Introduction
Eirini Athanasopoulou: Hello, and welcome to the Retail Pricing Insights Podcast by 7Learnings. My name is Eirini Athanasopoulou, and I will be your hostess for today.
Welcome to our sixth podcast episode. In this series, we aim to improve your pricing strategies by inviting experts to discuss industry trends and share actionable strategies with you. We have access to these experts throughout our dynamic pricing community, which we have been building for the last two years. We are organising and hosting events. We also have a LinkedIn group and there’s a lot of networking around it. If this sounds interesting to you, go ahead and apply for our community today. You will find the link in the description of this episode. This community is completely free of charge, but you have to apply and we are strict with our membership rules.
Today, I have the honour to speak with Sven Baumgarten, a pricing expert at the e-commerce industry. We will talk about the importance of a holistic pricing approach in your organisation. If you’re ready for an episode full of insights, let’s welcome Sven.
EA: Hello, Sven. And thank you so much for joining us today.
SB: Thank you. It’s a pleasure to be here. Thanks for having me.
EA: And it’s. A pleasure to have you, especially you, because you are already a member of our dynamic pricing community for quite a long time, to be honest, and we really like to seeing this participation also in the webinars and the events and on the podcast.
SB: Yeah, thank you. It’s always really fun. And I learned a lot. I met a lot of interesting people. I really met some, some old colleagues. It’s really interesting. And yeah, so I, I’m happy that you started out.
EA: Thank you. Thank you so much. Let’s start our discussion today with an introduction to your business path and how you started with pricing.
SB: Yeah, that’s really interesting. So I started studying economics. I wanted to become an economist. And when I started a PhD thesis that is unfinished. The reason for that is that my budget constraint was finding as we economists say, or normal people would say I run out of money. So I had to start working something but then I was looking around what can I do with all the knowledge that I have and then I ended up in pricing. So because that brings a lot together of what I have learned at my university career.
So you need a lot of statistics and mathematics. When you go into this technical part of pricing, you need an understanding of the behaviour, economic side, or this whole thing, how the psychology comes into the pricing sphere. And then the business part that was also a part of the study. So, and I started directly in e-commerce and had a lot of different positions there.
Travel and leisure was one. I did a lot of retail over the last year. And I had a shortstop in the in-house consultancy at a big publisher where I was working with a team together on monetization and pricing topics, which was also really interesting to see other side of, of doing pricing. Because this, this e-commerce and e retail thing, I mean, they’re quite different in, in the different industries that you’re working in, but.
At the end, it is really something that we can find similarities in all these companies.
EA: It is so nice to see this adaptability and how a need, let’s say that you had made you really involved in your professional career and develop this path. That’s very nice.
SB: Thank you. Yeah, it was quite an interesting journey I had sent.
To be honest, I’m doing a lot of what I really love. I’m playing around with numbers. I can really put my head down and thinking about, Mathematical statistical technical problems. I can learn a lot because it’s, it’s really frequently changing environment. So this whole pricing thing.
I mean, that was touched by a lot of others. So he started out with cost plus pricing. Then we went on to different approaches and now we’re ending up in something like AI machine learning where we try to optimise a lot and Let machines do a lot of the work that we have done in the past and they can do much better than we can do so, yeah, it’s really really something that I love
EA: That’s amazing and very rare. I would say the topic of our episode today is the importance of a holistic pricing approach.
First of all, Let’s define a holistic pricing approach. What do you mean by that? What do you mean by that term? And how does it differ from traditional pricing strategies?
SB: I would, I would like to start to answer that by referring to one of the previous episodes that you did on this podcast show. With Yola and Lorenzo they were touching on the situations that we had in the last couple of years.
So we had a growing e-commerce sphere then we had COVID situation where everything was shut down and e-commerce was skyrocketing. Then we had supply chain issues with shortages on the stock and with a lot of products out of stock. So then we had a situation where everything was turned upside down as the shops reopened everyone could walk out. So COVID was over and inflation and recession hit it in. So now we have supply chain issues again, and all this led to a view where our focus went broader and Yola and Lorenzo both were tackling that and talking about a view on, on the stock situation on the warehouse situation.
And with the holistic approach I think we should even go beyond this. So we should take the whole value chain of a company into account in our pricing view. So I have a framework in mind that I developed for myself over the last years with all the learnings that I already mentioned.
And I would love to explain this framework in more detail, because I think that, from a pricing perspective, we should not, as it was in the past where every department in companies we’re focusing on their own work, thinking in silos, and we should break this style of thinking and go beyond that and work together. And I have learned a lot from my colleagues from different departments on things that also I in pricing should take into account.
EA: First of all, I’m very happy that these episodes, this podcast has given you the idea and the feeling that you have common challenges and you’re facing common things in your everyday life as pricing experts. That’s one of the goals of this podcast. I feel what you say is something that is also future oriented and you’re open to the tone of today and the need. I don’t know if I express it as I have it in my mind, but why do you think that this holistic pricing approach is so important for the retailers?
SB: I think it is because there is a lot of interplay that we have not focused on in the past. For example, this whole stock situation led to measures that we had to take driven by external circumstances. So in the COVID situation, we had A lot to deal with not running out of stock because we had supply chains that were broken. We could order, but nothing, nothing get to our warehouses.
And we had to think about, we had pricing. We really had to look into this and to see what products maybe running out of stock and how do we have to act here a few months later, it has turned upside down and we were sitting on stock and we had to, to solve the issue, how to get rid of all this stock that is producing a lot of costs.
And to bring this to a whole new level is to feedback that we in pricing department. With our knowledge and for example, the category management or procurement department to really let them know what we know so that they can make better buying decisions. I can only speak for the industries I am in, but it might not be applied to all industries in the e-commerce retail landscape, but for some.
The bony are an important part in, in the buying conditions. So, and the bony are attached to a volume that you have to reach. What we have seen in recent years was all the recession, demand going down inflation thing so that we may be not reaching our bony target. So that means we’re losing a lot of bony, which is leading to higher buying conditions, which makes it in the pricing department harder to price things if the buying condition is changing.
So this is something where we have come up with a supplier P and L. So that was not my idea. That was the idea that was created in the category department in our company. And they came up with a supplier P and L, and this helps us to have all this, in view in mind. When we price, when we do procurement decisions, et cetera, so that we really think from the starting point on to, to have the price aligned with the buying decision.
And this is why, I mean, a holistic approach that not looks on the warehouse that we have today, but also to be involved as a pricing department already in the procurement decision due to the feedback that we can give to them on the other hand side, you have you have the marketing.
What I think is really interesting here is the part that the marketing department and the pricing department should align. So if I as a pricing, Manager put the prices up and think, Oh, nice. We’re doing a lot more margins. Then it is maybe on the margins that I’m focusing on that not taking marketing costs into account because for the marketing people, it becomes even harder to acquire customers. They have to spend a lot more on CF, for example and then the margin goes down. So we have to find the sweet spot between the pricing decision. And the marketing spending decision together. We have to find out something that I call marketing elasticity. How is the pricing affecting the marketing spend and vice versa?
So, taking this feedback loops into account in pricing decisions. But also in the procurement decision, but also in the marketing decision, and we can go on for other departments operations, logistics, etc. So we have to, to really take all of this into account. And this is what I mean with holistic approach.
EA: 7Learnings has also identified this high demand of having a collaboration of the different departments of the same organisation and from what I see, this is a really important. Do you have any specific examples that you could share with us today of successful implementations of this holistic pricing architecture in the retail sector?
SB: Yeah, I can. I mean, I could only speculate what others are doing. I think that from what I heard in your podcast that Yola and West Wing, they’re on a similar journey. And they also have figured out this. I think others in this industry are in the pricing field there. All right. At the same point as we are, but I think it’s only the beginning. I don’t know if anyone has already solved all these issues and put this into one holistic framework, approach, algorithm, whatever you want to call it.
We are currently at my company, we’re currently working on that on different angles. On some we are already quite good on the way others, we started to try to understand the things. Some are already put into an algorithm. But overall it is an evolutionary process, I would say. And we are quite at the beginning. We are working our way to this level to reach this holistic pricing approach.
EA: This is a process anyway, right? It is very important to identify first the need and then try to implement it, and always implementation is much more complex than we thought.
So, I understand that the holistic pricing approach mostly means to take all the data into account. What method do you use to deal with this data, or what do you do with this data, if I could ask this in a simpler way?
SB: So, the end result should be an algorithm that takes all the information that we have at the moment, but maybe also data points that we do not have at the moment, but maybe create or find out during the journey.
That we need them to do better pricing decisions into account at the moment. As I said, for some of this, we already have algorithmic solutions where the data is processed and we can use the output into pricing or into the feedback loop to other departments. As a result, later on, it should be all in one algorithm.
That would be my wish. My hope. At the moment it is quite a process, but we automated a lot of manual work, a lot of adjustments with stakeholders from other departments. And there are different methods that we are using. So the algorithmic approaches that we are having, they’re going into something that is machine learning based. Some of the processes or methods that we have there. Automated or semi automated that teams can run the analyses on a daily basis by just hitting a button to a stripped. Some of this is still work in progress where we have met, where we have to do manual analysis and figure out how all this is connected and we are using different methods for this.
EA: And how is the marketing data being used for the pricing decisions in this framework that you have been describing to us?
SB: First of all, I mean, what I have said is that this marketing elasticity, as I called it is really a work in progress at the moment, so we work with our marketing team together and do testings and try to understand how our behaviour in price setting is influencing the decision that the marketing department has to take.
So what does it mean to see when we increase the price, let’s say for 1%, how has marketing to adjust their spending to keep something like the conversion rates or the revenues or whatever KPI we’re using into balance.
And this is. Still quite something that we dipped into recently, but on the other hand, there are a lot of other marketing data that we can use in pricing. This is the customer information that we have. It’s the cohort data that we have, et cetera, to improve our price settings and positioning on different outlets, for example.
How can we use that into the pricing approach into maybe also something like an individualised pricing for every customer. So, and there’s, I would say. A lot that we can learn from, from the other departments and we have to sit down with them in workshops or in geofixes and work our way into that and, and understand what they do and they have to understand what we are doing.
EA: That’s great. Thank you for being so detailed to your answers. And I think we really dipped down today with this episode and this topic. So now going to our last question for today, as you already know probably I really like to finish off these episodes with something that is future oriented. So looking ahead how might advancements in technology impact the evolution of pricing strategies in the coming years?
SB: I think there will be a lot more automation and a lot more data transfer but we in different departments and we have to break this silo thinking and really work more agile together and understand all the different departments. There’s a lot of knowledge shared that we need in that.
So and therefore I really love what you’re doing at 7Learnings that you bring together people with different perspectives and also different backgrounds and knowledge that we can profit from that. So I take a lot from the dynamic pricing community from the talks and exchanges that we have there and bring that back to my company and exchange with the colleagues there and try to incorporate all my learnings into the daily doing.
Overall, what I would love to see is that we have an automated approach that is feedbacking a lot more back to, to all the different steps in the value chain that we have in, in a company and that a lot more is automated. At the end, I think there will always be change. There will always be new challenges that we at this moment don’t know what happened. And we have adapted this, but what we can try is to better prepare ourselves for the future.
EA: I think that’s based on really important skills that we need to have. And thank you so much for acknowledging the impact of the dynamic pricing community. It seems that we are achieving our goals there.
So thank you, Sven, for accepting to be our podcast guest for this one. And we hope you enjoyed and to see you again in one of our next events.
SB: Thank you for having me. And to the last question, I can say definitely for sure.
EA: Thank you. Thank you.
This was the Retail Pricing Insights Podcast. From now on, you will receive one podcast episode straight to your inbox if you subscribe to the newsletter. So go ahead, use the link in the description and subscribe to the newsletter. As well, as mentioned in the beginning of the episode, I would love you to be part of our dynamic pricing community.
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Thank you very much for tuning in today to the sixth episode of the Retail Pricing Insights Podcast by 7Learnings. More pricing content is coming. See you soon.
