EP 026 - Mastering the Science of Pricing with Per "The Price Whisperer" Sjöfors, Pricing Expert

Summary

In this episode, we are joined by Per Sjöfors, also known as "The Price Whisperer," who discusses the pivotal role that pricing plays in business profitability. Per explains that pricing has the highest leverage on profitability, exemplified by his "1% challenge," which shows that a mere 1% increase in price can lead to an 11.3% increase in profit. With over 15 years of experience in pricing strategy, Per has worked with companies across various industries, refining their approaches to maximize profitability. Per emphasizes the importance of understanding cultural differences in pricing and the necessity for companies to adapt their strategies when entering new markets. He discusses his book, "The Price Whisperer," which aims to educate people on the science of pricing and provide practical insights that go beyond academic theories. During our conversation, Per highlights common pricing mistakes, such as the reliance on cost-plus pricing and ignoring market segmentation. He explains that true pricing power comes from differentiation and the ability to increase prices without losing sales volume. Per stresses the importance of leveraging consumer perception and effective marketing strategies to create this pricing power. He also discusses the process of finding the right price for a product, which involves conducting thorough pricing research and understanding the various factors that influence pricing decisions. Per advocates for a holistic approach to pricing that encompasses the entire company, suggesting that a dedicated pricing function should guide marketing, product development, and price presentation. Looking towards the future, Per shares insights on dynamic pricing and the significance of understanding buyer behavior and psychology. He calls for businesses to move away from flawed pricing strategies, such as cost-plus or competitor-based pricing, and to focus on delivering value to customers through strategic differentiation.

Takeaways

- Pricing has the highest leverage on profitability, and a 1% increase in price can lead to an 11.3% increase in profit.

- Understanding cultural differences is crucial when it comes to pricing and entering new markets.

- Common pricing mistakes include relying on cost-plus pricing, not considering market segmentation, and viewing the market as homogeneous.

- Pricing power comes from differentiation and the ability to increase prices without losing sales volume.

- Leveraging consumer perception and marketing strategies can significantly impact pricing.

- Finding the right price involves conducting pricing research and considering various factors that influence pricing decisions. Move away from flawed pricing strategies and focus on differentiation and delivering value to customers.

- Price sets expectations and can influence customer satisfaction.

- Establish a dedicated pricing function within the company to guide pricing decisions, marketing, and product development.

- Understand buyer behavior and psychology to make informed pricing decisions.

- Consider the potential impact of dynamic pricing and the importance of price presentation.

- The future of pricing may involve advancements in technology such as AI and data analytics.

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Quotes

“Pricing is not art. It's really science.”

“Pricing has the highest leverage on profitability.”

“For the average company, if you can increase sales volume with 1%, profit goes up 3.5%, because cost also goes up. If you can reduce your cost with 1%, profitability goes up 5.5%. But if you can increase your price or decrease your discounting, which of course is the same thing with 1%, profit goes up with 11.3%.

“Cost is very relevant, but it should not be used for setting price.”

“Very common mistake is to see a market as homogeneous. And no market is homogeneous.”

“This is also oddly enough unbeknownst by too many business leaders that it is profit that drives a company.”

“You should do price increases every year, with a few percent.”

“Pricing power always comes from differentiation.”

“It's all about getting knowledge, and realizing that guesses and gut feel and cost plus, or maybe looking at a competitor, or trying to price as a competitor, are flawed strategies.”

“Anybody who runs a business are in business because we are delivering some value to our clients.”

“As humans, we cannot not compare numbers.”

“For the pricing team, if there should be OKRs, it should be based on profitability. Because profitability is, at the end of the day, what drives the company forward.”

"There are always segments of a market that have a higher willingness to buy and a higher willingness to pay."

"People make rational decisions. And they're predictable because we have the benefit of getting the wisdom of the crowd."

"Effective pricing strategies are actionable, not just theoretical." 

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Where to find Per Sjofors: