The Ultimate Pricing Strategy

Per Sjöfors  00:00

What has been proven again and again, is that a five cent aspirin is not very effective curing your headache, but a 50 cent aspirin is.

Debra Chantry-Taylor  00:09

Good morning and welcome to another episode of Better Business better life. Today, I am joined by Per Sjöfors who is the founder of Sjöfors & Partners Inc. but more commonly known as the “Price Whisperer” and he will explain where he got that moniker from in a moment. Thank you so much for joining us, because it’s actually over in California. Is that right?

Per Sjöfors  00:29

Yes, I’m in. I’m in Los Angeles. And it looks like we well, first of all, thank you so much for having me on the show. But it actually looks like we may get a little bit of rain, which is the first rain we’ve had since February, I think.

Debra Chantry-Taylor  00:45

Wow. Yeah. So that’s a pretty driver there then.

Per Sjöfors  00:50

 It is pretty dark, dry. And, and, you know, water is running low. So we’re not allowed to water our yards anymore, and stuff like that. So

Debra Chantry-Taylor  01:03

It’s nice being back in Australia, we had similar kinds of challenges over there regularly in Australia.

Per Sjöfors  01:08

Yeah, that’s right. That’s right. And, so, so, anyway, everything is dying. And, but, but you know, and it’s, it’s hot, I mean, the hottest little corner in, in LA, and this week, we’ve had up to about 44 degrees.

Debra Chantry-Taylor  01:24

Wow. Today’s. I’m have to say, I’m not envious, without like, really hot heat. But it sounds like at least it’s, you know, it’s, it’s not cold, it’s not cold, it’s not wet, like we are over here. So that’s good. Okay, so we’ve just had a bit of a chat before we came on this podcast, and you’ve obviously got a very fascinating story, I wonder if you might start to share some of that with us. And also tell us, you know, what you’re most proud of professionally and personally in your life so far?

Per Sjöfors  01:54

Yeah, the, I actually have a I mean, in my, I have a background of, firstly, an engineering background, and then an MBA, but the my entrepreneurial journey, if you want, want to call it that started, really, I’m Swedish from start. And I had the opportunity to work for this company and the owner of the company. And I was on the engineering side, and he said, you need to go into sales. And he’s told me that for a couple of years, and I said, No, I can’t do sales. Eventually, though, he convinced me. So, we set up a company in Switzerland, in Zurich, and I had the I was scared out of my wits, right. Because I’ve never established a company before. I’ve never been a CEO before. I’ve never developed a European wide distribution business. And I didn’t know the language.

Debra Chantry-Taylor  03:04

There’s a few challenges.

Per Sjöfors  03:06

So, so one had to be a quick learner, for sure. That’s, and, you know, that was, was a lot of a lot of work, of course, and, as it always is, but but it was very successful. And however, after about five years, when we, I think we were up to about seven, 8 million in revenue, so pretty small, but we, I was then bought over actually by my main competitor, which was a Japanese company. And I became CEO of their subsidiary out of London, to handle the European market. And obviously, over a three year period, I quadrupled sales. So that was, and I was, it was sort of funny, I, I was known in the company as the hardest worker in when you have a Japanese company, you know, which wasn’t very true, because these these folks from from Japan, they had, you know, they have a to do list for today, you know, with 50 items, you know, and they didn’t stop until they done all the 50 items, and I did the six items that made any difference, you know, so, but, but but that was fun, you know, and also to get an insight into the inside of a Japanese company, you know. And we, we always took our best distributors to Japan and travel around them in Japan and so we saw that really from the inside. Yeah. Okay. But then eventually, I was recruited to establish a division of a fairly large company, a fairly large public company here in the US, which I did. And and, and that was also very scary, you know, to would suddenly be on the management team of a, again, a, you know, a half billion dollar company and that is public, you know, and so forth. But, but the whole thing when it went well, you know, I took that division to about 72 million in two years. So, and, and the, the, I was very successful. The company, though died around me, you know, long story short, and I actually negotiated to sell our division to Philips in Holland. And, and the all everything was done, we just needed the signature of Philips CEO, and then he got fired.

Debra Chantry-Taylor  05:55

Okay, and may I ask what happened, then?

Per Sjöfors  05:58

Well, what happens then? The the, I mean, we were part of this dying company, it doesn’t matter that I had lots of lots of business and his the, the owners of the company the I shouldn’t say the owners of the company, because it was public. But the, the major investors says that this just shut it down. Yeah, there’s no future.

Debra Chantry-Taylor  06:22

Okay. So where to from there, then?

Per Sjöfors  06:24

Well, then I had another four CEO positions. But the point is that in, in all of these instances, we did experiments with pricing, only because it was an interest area for me. And the some of those experiments were very successful, meaning that next quarter revenues are up 25% or so. And many were complete duds. And what I had learned in business school and could read about pricing was so theoretical and so academic, that it was really useless as an information source to find out why some of those experiments worked, and others didn’t so, So 15 years ago, I decided I was too old and too opinionated to be a hired gun. And so, I set up my own shop, and said to myself, that I wanted to develop a process that makes every pricing experiment a success. And, and that process, is the process, we still use, we have refined it, obviously, over time, we developed our own AI software that supports the process. And, and it’s it’s all about understanding what a market is willing to pay for a product or a service, right. And we, we define that find a way where that could be measured with great accuracy. And from that we can predict sales volume and revenue and profits at different price levels. Right. And it’s not only that, because then we, we segment it so we can tell our clients. This is the customer segment or persona, or that leads to the highest sales volume and revenue. We do the same with product or service features and benefits. We can say use these in your messaging and in your marketing, because they drive the highest sales volume at higher prices. The and the we do the same with marketing. So we tell our clients use these marketing messages in these channels because it’s going to drive the highest sales and revenue. The same with sales use these sales methodologies and these channels because it’s going to like drive the highest revenue. And finally, of course, we say we can define a pricing strategy that minimize friction and maximize sales volume and revenue.

Debra Chantry-Taylor  09:08

Wow. So it’s a process that you’ve developed. And obviously, you’ve been doing this for quite some time now. What do you see the common sort of mistakes people make around pricing?

Per Sjöfors  09:21

Well, the first one is really not to realize that pricing is a profit driver. And and almost all companies we work with are underpriced. Right. And and just to give some recent examples of underpriced companies. We and this is using this methodology of measuring willingness to pay and predict sales volume and so forth. One company we took from an annual revenue of about 200 million to 250 million in three weeks.

Debra Chantry-Taylor  10:02

Three weeks?

Per Sjöfors  10:03

Three weeks. Yep. Another one, the small company we took from about 15 to 15 to 35 million in that took six weeks roughly, was more complicated environment. So why

Debra Chantry-Taylor  10:20

Do you think people undervalue their product or service?

Per Sjöfors  10:27

Well, they, well, one thing is that in business school, you’re being taught these demand curves, that tells you that the lower the price, the higher the sales volume. And most companies are more interested in sales volume than revenue and profits. And that is a mistake. Because if you instead focus on profits, you get more resource to develop new products, to do more marketing, to do more sales development, to hire the best people and so forth. So, a focus on profitability and a focus on putting pricing in as a centerpiece of your business strategy makes a huge difference. Yeah. I, you mentioned my book clear. And I, the, you know, I reached out to some prior customers, I sent them a review, copy and asked them, Can you can you say something nice, you know, and one company Demond Eric, came back and he said, Well, Per, you helped us grow from 100 million to over a billion, thank you very much. By putting pricing in as the centerpiece of the business strategy.

Debra Chantry-Taylor  11:46

Yeah. And I think what you’re saying is absolutely right. As you know, once you get there, if you focus not on the top line revenue, but on the profitability, it enables you to create a self fulfilling prophecy, right, you’re creating a better business, you’re creating better, everything gets better because of that, and therefore you can continue to be sustainable. Yeah.

Per Sjöfors  12:04

And other other mistakes people do is, you know, they look at their cost. And then they put some margin on and it’s typically in different industries, different rules of thumb, right? Some companies try to look at a competitor, that could work if the competitor has pricing in public, but if it doesn’t, it’s almost impossible to find what they’re charging. And by the way, if you that is typically the first step into the commoditization death spiral. So, as an which you want to avoid?

Debra Chantry-Taylor  12:43

I’d say, it’s been interesting, because when I work with businesses, they’re often concerned that if they do put their prices up, that they will lose customers. And there is a mathematical equation that sort of says, Hey, sometimes putting your prices up, you lose, even with losing customers, you still end up being a whole lot better off long term, right? Yeah.

Per Sjöfors  13:01

Absolutely. That’s our business. And because the price, if you if you price yourself too low, you get, you know, people look at the price and say, This is so cheap, it can’t be any good. And we I mean, we all in there, you know, we hold something in our hands. And we say, I kind of want to buy this, but this is so low that this price is so low that I’m gonna pass this can’t be any good, right?

Debra Chantry-Taylor  13:28

We don’t we buy cars we don’t we buy it’s all about its branding really isn’t at the end of the day, you if it is too cheap, you think, well, it cannot be a good quality. It can’t. Yeah. Okay, so when you start working with a business, where do you start?

Per Sjöfors  13:44

Oh, it’s always to, to understand, understand the business. And, and, like, like in, but But it’s. So since what we do is all external to the business, we need to understand how they see their market, how they see their buyers, and their product and services, we do not work with with sort of internal processes and stuff like that, you know. So, the, and that’s why we have like this, you know, the convention we can kind of turn around the company on in three weeks. Right? Because nothing changes in the company, you just adjust the prices.

Debra Chantry-Taylor  14:32

You’re making it sound all very, very simple, but there’s obviously little bit more behind it. Tell me a bit about can you give one of your examples of businesses that you’ve worked with, and it’s a little bit of insight into how you did you know, three weeks? I’ve heard you mentioned three weeks, six weeks very, very short timeframes. Can you give a lot of insight into what you do with them to get those results without giving away?

Per Sjöfors  14:54

Yeah, of course, I mean, the I mentioned that we are I’m we do willingness to pay research, which is kind of market research, but in a very different way. And, and we have measured, we have developed a whole, in that we do a whole series of open ended questions where we ask our clients or if not our client, we asked the people who, who we polled and this is all done online, of course, we ask them to equate value and price. Right. So, what, what, how they value different price points and, and, and, and what what prices are too, too cheap and too expensive, and so forth. You know, and then we feed that into, into that AI software that we develop that some guru has said we should call it quicker growth software, but I think that’s okay. And then I have business people that look at the data that comes out and make human sense out of it. Right. Because we need to be very, very specific in our, in our recommendations, you know, but from, from a, from a, from a company point of view, it is, you know, we take four man hours, you know, to do one of these projects, and maybe six on the outside, but, and this is spread over several people over over over some time, you know, and and then if it’s just as simple as just adjusting prices as the two examples I gave you, then, then, then that is just changing the price on a website when the price was that doesn’t take any effort at all.

Debra Chantry-Taylor  17:07

Interesting, though, I actually interviewed Dr. Robert Adams is over in the US. He is a specialist in market validation, I actually trained under him. And we do a lot of market validation work. And it’s not as simple as asking people what they were prepared to pay is it too, because they’ll often tell you something completely different.

Per Sjöfors  17:21

You can never ask about somebody is he is willing to pay because they will lie.

Debra Chantry-Taylor  17:26

Yeah, they do they make it up? Yeah. Yeah,

Per Sjöfors  17:29

Absolutely. Just as the same thing as you cannot you cannot ask people, What do you intend to do? As you never know, they will? They will just make it up? Right. But you can reliably say, What have you done in the past? Because people will continue to do the same thing? Yeah. You know, and, you know, I think it’s funny, I see these surveys, some sometimes, you know, and you know, like, when when you go to some of these trade shows, they say, What are you going on by next year? Just fill in something, you know, and then they use this to this, or 86% of attendees say they’re gonna buy X, you know,

Debra Chantry-Taylor  18:19

As he says data to prove their model. Yeah, exactly. Yeah, that was fascinating. I mean, I must admit, people always sort of think they can do this kind of work themselves, but it’s a very, very specialist skill. I mean, market validation, pricing validation of a, you have to be able to ask the right sort of questions, otherwise, you actually is gonna get answers that you wanted to get to, but they may not be the right answers.

Per Sjöfors  18:39

That’s true. But the you also, I mean, there’s tell you a story here. The I had a conversation with a CEO of a SASS company, they do something called a contract management software, right. And this guy said, I’ve decided that this price is going to be $165 a month per user. And then he continued saying, but I don’t know if that’s right. Maybe it should be 99. Maybe it should have been 250. But 165 just felt right. It felt good. How much money is he leaving on leaving on the table? You know, yeah, nice. It’s the amount of money. Yes. Just because he he said well feel good. The pricing is right for me.

Debra Chantry-Taylor  19:36

But it comes down to what value does that software actually provide? And how much do people place on it? Yeah.

Per Sjöfors  19:42

Correct. And, and, and the and that’s a perception or value. There’s another interesting thing is in, you know, in the little price community if you’d like there’s something called economic value pricing. This is something that you do when you’re selling B2B, the seller is supposed to understand the exact economic value that you provide to the buyer, right? Now, that requires the buyer to open up the kimono and tell everything to the seller. Right. And then there’s a lot of assumptions that you also have to make. And, and again, within that pricing community, this economic value pricing is the is the is the silver bullet to pricing, right. And I mentioned this to a bunch of CEOs that I know and said, in our ask them, would you just open up and say, tell the buyer everything there is to know about your company? and this that, obviously, the answer is never. You know, and, and, and let’s say in the very unlikely event that that will happen. So okay, you have the economic value, then what portion of that should the seller take 5% , 10% , 50%? Guessing again, you know,

Debra Chantry-Taylor  21:16

Yes. So tell me a little bit about your book, because I’m very interested in the AI. So for the most interested to hear about this new book that you have just written, this is obviously based on I’m guessing on all your experiences over the years and tell me a little bit about it.

Per Sjöfors  21:31

Well, first of all, it’s called the Price Whisperer. And, and it’s called the Price Whisperer and have a subtitle called a Holistic Approach to Pricing Power. And it’s the, the AI piece is really something that is used in the back office, you know, but it it talks in detail about everything there is about understanding, that holistic approach the understanding something called the decision landscape, that that is is is really how we people make decisions, and specifically buying decisions. There is a there is a actually an academic field called behavioral economics. So, we are we are leaning ourselves on three Nobel Prize winners. And, and, and to be honest, I define this process that we’re using, then 15 years ago, when it was time to set up on my own. I only learned about behavioral economics five years ago. And then I realized that what we are doing is the is the practical implementation of behavioral economics, right. I mean, for example, we talked about underpricing ourselves. What has been proven again and again, is that a five cent aspirin is not very effective curing your headache, but a 50 cent aspirin is.

Debra Chantry-Taylor  23:16

Same aspirin right?

Per Sjöfors  23:17

Same as something called expectation bias. Yeah. So, so and the book is really everything there is to know about pricing. The actually not really everything, because I’ve just started on the second edition, because there are a few things. But it’s about the importance of understanding that decision landscape. It reviews the background in behavioral economics, it talks about the precise process you want to use to set, set prices, right and so forth. And it also have a few other things. You can learn things in your company by doing stuff that that is related to your sales transactions and your processes. And I’m talking about that too. But it’s, it’s it’s a it’s an Amazon bestseller. And that’s only the kindle version. That came out in early August. The print version is coming out in early November.

Debra Chantry-Taylor  24:34

Okay, great. So they can get it obviously from Amazon. That’s where people can find the book?

Per Sjöfors  24:38

Yep. Yeah. Yeah. So so that’s the and I mean, 300 odd pages. Yeah.

Debra Chantry-Taylor  24:48

Yep. Some of this step by step kind of guide into understanding behavioral economics and what effect that has on your pricing?

Per Sjöfors  24:58

You know, the behavioral economics sort of the academic background, and then it’s all about how do you implement that

Debra Chantry-Taylor  25:07

in a practical pragmatic version of it. Yeah.

Per Sjöfors  25:10

That is what we are about.

Debra Chantry-Taylor  25:12

I love it. I love it. I’m really interested, I’m not sure if you can actually ask us or not. But obviously, for you to get these results for your clients, you are putting in place price increases. What about the communications around that? Because this is where most people are fearful. It’s like, Oh, my goodness, I write to my clients or talk to my clients and tell them the prices are going up by x. It’s going to be disastrous.

Per Sjöfors  25:32

No, there’s there is a reason guide the call, there’s seven easy steps to successfully easy to successfully increased prices, and subtitle, and keep your customers happy.

Debra Chantry-Taylor  25:50

Where do we find you? on Amazon? Is it sorry,

Per Sjöfors  25:53

It is on Amazon. It can also be downloaded from from our website, have read. But on Amazon, there is a price for it. But and it’s a quick read, you know, it’s a guide, it takes 30 minutes to read or something like that. But you’re right, it’s all about it’s all about external communication, internal communication. And it’s about having contingency plans, right? But, but also, often, often, it’s not a big deal. Often, you just increase prices. And I mean, we did a SaaS company in the oil and gas field. And we said you can increase your price with an average 41%. They had about 17,000 customers. And we help them with communication, how they should communicate this, we trained their staff, so that they will be prepared to defend prices. Should there be uproar, you know? And because communication was done in a proper way, when they increase their prices, the CEO got two angry emails and one angry phone call from 17,00 customers, they did not lose a single one. Wow.

Debra Chantry-Taylor  27:20

So it is all I mean, I think you’re absolutely right. It’s all about the way that it is communicated. And also your the internal stuff is very, very important, isn’t it? Oh, yeah. People have to understand that, that we were worth the value that we charge.

Per Sjöfors  27:33

Correct, correct. And that’s the that’s why, what we that’s why he’s doing this willingness to pay research. So you have the hard data on what what customers to accompany are actually willing to pay is so important. And I’ll give you another story here. Friend of mine has a I don’t know if you have that in New Zealand, but here we have little pouches with ready made drinks margaritas and stuff like that. Yes. And, and he had a premium product in that range of of, of all products, you know, and the first time he is sold to one of the large chains here, he sold at a loss because his premium product was bundled sort of with the the cheap and nasty pouches that are out there, you know. But then we got involved. And we could measure what people are willing to pay for the premium features of this product. So next time, when it was time to renew the order. Bob came with hard data saying that this is what consumers are willing to pay for this product. Right? So in the end, he got the price that he wanted. The grocery store chain, had a higher priced product and therefore made a larger dollar dollar margin. So it was more profitable for them. And consumers actually got the product they wanted. Had they had had had this had he not had this data that we provided him with, he would have would have withdrawn he would have gone somewhere else. This was a startup company, so you may just have closed it down. So it’s a win win win. Everybody wins.

Debra Chantry-Taylor  29:42

Love it. Okay, well, we could talk about this for hours, I have no doubt and I’m definitely actually gonna go out and get both of those books as they sound. They sound fantastic and they’re very helpful for my clients as well. But I’d love to know, three practical kind of tips or tools that you could share with the listeners that they can put into place in their business.

Per Sjöfors  30:00

Well, if you’re if you Well, first of all, and I, I mean, increase your price. Yes. Yeah, I mean, just go and increase your price. And, and, and, and have contingency plans and if somebody if somebody complains, you know, Grandfather them in and then that’s it you know. And this goes there’s a famed VC called Andreassen. And, and he, he was asked that same question, you know, what is what is your most important advice to startups, and he said, increase your price, because that’s when you need the money the most. Second is, if you’re a small company, you, it’s not really feasible to do the kind of work that we do, you know, the, but even if you’re a solopreneur, you know, there’s ways you can figure out the right range of your price. Right. And it’s about value and price, and we talked about things can be too expensive, they can obviously also be too, too, too, too, too expensive. But you can, this is what somebody can do. Again, a coach is solopreneur, a startup whatever is find 25 potential customers, these are not your current prospects, and it’s certainly not your current customers, right? And then approach them with two questions. And you need to find 25 of them. I say that, I guess. And the questions are, first you describe the product or service. And then you ask them, now when you know what we do the product or service, what is the price that is so low, you think that we are not going to deliver on our promise, so therefore you won’t buy it. Right? Yeah. And then you ask them, and the flip side that we will over deliver on our promise, and the quality will be better than you think, what is the price that is so high, that he’s still out of out of out of consideration? When you talk to 25 people, you take these, the average of the price points that you got, you have the range of where your price should be nice. Yeah, not below that, and not all that. Right. And then you of course, want to put the price towards the higher end, because that’s where you’re going to have the higher profitability

Debra Chantry-Taylor  33:00

Understand. So most of our listeners are slightly larger in terms of they are mid size. They’re not they’re not the large US companies that you tend to work with. But what would you recommend for those companies?

Per Sjöfors  33:14

Well, if I blatantly is to hire me.

Debra Chantry-Taylor  33:19

Absolutely. Why wouldn’t you? If you could add, what was it? You can take it from 200 million to 300 million in 3 weeks? And why would you not? Yes.

Per Sjöfors  33:27

Well, I mean, for your audience in New Zealand, we have done some we’ve done work for a few well known New Zealand based companies. So I can’t mention any names here. But

Debra Chantry-Taylor  33:38

yeah, we’ve talked about it beforehand. So I know who they are. But yeah, yeah. And that’s great. Because you’re obviously your organization is actually global, isn’t it? So you’ve got people who can work with anybody around the world? Yep.

Per Sjöfors  33:48

We, we just finished off a project for an Israeli company, where we did the actual willingness to pay research in, in South America, Africa and Asia. So, yeah, we were all over the place.

Debra Chantry-Taylor  34:06

Fantastic. Okay, so what is your ideal client? What do you want to?

Per Sjöfors  34:11

Yeah. Yeah, the most of our clients are sort of, in the, I would say, five to 10. To up to about 250 million. Yep. You know, that kind of range? Yes. And the reason is that if you if you’re a much bigger company, you typically call up the McKinsey’s or the Lloyds or the world, you know, and, and they often deliver a stack of paper half a meter high. And, and I’ve had more than one conversation that with a CEO saying that I have a half a meter stack of paper that props up my door because I didn’t know what to do with it. So, so, we are bringing we are almost always brought in when there is a change in the company. So, when, when and when there isn’t maybe a new investor when maybe there is a acquisition of some kind. And and there is a sense that it’s time to move the company to the next level. You know, yeah, we can’t soldier on as we’ve done, we need to, we need to really grow spectacularly for, for for shareholder value for, you know, to give more value to our clients to hire more people and also inability,

Debra Chantry-Taylor  35:42

Fair enough, great Hey, well, look, I’m really really helpful. This information you shared here, just to recap, so we’ve got a got a couple of books, you recommend people, first of all, the price was spread, which is on the Amazon bestseller list on Kindle and about to release the book in early November, then you’ve got your seven easy steps to

Per Sjöfors  36:00

Increase prices,

Debra Chantry-Taylor  36:01

Increase prices, and that was your process. So those two books definitely recommend. And if people wanted to get in contact with you, how would they find you? And what’s the website?

Per Sjöfors  36:12

Yeah, the best way of finding me is just do a Google search on the Price Whisperer. Yeah. And I, I have a, I have a YouTube channel, there. They’re all sorts of guides and all sorts of information. There’s a master class in pricing on the website. And you’ll find all of that by just Google. The price we

Debra Chantry-Taylor  36:39

Love it. Yeah, really appreciate. Well, thank you so much for your time. Really appreciate you sharing your knowledge and wisdom with us. And I’m looking forward to reading both of those books.

Per Sjöfors  36:49

All right. Thank you so much, Debra, and thanks. I hope the audience find it interesting and valuable as well.

Debra Chantry-Taylor  36:56

I have absolutely no doubt they will enjoy the rest of your afternoon. Thank you very much. Thank you.