a lot of use cases and a different value exchange. I never thought anyone would ever pay a thousand dollars for a freaking phone. Never in my life. And now we do it with a smile, right? And it's almost like another appendage right into your body. It's just changed our behavior. It's changed how we consume information, how we seek information, how we give information.
The smartphone is in all that to us. I think AI is going to do something even more profound, right? In terms of how we seek and find and give information and how we use information for our benefit to solve problems and get value. And that's how I see it. And that's the exciting part around pricing. It is because, hey, software in my point of view, was always a promise of value. You're not going to get shit unless you configure it, right? You use it, right? You apply it. You do all these things with the software, and at some point you'll get the value of that CRM or ERP or whatever it is you have. But now with AI taking a bit more of the legwork and doing and completing tasks at a different level, I think there's an opportunity to align a bit more with value and move away from like flat fees and just, you know, generic license fees that folks have kind of leaned on in the Past I call it lazy pricing and really think through how to align with value. I think it unlocks a lot of opportunities. Just the way the smartphone unlocked a lot of behavior as well. So that's my big shtick. I'm sticking to it. But. But let's but have at it, man. Where am I wrong? What am I not seeing?
[00:19:36] Speaker A: I. I think everything you said was spot on. I want to take a quick step back and say, I think about.
I gotta want to tell two stories for you real quickly. I think about AI differently in. Based on whether I'm trying to price an AI product, which is a really big problem today.
And I think about it whether I want to use AI to help me with my pricing, which is just a very different. And so I think about those very distinctly as to. And I think thinking about how to use AI to help with pricing also helps us inform how do we price AI products. Right. How can we help other companies? But I want to take a step back and just share. I hate AI. Can I just say that I hate AI?
[00:20:19] Speaker B: Loud and proud. Loud and proud. Yeah. Yeah. Why do you. Why do you hate AI so much, Mark?
[00:20:26] Speaker A: So I don't really, because I use it way too much nowadays. But I'm old and when I was, when I first started hiring new VAs to help run this business that I have, they're like, oh, you got to go use this technology. Oh, you got to use this technology. And we're just adding more and more technology in my stack. And I'm like, no, I don't want anything new, right? Just stop it.
And so AI comes out and for the first year or so I'm like, no, I'm not adding anything new to my stack.
And eventually you go, okay, this one's real. You got to go figure it out.
It's not going to go away. And so that's.
That's my complaint, right? It's like, I just.
We can only learn so many new things at least with my age.
[00:21:13] Speaker B: No, listen, when it comes to, you know, teaching dogs tricks, like, I think you're still, you're still up there with the rest of us. But here's something that you made a very interesting point on because I too was a little resistant at first or at least cautious because I was like, well, man, is this going to be another, you know, chatbot or, you know, freaking like Chatbot 2.0 or another blockchain thing that nobody freaking understands? And it's going to kind of only apply in super specific use cases where only brainiacs can use it, but it's so accessible, the barriers to adoption are low, the friction is low, the results surprise you, which creates a bit of a dopamine hit and makes you do it again. Like I'm getting down to the psychology, behavioral sciences piece of it and I think it is here to stay and this is the next wave that we got to get on.
[00:22:00] Speaker A: I think there's absolutely no doubt this is the way it's going to happen. So, so to go back to your intro of AI, I think the biggest problem that we deal with today as pricing people trying to price AI products is that AI is changing the way we deliver value to our customers.
And so you start thinking about AI agents and that's what everybody's talking about, right? The big LLMs are these huge platforms, you can go do anything and, and they're going to end up pricing by tokens or something like that for forever because it's, it's hard to say what's the value of any given query, of any given use case. But once you start looking at agents that say, hey, I'm going to go solve a specific problem for a customer, for a buyer, which is what we talked about in the first section by the way, right? So I'm going to go build an agent to solve a specific problem.
Now how am I delivering that value and what can I charge for? So that pricing metric becomes really important and it changes. If you go back to SAS pre AI SaaS, what we often saw was we were charging per user. Now us pricing folks, we always thought that was stupid in many, many, many cases. But companies did it because it worked for Salesforce and so isn't it going to work for everybody? And by the way, it worked decently for a lot of people. With AI, we're trying to take users out of the process, right? We're trying to automate things. So if we charge per user, what we're doing is we're taking money out of our own pocket and we have to now rethink that concept that says what's the value that we're delivering to a customer and how can I charge for something related to that value?
[00:23:35] Speaker B: That, that to me is the, is the root of, of at least the beginnings of starting a good pricing foundation, discipline, practice. I'm going to confess something to you. You're probably going to look at me differently now. When I was a young, you know, bright eye, bushy tail, product manager, the first product that I was given was a user or seat based pricing product. It was A dispatching application that would dispatch folks around, you know, and create routes for you and all that kind of stuff and optimize the route. So guess what it did. It did a damn good job of, of optimizing routes and allowing the, the, the field reps to do more work. Well, guess what? The field reps did more work. You needed fewer field reps. So what happened? I did a wonderful job. My solution added tons of value and I ended up getting paid less as a result. If anybody out here is listening, and if you're getting paid less, we're doing a good job, you probably need to revisit your pricing and packaging.
[00:24:31] Speaker A: Right?
[00:24:31] Speaker B: But nonetheless, that was a big, big problem. And so this is what really kind of catapulted me into pricing more than product. Because I was kind of a early stage in my career.
I, I had to sit down and really think through how to price this stuff. So I talked to some of our customers who were mostly like banks and insurance companies and things like that. And you know what they said to me? I don't know. As long. As long as I understand it, I don't know. Right. I guess I if can. And one of the things that some of them even said is, I like that you charge me by the user because. And he said this to my face. He said, because if I just, you know, consolidate my team, I get to pay you less. He actually said that. Right. And I'm like, you don't really, you know, you know, you don't realize that your customers sometimes are not going to tell you the optimal metric or the optimal package or anything like that. They just know their problems and what they want. Right? So it's your job to figure out the solution. It's their job to understand their problem. So very quickly I got all this advice to keep charging by the user or no, just charge me one single flat fee for the whole year for everything and make it as low as possible is what they said.
[00:25:34] Speaker A: Right.
[00:25:34] Speaker B: So that was my early days. I didn't know what the hell I was doing. Mark, if I'm being honest with you, what ended up happening was I ended up moving into looking at all the things that happened. I got my engineers full data, and the thing that I saw that was super interesting is claim volume. And I'm like, oh, okay. So these guys, claim volume is going up and their throughput of claim volume goes up. So when we do a good job, they're able to produce and see and settle more claims. So I thought, aha, so I win. They Win, win, win. This is beginning to sound right. Then I would talk to the more the buyer level, not the user level, but the buyer levels and I would get it behind and they'd say, yeah, actually charge you by the claim would be easier for us because when we take your fee, we actually break it down by the claim anyway in the background, like in accounting. And I said, oh, so if we charge you by the claim, it'd be even easier for you. And he goes, yeah, actually it would. It save us the step of having to break everything down. And I'm like, well, here we go, right? Win, win. It goes up. I do a great job. They love it. They want it that way anyway. It's easy for them to understand process. So we flipped the model from a per seat to a per claim and the growth went through the roof.
[00:26:42] Speaker A: Yeah, that's awesome. That's a great story.
[00:26:44] Speaker B: It was, but it was a big painful lesson for me. Getting punched in the face by all these clients and not knowing what to do.
But for everybody listening, I think what Mark was saying, I lived it. And so if there's any way you can get off of an over simplistic just by the seed or flat fee and get on something that's a little more tied to the problems you're solving, the value, you will be well rewarded for it.
[00:27:05] Speaker A: Yeah. Here's a quick test for companies to see if they've got a decent pricing metric or not.
Go through and say, which of my customers get the most value from my product and are any of those paying me a very small amount? So if you've got customers that don't pay you much but get a ton of value, you are probably using the wrong pricing method. And that's when it's time to revisit that.
[00:27:28] Speaker B: That's something you can do on a Monday. Go in, take a look. Best customers who's not paying you much. I think that's something folks could do. And even that table earlier with the features and the customers with the score of 1 to 5. Those are two things that folks listening can take. The way go on Monday, give it a shot and see if they can learn something about their pricing, packaging and their value. I love it, man. This is chock full of good stuff for the, for the group to close out the AI piece because I want to jump into one more topic with you since I have you. It's rare that I have somebody with this kind of knowledge on my show. Give me a second in AI pricing AI, it is damn hard if you can give one piece of advice for say, a, I don't know, a startup founder who is, say, building an AI product. Because I know you separate the AI product versus the, the AI assistant for the AI product. I'm building this AI product thing. I have no idea how to charge for it. I'm copying chatgpt, I'm copying, you know, Anthropic and Perplexity. What do I do? What's your response to that? To that?
[00:28:27] Speaker A: Yeah. So. So I'm going to make a, a quick, teach a quick lesson and then I'll answer that question, if I may. So there's a huge difference between a platform and a solution.
So when I think about ChatGPT, I think it's a platform, as in I can solve almost any of millions of different problems. LinkedIn is a platform, Zoom is a platform, then we get to solutions. So a solution says, I'm going to go solve a problem for a customer. And so when we think of ChatGPT, we think of agents as solutions, we think of Zoom, there's something called Zoom telehealth. When we think of LinkedIn, we've got LinkedIn Recruiter. So each of these are solutions to more specific problems. So assuming that you are building a solution to a problem problem, not a platform, right? Platforms are really hard to price. Platforms end up being competed down towards cost. That's why we're going to see ChatGPT and Grok and Anthropic and all these guys competing on tokens and driving prices down constantly. But once you build a solution to something, so Grammarly is a solution, right, that uses AI to help us write better, once you've identified a solution, then what you're going to look for is how are you delivering value to the customer? So who has the problem? What's the KPI? I tend to think of problems, results and value. So if I'm selling B2B, what's the problem I'm solving? What's the KPI I'm going to go move for that customer, right? In the example you gave, the KPI I'm going to move is claims per person or total claims. And so what's the KPI I'm going to move? And then if I can move that KPI from point A to point B, how much more money does my customer.
That's what I think of when I think of how am I going to go price my product. In this world of agentic AI, it's really important to understand what are those KPIs and how much Money am I going to make?
[00:30:09] Speaker B: I love that. Connect it right to the KPI and then the events that feed that KPI and that's how you start to break down what to charge versus a flat or just a basic seat. That's a good one.
[00:30:21] Speaker A: Yeah. We often can't charge directly for the KPI or for the money we make.
I should just say this. My favorite pricing company is PayPal. Right. Because they charge a percentage of revenue and I cannot wait until I owe them a million dollars.
[00:30:37] Speaker B: That would be a good thing, right?
[00:30:40] Speaker A: Yeah, exactly, exactly. I mean, that's the perfect pricing metric. Oftentimes we can't find one that's really perfect. So what we look for is something usage based that is correlated to those KPIs we're going to make move. That's correlated to the value that we're going to deliver. Right. So. So we have to go look for it. It's not always easy to find.
[00:30:58] Speaker B: No, not, not always. I'll give you one. This is something that somebody brought to me the other day. I want to hear what you have to say. This is a, a user based pricing. Classic example, but a good one because they're, you know, gajillions of dollars. I'm talking about Netflix. Everybody knows Netflix. They have a subscription, they watch the show, they watch the content and they charge me by the user. But some users watch a lot.
Some users just watch a little. So this person that is a, he's a friend of mine, I've known him for years. He was basically telling me that, yeah, well, how come Netflix doesn't charge me by the show or charge me by, you know, number of viewing hours? Isn't that tied to value? And I said it is. However, when you get too tied to value, I'm going back to this point you made a minute ago. It could actually be problematic. It might even create the wrong incentive.
So in your view, Netflix is charging by the user. How do you justify that, Mark?
[00:31:51] Speaker A: Okay, so I actually don't think of them as charging by the user. I mean, they charge for the family or something like that. Right. But it is, it's like a flat fee pricing. And how do I justify that instead of per show or per something? So the first thing to remember is that whenever we charge for something, buyers try to do less of it.
Right? So if I have to pay for something, I'm going to figure out how do I use less of this thing that I have to pay for. Remember your dad switching off light switches for the electricity? Walking around the room, walking around the house. Right.
[00:32:23] Speaker B: Or calling grandma on the weekend so you don't spend your minutes on your.
[00:32:26] Speaker A: Exactly.
Exactly right. Exactly right.
And I think buyers, first off, buyers don't like it per se. In B2B, we live with it because we understand it.
But in the world of Netflix, I'm going to take the same thing back to your cell phone and remember how you used to pay for minutes of cell phones and now you don't do that anymore. Right. So in this B2C world, what we do is we say, hey, this is the main reason why you're buying the product. I'm just going to give you all access. Now, if I were Netflix and I were, if I were advising Netflix and I wanted them to be able to get more money from people who are high volume users of Netflix, what I would probably do is create two tiers as opposed to charge per show. And the, the second tier might be, hey, once you've watched, you know, you typically watch 500 hours a month, but most people watch 100 hours a month. So we've got this tier that's, you know, zero to 200 hours a month and a tier from 200 plus hours a month. You know which tier fits you. And I would probably do something like that because now we don't have people trying to say, oh, I can't watch that show because it's an hour and it's going to cost me $3 if I watch an hour show.
[00:33:31] Speaker B: Exactly. And I think their behavior is going to be very, you know, they're going to have to make a decision every time they want to use the product. Which is not what you want people to do, right, when they use your product. To your point.
[00:33:43] Speaker A: Exactly.
[00:33:44] Speaker B: Thanks for indulging me on that one. Here. This is, it was just fresh on my mind with the whole Netflix thing.
[00:33:49] Speaker A: These things are always fun.
[00:33:52] Speaker B: They are. I mean, this is a treat for me. This is a treat for me. I love, I love having you on the show, man. One thing that just get into the last section here, the fast forward there is where is pricing going? And value based pricing. And believe it or not, people are even out there saying, you know, Stephen Forth, you know, a brilliant pricing mind out there as well, you know, says we're not, we haven't even fulfilled the potential and promise of value true value based pricing.
[00:34:15] Speaker A: Right.
[00:34:16] Speaker B: We kind of get close to it. Like you said earlier, a lot of companies don't even understand the problems they're solving. And so we kind of get near it or adjacent value Adjacent, if you will. But now we're getting a little bit closer with AI Value based pricing. Value changes all the time, right? The value of an ice cold bottle of Coke is different when I'm trapped in an amusement park on a 100 degree day or if I'm outside cold, I'm full, right? So there's all this thing around it, whether it's conditions, behaviors, sentiment, all these things, past historical points of view, lenses, you name it. But it changes the way you see value though. How the hell are we going to price something that's a moving target? It's a big question we get all the time. And I know you have a recent book on this one. I gotta give you a second to talk about this, this notion of, of context and context driven pricing. Share that, share a little bit about that and then let's jam out of. Cause I think it's super interesting.
[00:35:14] Speaker A: Yeah, so. So first off, the book is forthcoming. I'm still writing it. I've written the first draft and I usually go back and rewrite a book after I've written the first one, after I've written a draft. So. So it'll, it'll be out, I would guess six months from now. But context driven pricing is.
I crafted this concept, first off, let me tell you why, why I have this concept. It's because we as pricing people could never agree with the word value. And I always wanted to define value based pricing as charge what a buyer is willing to pay. And I got so much pushback from all of our colleagues and you know, it's rightfully so, but I would defend it by saying, well, how much do you value something? However much you're willing to pay, that's how much you would value it. Okay. But everybody hated that for so many reasons. And so I said, well, I think the perfect pricing strategy is charge what someone's willing to pay. But I don't know how to call willingness to pay. Pricing seems really weird, but as you start thinking about it doesn't. But as you start thinking about willingness to pay, someone's willingness to pay is always driven by their context. And so I called that context driven pricing. And I define it really simply charge what a buyer is willing to pay. That's it. And so there's three tenants to context driven pricing that are. I find each three super important.
The first one is that willingness to pay is contextual.
So an umbrella is more valuable on a rainy day than a sunny day. An ice cold Coke is more valuable on a hot day than a freezing Day, Right? So, so value, willingness to pay is contextual. The second one, you'll love this one. Willingness to pay is malleable.
So, so you have the ability to influence how much your buyer is willing to pay. Now, there are many ways we can do. We could use behavioral economics or things like that. But the thing that I always think about is how do I sell value? How do I make sure I'm explaining the value to my customer in a way that they truly understand it and say, here's how much money I'm going to go make. And so, so willingness to pay is value. And then my third one is my favorite one. Perfection is impossible. Stop worrying about getting the right number and go be better tomorrow than you are today. That's all I can suggest. Right? So those are the three key tenets to context driven pricing.
And so it's truly about understanding why are people buying? What's the situation they're buying. And there's different layers of context, there's different layers of understanding and decisions we make as companies around those layers of context.
I'm shocked at how well it's formed up as I've been writing it and creating it.
[00:37:46] Speaker B: Well, I think it makes a tremendous amount of sense, everything you just said, right.
You can influence willingness to pay. It's influenced by the conditions. But then you can turn around and with framing and changing the conditions also change willingness to pay. One thing that is interesting though is how this stuff actually plays out. Like, do you think it plays out in the segmentation? Does it play out in your tiering? Where does the context based stuff actually play out in the real world?
[00:38:10] Speaker A: So the answer is yes.
So here's where it actually plays out. Let's start at the highest level possible.
So to me, defining a market segment is the single most important thing you can do as a company. And so I define a market segment as companies with or individuals with a common set of problems. And so when we start thinking about context, the problem you have is a context. And I think of these as foundational problems. Right. What's the most important problem? What's the reason I'm ever going to say, hey, I need to go buy one of these things, whatever that happens to be. And there could be three or four different reasons.
Right? So what's the reason you're going to subscribe to LinkedIn? Well, it's because I need to go hire people. Oh, I need to help my sales organization. Oh, I need to find a job. These are market segments in LinkedIn's world. And that's completely consistent with the way I would think of a market segment. And so at the very highest level of context, what's the problem? What's the main problem you're trying to solve at the next layer of context?
This is where we start talking about the tiering or the product portfolio.
So take any given market segment, let's use recruiter in LinkedIn. Take any given market segment. And there are some recruiters that have some sets of problems and other recruiters that don't have those problems. And so can we craft product portfolios to solve more specific problems for different.
We can call them sub segments, whatever you want to think about. But I think of that as the problem scope. Right. So what's the scope of the problem underneath the big foundation problem? And that's going to help us drive that product portfolio. Now give me any individual product and go point out a bunch of different buyers. And those buyers all have different willingnesses to pay based on this context of the situation they find themselves in, whatever that situation happens to be. And so that's the umbrella on a rainy day versus a sunny day. That's the hey, we're on a huge hiring kick right now. I'd pay a lot more for LinkedIn recruiter than when we're not on a huge hiring. And so think of that as the context driving willingness to pay at the price segmentation level.
[00:40:13] Speaker B: Got it, Got it. And so that's where you get the problem layer and the product layer first.
[00:40:18] Speaker A: Yeah. So the foundational problem, the problem scope and then the situational context. But all three are context. It's just the type of context we think about.
So you know, we can have more examples. When you think about context, think about whether or climate as context. And so a snowblower in Texas doesn't have a whole lot of value. A snowblower in Minnesota has a ton of value. Right. So this is a context and a market segment because people in Minnesota have a problem, people in Texas don't have a problem.
[00:40:48] Speaker B: That makes perfect sense. That makes. And the willingness to pay be different in Texas than say in like Winnipeg or somewhere like that.
[00:40:55] Speaker A: Right, exactly. Right.
[00:40:58] Speaker B: No, I get you, I get you 100, man. I think one, one interesting thing is now with more and more AI, so this kind of connects the whole thing, right? Between problems, solutions, AI giving us more access to context and then context driven pricing. We just created this whole arc without even trying. Right. But it does all align and make a lot of sense. Man. If you had just thinking about our conversation today, so many Takeaways and lessons that you inter were interwoven throughout our whole convo. But the one thing to stick for the audience as we move on to wrap up, what is the one thing that you want to stick for people listening?
[00:41:33] Speaker A: I think the answer is the more you understand value from your customer's perspective. Right. Different customers value things differently.
So that brings in the context piece. We can bring in the AI piece to say, look, go ask AI about your customers. Don't believe AI, but go ask AI and you'll get ideas and thoughts, thoughts that you never thought of before because it's way more creative than we are in terms of things they can find and things they can think of. But in the end, it always comes back to, how is it that your customers get value from your products? And that's the thing you need to drive for. Everybody needs to get better at that.
[00:42:07] Speaker B: Yeah. That's at the fundamental piece. And I agree with you on the AI as a. As a brainstorming idea generator. Someone on my team said AI is a great starting point, a terrible and ending point, if you know what I mean. So it's one of those things.
Thank you so much for bringing your vast knowledge on the show, Mark. Today. I do have one more question for you, though. I can't let you leave without you telling me and revealing to the world, if you know me, you know me.
Gotta tell me, what is the. The jam that lights you up? The song you can hear over and over again? Tell me a little bit about that.
[00:42:39] Speaker A: Okay, so first off, I have to say that I rarely listen to music. I did grow up listening to music, but nowadays I almost always spend my music time listening to podcasts instead.
So I'm not a huge music guy. I have to say, the song that I loved growing up and I could never hear it enough times was Bohemian Rhapsody. I just loved that song.
I'll give you the other two that I really liked. I loved American pie from Don McLean. That was amazing.
And then remember when MP3s first came out and MP3 players first came out? That was a little after that. Shania Twain came up with her album up, that had both the country and the pop version of the. Of the album. And I took the song up, both versions of it, put it on my MP3 player, and I would ride my bike and just listen to that song over and over and over again because it just kept me writing. Right. It was the motivation to. To spin those dang pedals.
[00:43:41] Speaker B: But you. But you can hear it and you can probably play it over and over again and still keep on going. Right? That's, that's the key there, man. And so you have, you gave us a treat because you gave us three but it tells us a lot about you Mark and your stand up man. Thank you so much for, for coming in and playing along and team. That was Mark Stiving. Please listen to his lessons, his knowledge. He dropped a few bombs here today for all y' all to take forward.
Follow him on LinkedIn. He publishes a ton of great stuff on pricing, on packaging, on value.
Take a listen. Mark Stiving is one of the leading pricing experts out there.
So give him a follow if you will. But don't just sit there and listen. Actually take those lessons forward. Try something. Try that Matrix on Monday or try writing down your customer problems and a problem statements. Take the information and take a step forward and away from that guesswork. And remember, stop guessing and start growing.
[00:44:38] Speaker C: Until next time, thank you and much 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.
