Arguing Agile

AA236 - Why Product Managers Should Own Pricing (Not Sales or Execs)

• Brian Orlando • Season 1 • Episode 236

Share episode

Debating why pricing belongs in product management's hands, not sales or finance.

Product Manager Brian and Enterprise Business Agility Coach Om are rankling egos as they discuss a heated debates: who should own pricing decisions? Listen or watch as they argue that pricing is product strategy, not a sales tactic. 

🎯 Topics Covered:
• The financial literacy gap in product management
• How to diagnose pricing authority in your organization
• Why executives resist giving PMs pricing control
• Collaborative pricing models that actually work
• When and how to change prices

Think your organization handles pricing differently? Let us know!!!

#ProductManagement #PricingStrategy #ProductLeadership

LINKS
YouTube https://www.youtube.com/@arguingagile
Spotify: https://open.spotify.com/show/362QvYORmtZRKAeTAE57v3
Apple: https://podcasts.apple.com/us/podcast/agile-podcast/id1568557596
Website: http://arguingagile.com

INTRO MUSIC
Toronto Is My Beat
By Whitewolf (Source: https://ccmixter.org/files/whitewolf225/60181)
CC BY 4.0 DEED (https://creativecommons.org/licenses/by/4.0/deed.en)

Brian:

so what you're telling me is the person responsible for the product roadmap, feature, prioritization, and customer outcomes, they should not be in the room when pricing is discussed.

Om:

Yeah. Look, most product managers, lack financial literacy. They don't understand the world of finance.

Brian:

But that is a symptom. That's not a diagnosis. Like if the product manager cannot do pricing research, then you hired a backlog administrator. You hired a Jira admin. Oh, I said Jira.

Om:

Yeah, I agree. But of course now you have trust problems.

Brian:

Hey, hey, hey. I don't need this abuse. I got plenty of people waiting to abuse me. Welcome back to Arguing Agile. If this is your first time welcome. I'm your host product manager, Brian Orlando. This is my co-host Enterprise Business Agility consultant, Mr. Om Patel. And as we know, the exile on Main Street. That's

Om:

That's a thousand years ago.

Brian:

If you're looking to help the podcast, and if you enjoy our content, like the podcast and subscribe to it on YouTube and on all the audio platforms and wherever toys are sold! today we're talking about product managers and pricing. And what you're gonna learn about product managers and pricing is how to diagnose whether pricing authority belongs to the product management in your organization or not. You're gonna learn that real quick. And also how to build the case for the PMs owning pricing. And then we're gonna spend a good amount of time talking about the organizational dysfunction that leads to PMs not being trusted with pricing. And maybe we'll talk about frameworks and whatnot along the way.

Om:

Well, let's just go for it.

Brian:

All right. And to kick us off, pricing determines which customers you serve, which problems you solve, and which competitors are in your landscape, are in your rear view mirror, or I guess in your windshield, in your living room. Yeah. Up in your business.

Speaker 4:

Yeah.

Brian:

Sales executes a strategy. Product management defines the strategy. That's the way it works when we're all happy together. But there's a 2016 book called Monetizing Innovation, and there's a number in that book that says 80% of companies set pricing based on costs or competitor benchmarking rather than on actual customer value research.

Om:

Yeah. I think the one industry that might kind of, be out there outside of the, the bell curve, so to speak, would be probably like jewelry, right? Nobody's price is jewelry based on market, et cetera. It's what the market will bear, so if the market will bear a higher price, so be it. But, but we're not talking about that. Most product managers aren't in that space, right? But there are there are business domains where, what we're gonna talk about today is kind of topsy-turvy to say the least.

Brian:

So let me right away in the podcast. Let me jump straight into the Steel Man. I need a

Om:

steel man icon.

Brian:

I don't have a graphic. Maybe in the post I'll add a graphic. For the steel man of the category we're talking about now, which is the pricing of, of pricing is product strategy, not a sales tactic. The two things to point out, sales owns the customer relationships in a lot of companies, right? That's just the way it is. Om like, that's not, not to, not to dump Tupac on you this early in the podcast, but that's just the way it is. Some things are never gonna change in these organizations. Sales needs every lever and pulley and wheel and dial or whatever for negotiation tactics that they can leverage to get the sale. There's plenty of people out there that will say, if we're not selling, we basically don't have a business. And then everything collapses. So this is a strong one. Well, bits off at that point. Yeah. The, the other side of that is finance owns the revenue model and the margin requirements, and they're the ones coming down and saying like, you have to have 60% profit profitability or 70% profit, whatever it is, right? In the AI world, nobody has. Everyone has is like scraping 60% from the bottom of the barrel over here with their, unbridled tokens. Unbridled, yes. Exactly what it is.

Om:

All, all the, all the burnt bits left at the bottom.

Brian:

The, those are the two things. Like finances got numbers and they're just like drawn a line in the sand. There's no budging there. And then on the other side, like sales is pulling all the wheels and levers and dials or whatever. So like, how can you ever set any kind of thing based on research when they get to do whatever they want? You know, that, and, and, and it sounds crazy to say, but my experience tells me most companies are like that.

Om:

They are. So the poor product manager basically has their hand tied behind their back. Yeah. You know, tied in a sack and chucked into the Deep Pacific. So how, how do you get out of this, right? I mean, this is the rest of this podcast. But two things I wanna say here as far as the steel end. So finance have there. Guidance. For what it takes to stay above water. They're gonna invest a certain amount of funding over a period of time, and they will figure out what needs to be done in, in terms of how much money needs to be made for this product to be quote unquote successful. Yes. And what that looks like in practice would be things like what's the net present value of this thing considering let's say a time period of three, five years, whatever your product is. Things are liable to change the competitive landscape changes, new technologies come out, new competitors come out. You can't just say a year before today, here's our target and we're gonna just go after that blindly. You have to keep your eyes peeled left and right to see what's going on. But finance doesn't do that. Typically. A product manager who has awareness of these kinds of financial ratios. They have, they have their finger on the pulse, first of all, right? They own the product. But they also know the segmentation that exists in your market, right? Based on that, your margins could differ, probably should, if you have multiple segments, right? So the product measure, I would argue, is ideally positioned to deliver to that, to the guidelines that finances dictated, occasionally you will find that if it's a product that is groundbreaking. There is no competition for it. This is just an innovation. You're the first one on the market with it. There's nothing to go on. Then finance is not gonna have that. All they're gonna have is just simply a return on investment or return on capital employee, those kinds of ratios, right? So there are these factors to consider. Now, I started talking about you being like, new to the market with a new product. So let's just take that to the other extreme, right? You're an innovator. You came up with an idea, you don't have a product yet, but you need some seed corn funding. So you secure some funding from a vc. What are they gonna do? Right? I mean, they're putting money into the picture here. And so what, what ratios are they using over what timeline? Yeah in practice, honestly, most VCs will just use analogous projects or products that they've financed before and say, this amount of money over this period of time should net roughly between X and Y. You don't even have your market defined yet so how do you navigate these choppy waters? A savvy product manager could define the path in this situation based on the segments that they're targeting. Yeah. But they have to have financial wherewithal.

Brian:

What I think I heard was product managers conduct the research, and they make their pricing decisions based on positioning and customer research and customer selection, like, maybe competitor analysis is involved in this. but look, I always heard in pricing, there's a principle that you wanna be close to your competitor. Like you never wanna be real underneath your competitors. You wanna be close to them or way above them, because then you can position yourself as a luxury brand. But it the point is like your pricing and your marketing then merged together to be, become this special thing. So, so it's like it's positioning that your product positioning goes along with your pricing in that, in that instance. And again I don't know, maybe your salespeople can do that and maybe they have the marketing talent to do that as well, but you're, you're basically your product. It strikes me in that, in what I just said, that strikes me as. It's product, delegating this market research and pricing and all that kind of stuff off to sales, not the other way around. It's like product's gotta beg to be involved in that kind of thing.

Om:

I don't think it has to be binary like that. I think sales and product can work together. and the pricing strategy will vary per product. Or at least per product line so, yeah, I agree that you wanna be on the radar when it comes to your competitors, but not always. You could be feature driven to a certain degree if you have an edge on the market with things that you're bringing up in your product that no one else has, maybe you can have a bit of a premium differential on your pricing. But it depends, right? I mean, product alone will not be able to do this and sales alone will not be able to do this.

Brian:

Do you have a story from your career where the pricing authority set outside of product. And then what was the outcome? What happened in that instance? Because it's been literally every company I've ever been at. The last couple companies that I've been at, it's been more of at least a discussion that they know that products should at least be in the room, if not heavily in influential in this conversation. And they know when they're doing it without product that they know they're missing out by not having product actively involved in doing it. Because at a lot of those companies, product is like I'm not gonna say it's an afterthought. That's not really the right way to say it. A product is they don't think of product in that way. you know, they think of product as like somebody that talks to the development teams and translates the,, rather than like the product man thinking of the product manager as a gm and then all the employees, even though they don't work under the hierarchical structure of the product manager, they work for the product manager, meaning the product manager's running that whole segment of the business and a lot of companies are resisting coming around to that model Marty Cagan talks about mostly, like a lot of companies are resisting going to that it's, this is not agree like war story, every company I've been at has been that way. I would say like the, the, the smaller companies they get it they, they get it. Larger companies, oh boy. If you're even invited to the table, like good, good, good on you. If you're even invited.

Om:

So I'll tell you what I've seen in my experience, when you are invited as a product person to these discussions, it isn't from the standpoint of a holistic pricing kind of discussion. It's from the standpoint of, well, you're closer to the development team, so give us the cost side of the equation, Right. So we'll decide, we sales we'll decide. To slap on a margin that we think is appropriate and you just give us what's it gonna take for us to deliver this?

Brian:

Is that the sales to product equivalent of the project manager? Going like, I'm just going to, put my thumb in the air and say it's gonna take you three weeks and then hopefully that's the same thing.

Om:

Pretty much the same thing. Honestly. I mean, sadly it's so closer to reality with this kind of analogy because sales should at least know that there are different segments of the market. Right. You know, with the product manager, there's only one date that they come up with. But yeah, so I, if you are invited, it is only to provide the cost side of the equation and which is a shame.'cause you should be able to say, here are the different strata of our customers and based on. You know, what their needs are, et cetera. We can price differentially across those.

Brian:

I think we're coming to some solid takeaways here in this category. You know, if you're product, if you're a product manager and you can't explain why the pricing is, what the pricing is like, well I, I hate to be the one to step into my office close the door. Like, 'cause you're not the product manager. You are the feature factory foreman.

Om:

Yes,

Brian:

Listen, I don't, don't yell at me. I didn't, I didn't like, I didn't say it like Marty Cagan was the one that saying that you're in a feature factory. Like lots of those other people is a who, who had the, Melissa Perry is a feature factory, right? She's a escaping the build trap. Yeah. Yeah. Like go yell at them. I know you're not gonna yell at Melissa Perri,, don't, don't yell. I'm just telling you like you should be in the room where it happens. Another Hamilton on the Arguing Agile podcast. Thank you very much. Some takeaways. I got some takeaways that I've kind of sketched out on the back of a pizza box while we were talking. Map your current pricing flow. It requires you to do a little organizational mapping in your organization. A little flow documentation that says who conducts your current willingness to pay research your pricing research. What will customers bear? What will they not bear? What are your competitors' pricing? You know, that kind of stuff. And then. Who takes that research and does something with it who consumes that research and does something with it.'cause somebody has to produce a pricing model. Somebody comes out with like, this tier is this much money and this tier is this much money who is that person? Yeah. Or people, I guess maybe if it's a group and then who has the authority to change? It may, maybe the authority to change. It's not the same person. Or maybe it all comes from one executive who does, like ju just figure out who does the research, who makes the proposals, who's involved in the discussion? And just, just figuring that out will help you. Take the next step, whatever the next step might be.

Om:

Yeah. Map out the landscape of what this looks like, first of all. Yeah, I agree. I think that's a good starting position for you. But if you're a product person, you could do worse than just learn a little bit about these financial ratios because they will always help you in the future.

Brian:

Yeah. And also if you found this argument useful or if there's something that we missed, we didn't talk about, or if you've been screaming at your tv 5.5% of people that watch this podcast on YouTube, they watch it on a tv. So there potentially are people screaming at us on a TV somewhere. Okay. So if you're screaming us on the tv, I don't know how you're gonna add comments on the tv, but add some comments and let us know what, what stuck out to you in this conversation, because we are done.

Om:

Yeah. And, and don't forget like, and subscribe.

Brian:

Okay. so for the next category , hey, why don't PMs do pricing? Because they don't have the skill. Like you already started the podcast saying they don't have financial literacy. So if your product manager can't calculate customer lifetime value, maybe they really shouldn't own pricing. Like the role requires financial literacy if they'd never managed a p and l before, right? Maybe you don't want them learning on your dime. I mean that like, there might be some legitimacy here. Product Management Institute survey. 2022. It says 67% of product managers report no formal training in pricing methodology or financial like methodologies or fi financial modeling. Right,

Om:

two thirds of all product managers don't have these essential skills. I'd say it's a problem. So I think maybe that's one of the reasons why product as a discipline isn't really getting as much traction.

Brian:

Well it's also the PMI that did this study, so I kind of like a, a product management institute did a study in 2022 and said everybody that we surveyed that was all product managers turned X, Y, z, said that they didn't care about financials. Which now that you frame it that way, like that doesn't strike me as odd at all.

Om:

This is surprising 'cause there's so many previously. Named as project managers are now product managers, but project management teaches you about project financing.

Brian:

I understand what you're saying, but also like I, there's a lot of project managers out there that their only job is to stand over your shoulder. Tap in the ruler.

Om:

When's it done? That's right. When's it gonna be Done's, right? That's right. I get that.

Brian:

All right. The steel steelman here is super easy. Pricing requires financial modeling and that's beyond the training of a typical pm. Like if, if we're saying that 80% of PMs out there that's the number we just made up, by the way are backlog admins that, that style of PM how are we gonna try to institute this at a large scale? You even said earlier like, well you gotta talk to sales. You do.

Om:

Yeah.'cause sales presumably has on their radar what other competitors are charging, et cetera. And you should have some idea who they are, but you may not be privy to their financial models necessarily but

Brian:

sales should be, and not to undercut myself, what, like financial skills. Like, just like any skill. Just like hr. Oh, I gotta learn how to. I gotta learn how to interview people. I gotta learn how to have a conversation to make sure people are, meeting our level, our expected level of performance. Like these things are learnable, they're all learnable. Financial literacy, learnable however, I was at a company one time that was acquired and after the acquisition, they took away the financial responsibilities from the managers in the organization. Now, I, I was a, I was more a product owner in that organization, which is like some responsibilities a product manager were like divorced and put on managers. It wasn't exactly the perfect atmosphere for this, , what is right? But it's a great example. When the private equity folks took over, not only did they not train, but they made financials more obscured because they took them away from the managers. Now, whereas before I had full visibility, full visibility of the financials. So I would say like, companies are all over the map here. It's gonna be very difficult to do this. I understand that's like, that's what we're lobbying for is like PMs should be doing the pricing. It is a product function. However, it's so messed up in like what an 80% plus. It's probably more than that of companies that I don't know if we're gonna get back to a place of balance.

Om:

I, there's hope, right?

Brian:

Well, we can't end the podcast this early. That's, no, that's

Om:

right. So with companies that are acquiring other companies a acquirers or holding companies, companies like that are notorious for keeping all these financial type decisions centralized Into a separate area, typically an area at the corporate level, an

Brian:

area with no product managers.

Om:

Exactly right. Yes. Divorced away from product managers sanity, small companies and sanity and yes, of course most small companies though, they don't have the hierarchical burden, right. So I think in that environment, the product manager has bit more autonomy mm-hmm. To work with finance, sales, et cetera.'cause they're reachable Right. With the holding company or anything like that. Yeah. Good luck with that.

Brian:

Okay. Well, I mean, that's a solid takeaway here is if your company is a size where these folks are approachable, then you're not beyond saving,

Om:

you should take the onus right on yourself to go learn some of this stuff and reach out to your peers,

Brian:

and, I will tell you personally, this is how I learned it. I learned it by reaching out to C-level folks who set the BA basically at the different companies. I basically learned it mostly when I was on the point, the period of my career when I did contracting product management. And when I would work with the C-Suite, I would talk pricing with them. How did you get to this number? What is the lifetime value? How did you calculate it? And I basically inserted myself into the middle of pricing discussions and that's how it happened. But I did that because it was small companies and at small companies usually people are just happy that anyone's even interested in these things that they're doing in addition to their normal job responsibilities. And they're just happy to talk about them. Even if they're not just happy to talk about them because they're happy that other people are interested in these things that they've just been kind of silently, quietly doing when nobody is looking to get a second opinion.

Om:

Validation. Yeah, exactly.

Brian:

The best people that I work with, they invite this kinda scrutiny 'cause they're looking to learn to be like, oh, I didn't consider that, or maybe you see something I didn't see, it's, well you're

Om:

saying talks directly to the culture of the company regardless of size 'cause some small size companies also don't work this way it depends on the corporate culture. Yeah. But yes, I agree. I think if you are a C-level person who is basically coming up with these things, it behooves you to get some validation at least. Yeah.

Brian:

So take a step back home. It's story time. So I worked at a place one time where a small company, very tiny little, small company, usually the founders will set the pricing right? Like nobody else is. Nobody else is like, they don't know enough. Usually the founder is the subject matter expert, right? They set the pricing. And over time as customers grow, as you deviate a little bit from your ICP and you go to a broader audience, your offering goes out to people who aren't exactly in your ideal customer profile or ideal customer persona. And then your pricing might change. So you say, well, I want to go over here and sell the big enterprise clients, or I wanna go over here and sell B2C. Another place I was at, we. Entered the, we were B2B software, but it was really B two B2C software, like the purchasers and the customers were not the same. Right. And then we got into the B2C market where we sold mobile applications directly to consumers. And then there was a pricing conversation there to be like, well, do we do a subscription? Do we do a one-time fee in the store?'cause some apps you buy you just one-time fee. It's a good amount of money. And then whatever other apps you have by service. But then the conversion rate for service versus the people actually willing to just buy an app is like very low. Some apps in the apps store, they, you, you buy them and then they have a cycle, like they're only up there for like 18 months, two years, and then they go away and they come out with their new version. You have to rebuy the new version which really like, causes some friction. And almost every time I've gone through this it's usually the person that set the initial pricing. They're the one that everyone in the company looks to, right? To go back and do the pricing again. And because the founder of the company set the pricing when the company was like eight people or whatever, and now the company's 500 people like that person who's, and then, that founder who's still with the company magically, somehow everyone's looking to them to set the pricing and they're doing a bunch of other stuff. They're running the whole business. They have hundreds of employees. They're doing hiring, they're doing firing, they're doing budgeting. They probably answer to some financial person somewhere else if you, if there's PE involved or whatever, and they should not be the person, the single point of failure here doing the pricing anymore.'cause they can't dedicate the research time anymore. Basically. They're doing too much, is what I'm saying. They're doing too much. They need to delegate that, that pricing research conversation. I'm not saying the person that does that stuff shouldn't answer to this person and tick all the boxes, answer all the questions. Right. And not be informed. That's not what I'm saying. They should do that. And if they can't figure it out, then you should get a panel of people or the right person, or maybe the person you got in the job is not the right person. But I'm not like going back and having that original founder who now is like super strapped down with other activities.'cause the business has grown. That's not the right thing to do.

Om:

Absolutely. So that founder, like in addition to doing a thousand other things now because they're now growing right. They're not doing what they need to do, which is that research that can inform the pricing decisions. They're not doing that. Right. So they're basically going on gut feel yesterday year stuff that they say, oh, this is how we used to price it. We should probably just do that. Yeah. Just adding the cost to inflation that's not always the best way to go. Yeah. You need. Extra pair of eyes to look at this stuff, and those other people with those extra pairs of eyes can do the research. You don't have to be the one doing it. So it's twofold, right? If you're a product person in an organization like that, expect this to happen, first of all. And when it happens, be the first one to put your hand up, go learn those financial things that you don't know about, and then try and ask for the owner to let go of some of those things. To entrust you if you are the one of those owner type people, let go at some point, right? I mean, you can't do it all forever.

Brian:

I just, I think you just hit a whole different podcast right there that we, you gotta talk about. Yeah, that's a good one. Yeah. The, the, the growing a business, like when to let go, that kinda stuff. If your product managers can't do pricing because of different reasons, no, no time. Someone won't let go. They lack skill or whatever. It may or may not be your hiring bar that you're like, oh, we gotta raise the bar, or whatever it may not be just that alone, right. It may be a bunch of other factors. So again, that flow, the earlier in the podcast where we talked about that flow diagram of like who does what by when you know who discusses it, who makes the final decision? You gotta have all that written down somewhere. You gotta have these processes written, these processes. Processes written down some, it doesn't

Om:

have to be like very elaborate. No. You could do just like what I call force field diagram just, just write down who does what. Put people's names in little bubbles and just put arrows and say, this person does this, this person, I mean, believe me, that one picture. Worth its weight in gold.

Brian:

Although I could totally pin somebody down in this discussion and demand No, no. I want to know who in your business if I was running the business. Yeah. And I would say, look, I'm like Brian and Om software development company. We started a Brian as Brian and om software development company. Om just screamed at me, keep like, develop more, develop more faster. But in German, I don't know why he was speaking German.'cause he lives in Berlin land. That's why. Yeah. Well, was that Spanish? I, that's a callback to episode one right there. That's Oh, you guys, you guys,

Om:

That was a long time ago.

Brian:

That's a lot of salt in that dump truck. That's a salt mine over here. Every business process is like that though. Mm-hmm. Is like who does what? You know, by, by when? Like that, that old, that old kind of thing is like, who, who is responsible for what decision? Who's responsible for carrying out what business process? Like if you're not writing this stuff down, where does it live? I mean, it lives all in your founder's head. Okay. Well, how does it live in your founder's head when there's 500 people in the organization? A thousand people? We kind of already segued into the takeaway, you already have your map of who does what, deciding for your pricing and whatnot. So maybe you can add to that on top of this well, what research have they done? Like, do they understand the value based versus competitive versus cost based? can they explain the difference between cost plus value based, competitive pricing, all different types of pricing? Yep and then, and then let's write down the research that they did for pricing. You know, and show us that, bring that research back to the group. I'm hoping one person is not just deciding on pricing in the dark by themselves

Om:

listen, it doesn't sound silly to me because in practice that's how it happens. That's how it happens. Yes. and the flip side of that, most people just simply take that well, so and so said that must be true. feel free to challenge these pricing decisions and start with the basics, right? What you're not doing here is simply knocking down somebody else. What you're doing is trying to get validation on what's happening here,

Brian:

right? I don't know if we came away in this category clean, so I like what I got. No, you probably didn't. What I got in this category was like skills are 50% of it. Like you, you need the skills to do it. If you're a pm you don't have the skills, you can't do it but also your organizational design matters. Yes. So if the PMs are not ever invited into the room where it happens, that's, again, it's for you Lauren. It's two podcasts. I did that for you, Lauren. Then you're never gonna get the results you're looking for. So like, I don't feel like we made it like we had, we had our steelman, we had our points. We still didn't get a good takeaway out of this one. I'm gonna throw it over to the audience. Do you have good experience with this one or are you like me where you're like, Hmm, most people are just kinda like pricing. Oh, the adults will take that one. Brian, get on outta here.

Om:

That's somebody else's decision.

Brian:

Well do

Om:

let us know in the comments down below.

Brian:

Alright, the next section Oh, I know what I want. Talk about om. When executives refuse to delegate pricing authority, when that, when that founder who was with the company when they were tiny, small. When they were tiny and small and is still with the company and they set the original pricing and they refused to give up pricing authority. Authority Throw Cartman back up on the screen. Author. To the product managers because this new fandangled product management, like it's, this trend's gonna blow over. Yeah. Gary from sales is what we're talking about now. They're like, that's a signal that you either, either you've hired incompetent product managers like that, that's definitely one signal. Sure. Maybe or you've got people that can't relinquish control. I mean, that's the other side of it, right? Like if, if we're going for extremes, if we're, if we're only showing barbell graphs right now

Om:

Indeed. I think you can attribute this to both sides. I mean, sure. If you've made bad hiring decisions. Then it kind of feeds into the lack of trust because people can't do the job. But you hired them. Well, you're not gonna entrust them with pricing decisions so where does this go in the long picture?

Brian:

I'll tell you where it goes. It goes to Marty Cagan's. Empowered. That's right. And Marty Kagan's Empowered 2020. I think he wrote Empowered in 2020. I'm not quite sure. Off the check that reference when the podcast is over. I won't, let's be honest. He says, organizations that centralize pricing decisions in executive or finance functions typically operate as feature factories. That's what he says in his book. I didn't make that up. I could completely make up Marty Kagan quotes, actually, that, that should be a poll podcast we do is made up Marty Cagan quotes.

Om:

That's not like a fun one.

Brian:

Sounds like a fun one. Yeah. Oh my goodness. But I don't think this is fake.

Om:

Yeah. You know, the people that. Closest to those decisions and are refusing to let go they're going to propagate this environment.

Brian:

Well, I'm gonna start right away with the steelman. Oh yeah. Let's go get my music steel, man. That's right. Listen, pricing affects company valuation and investor relations, like company pricing is too critical of a business function to be delegated to anyone. Product manager. Sorry. You saw, you looked at me and you knew, in my brain, I was like, I knew exactly where you were going with that. But also like that ruinous empathy right here that's right. I'm, I'm lifting that term from the last podcast. Like that is what the executives are thinking is like, who's this guy I'm not giving him? That like lack of empathy right there. That, that I saw in your eye. I saw a flash in your eyes right there. He was right there. I'm telling you that's, that's what the executives are thinking. They're like, who is this kid? This product management kid? Yeah. With 20 years of software experience like, I went to Harvard! How dare he!!! That's what they're thinking is, it's too important of a business function. I should do it because I'm big and important. You know that, that's what they're thinking. if I'm not gonna be a jerk. For once. The other side of this is executive experience provides market perspective that the PMs lack. They haven't been in my market long enough maybe I'm a sales executive, right? Yeah. Maybe I'm a 20 years sales executive, and this PM came from like logistics or whatever. And we work in healthcare, healthcare tech or whatever. you don't know anything about I know about pricing in health tech. you're not qualified that, that would be the trade off here

Om:

understand that. I think that has some legitimacy, right? Because people that you just hired from the domain that you've had a long stay experience in. But that's fine. That does not mean it needs to be binary though still. I would still maintain All that's saying is by all means go in, but invite. Invite someone else to examine what your basis is, right? Your assumptions and say, this is how I'm arriving at this pricing conclusion. What do you think?

Brian:

we talked about the steel man of like, well, the executives, like they have the experience in the product. Managers don't, and you know, they think that it's super important'cause it affects, it affects like company valuation and product managers don't sit at that level, and that's where their bonuses, like the executives and like VPs and stuff, that's where their bonuses and stuff are. So it's like, it's too important to them personally. And boy, they won't delegate that stuff. That's the slippery slope. That's like the gently rolling Irish countryside of moss covered stones that are always wet'cause it's always raining or misty out where they won't delegate that stuff and then they just slip. Into like, well now we won't delegate all this other stuff as well, which includes product strategy and what features you build next, and all kinds of stuff that has to do with basically you're not even doing product management at

Om:

now you put your product management into in a sack, tie their hands behind their back. Yes, I can chuck them into the Atlantic or Pacific, whatever.

Brian:

Well, it's, I mean, you just built the weapon and you can, now you're using it for everything we can't let the product managers be involved with prioritization of what features to build or, or if you're doing like OKRs, what problems to solve and what, or like Right. The more of this that we're talking about, the more it's pushing into a feature factory of this overly burdensome executive that believes they know better than people doing research. People doing like the trial and error of figuring out business, you know?

Om:

Yeah. I think the takeaway would probably twofold. If you're an executive like this, sooner or later you're gonna find out sooner or later, right? If you've been in the game long enough, you probably did that and bounced somewhere else.

Brian:

Do you have a story of a overly burdensome executive that ended up being wrong? Sorry, I have one. I certainly have one. Well, let's start,

Om:

lead, lead off with yours.

Brian:

When I was in logistics what the company would do is the company would hire these trucking executives in these nebulous positions of like, you know VP of strategic initiatives, right? And the strategic initiative basically was we want to sell our software to your former company that used to be a hot shot director or whatever at, so they would hire them in I mean, government does the same thing. No, it's a real thing. I know. Yeah. Government does the same thing. Mean there's plenty of industries do the same thing. And they would do that and these executives would come on and they would basically like with no, no broader context, just their, just their. Anecdotal evidence from the company that the one single company they worked at previously would say, oh, everybody wants X, Y, Z feature. Everyone wants feature X or feature, let's go build it Now feature Z, we've absolutely gotta build features Z. And because they're a high level executive, the more they push, the more you know, the director of development or whoever who people that are looking for. Promotions themselves Hmm, we just, let's just make this person happy. Let's just, you know? Yeah, I know. There's not bringing evidence. They don't really know how to do research. Let's just make this person happy. They would get these people and they would last maybe somewhere between 12 and 20 months and really not contribute much. Take a lot of the development seems time, and then eventually wash out because they couldn't sell their company. They couldn't come 'em out with any meaningful features because again, I understand what the company was doing. they basically were hiring like they should have just called this person the VP of business development.'cause that's what they were trying to do. They're trying to expand our business into this particular firm. They couldn't break through. But they should have never given that person authority to like green light features and all that kind of stuff. That stuff should have been gated off to a product manager, To say, Hey, what kind of bets do you want to, yeah. Do, do you want to try to put on the table Mr. And Mrs. VP of Strategic special Grand Pooba initiatives or whatever you are because, because the product manager would come back and when they get grilled. They can say, I took this bet because your new strategic VP assured me that X, Y, Z was definitely used by the company. The early prototypes of the people or whatever that they referred me to, said they were gonna use it. And then it never panned out. Sitting in front of all the executives and department heads they're gonna ask, how come it didn't pan out? And then there will come a point where you have to decide if you're gonna tell the truth or if you're gonna try to just quietly swallow it and move on,

Om:

move on, keep updating that resume.

Brian:

I'm gonna give them the facts and the evidence and just lay it out and be like this. They need to hear it. Yes. So I agree with that. And, and the, and I bring that story up. This is my real story about pricing and about pricing and about greenlining features and which is sort of like parallel to pricing. To tell you that these folks were a diamond dozen in that co I stayed in that company for over a decade and these folks came and went like clockwork.

Om:

I think that's not just limited to that industry either, right? Oh, no, you've seen that. I've seen that in bespoke software for vertical industries, and it's, I've seen it there too.

Brian:

It's, and it's definitely the way things happen in government, sadly. So organizations that won't let product managers set prices have already decided product managers don't do product management. That's basically what we're saying on this podcast right. Scary hard to hear for a lot of people, but that it is what it is. So, diagnose your organization's pricing authority structure, which we already outlined early on the podcast. Who has final approval? Who is involved in the discussion? And also funny thing arguing Agile 2 0 1. It could be helpful in this podcast because the people that have say in, in the pricing, even from the outside, you could be mapping that that stakeholder quad. The two by two. Low interest, no, sorry, high interest. High, high interest. Low low power, power. Yep.

Om:

You are a stakeholder at that point, right? Yeah. in that quadrant. Yeah. absolutely.

Brian:

And then, and then, does that structure, whatever that structure is that you map out, does that map your feature prioritization? Because if it doesn't, you've gotta, you've got some, you got a huge disconnect. You've got some disconnect that you need to deal with. Yeah, absolutely. But if you found this useful give us a like subscribe on the podcast. Let us know that this was useful. the next logical step that we're gonna jump to is a debate on how to structure pricing, assuming that you want PM zone pricing, which we do, how do you structure that discussion? How do you structure that collaboration between sales, finance, your executive, all that kind of stuff? How do you actually do it? We're gonna talk about a we pricing collaboration model. That, that may work. I'm not gonna say it actually. 100% works. No. May work.

Om:

Let's get to it.

Brian:

We're gonna start by reiterating. Product management should own the pricing strategy and the research for that pricing strategy. Okay. Sales owns negotiation within defined boundaries. Finance owns margin requirements, revenue forecasting, things like that. Right. And then all these boundaries, if they're not clearly defined, which most companies, they're not at all we like, which we touched early in the podcast. Now you have chaos. Oh goodness.

Om:

Yeah. Well, I mean if none of them are defined, you are in the jungle now.

Brian:

If you have clear pricing, authority, boundaries, those categories I just pointed out, you will deliver faster time to market. Your pricing changes will be able to respond more quickly. And because of that like you'll make more money.

Om:

Yeah. So the boundaries, I just wanna be clear about the message here. We're saying that the boundaries should be clearly defined, but that doesn't mean that they should be rigid. You need to be able to reach across the boundary and speak to the other person in a collaborative manner. For example, finance could lay out the guidance for margin it's usually a range. Sales would have the authority to swing somewhere in there. But potentially they could sell a system at cost. If it's the, like the big customer, this is your entry product with that customer, et cetera.'cause there's a big upside to it right. There are many, many reasons why sales would change the actual price that is charged to the customer. But it's an informed decision. It isn't just simply. You know, a random kind of decision that sales made by themselves or finance dictated onto sales or anything like that collaboratively, they arrive at a range that would be pitched, but the actual pitch, the actual number would vary based on what sales decides. So you could lose some money upfront. Maybe I've seen that happen. In software sales, and then the money's made up afterwards. Or you make very little margin on the price of the software but you make margin on recurring revenue, on, on support well, you're,

Brian:

So you're already in the steelman side of the discussion here, which is pricing requires cross-functional consensus. Okay. The period, a hundred percent period, right, requires cross-functional, and I'm not debating any, first of all, this is the best steelman section that we've ever done on these two podcasts for you, steel Man. Because Steelman, because I'm not debating either of these. Pricing requires cross-functional consensus, number one. Number two, sales needs flexibility to close deals. Okay? Look, steel man, steal away. Your steel man is stolen. He's stolen. I put him in my pocket and I agree with all of that. However, if you're gonna say consensus models, create paralysis, and you're gonna say like, well, if it's everyone's responsibility, it's nobody's. If that's what you're gonna say, then I have a big problem with like that. You're not steel manning at that point. Now you're introducing a bunch of stuff that doesn't need to be introduced into this. You wanna set a new pricing model, you wanna change the price, you get all the folks in the room that are contributing to this sales and pricing discussion, and we discuss it and we move forward. That doesn't need to be 47 people okay. That, that, that, that the pricing requires cross-functional consensus. It could be the sales person, the chief executive, and the product manager could be the holy Trinity. But I can pull those three people together instantly, basically. So if you're saying like, oh, well that's gonna create analysis paralysis, and this is a diffusion of accountability, I'll say completely untrue. Yeah. Once you make that coalition, that coalition understands that pricing and pricing structure is a super important thing. Just as important as anything else. And we will pull it together and self-organize. To get it done. The other one is sales flexibility needs to be within the pm defined guardrails. So I, as a product manager, like if you're saying, well, this customer won't buy unless I build these five features and then give 'em a discount by 95% and do whatever. I was like, that sounds like that is, doesn't fall into our ideal customer profile and hard pass. Okay.

Om:

Yes. I agree with you that it's, it's really not gonna. It's not a viable approach. Let's say that however, there are cases, you could say there are edge cases, but there are cases where sales will undercut what the price should be going into a customer, right? Sure. For a myriad of other reasons. Maybe this is the first of several products that the customer would buy from you.

Brian:

Yes. I'm gonna say yes and yes, and I'm gonna say yes. And in first time today I'm gonna say yes and the first time today, but I like yes, and, but my, and really is. However, I can't have rogue sales folks like the sale, assuming that we've done our legwork. Pricing is an execution of our product strategy, so I'm only willing to flex so far. If you're saying, well, Brian, I'll just, I'll give him this for free and then we'll get in the door and then we'll do whatever. That's what all those trucking people that I was talking about before, that's what they were doing. Oh, we'll just Brian, we'll just give 'em everything for 50% discount for two years and eventually they'll be, they'll love our stuff so much or whatever. That's what all these executives would do. So, and then we give it to them for reduced costs. They'd ask for a bunch of features. We spend months with our development team working on to punch out the features and then nobody would use the software. And then after one year they don't renew. So now that executive has been here for about 20 months, 20 ish months. About 20 months in, they don't renew. And the CEO just comes to this VP of special projects or whatever, and says like, look, we did a bunch of work for you. You spent this much in development budget and your guys, they never used a product in the 12 months they were using it. You got no adoption. they obviously bought it with the minimum bare bones of what they could buy to be nice or whatever, and then didn't use it, showed no interest and then skipped. So like why, why like those nine months of development time, six months, three months? It's huge opportunity. Why do in the time it took us to work on those things and sell this customer, yeah, we got a little revenue, but we could have worked on these other things. That benefited all of our other customers and then. What comes is a very quiet dismissal of that individual of the mutual partying of ways. I wish I could tell you how many times I have seen that exact thing go down. It goes down behind closed doors.

Om:

It does, it does. I agree with what you say. It happens a lot. I do think that there are cases, not many, but there are cases where sales can sometimes radically undercut the price. Sure again, for reasons that need to be solid, that need to be shared with the product people as well. Because , pricing is just one factor in the product. It's not the only factor an example of this. So you have a brand new product that you're building from the ground up. Nothing like that exists anywhere. Now you have. A product that you would like to put into a customer's hands so that you can sell more of it?'cause no, it's not there. It's not out there at all. Yeah. And a salesperson could say, well, you're our first customer. We're gonna get you on, we'll treat you with white gloves. And the, the cost of entry for you is X and the next customer will pay two x or three x is that legitimate? I think it is because it's really a barrier to entry that they're trying to overcome there's limits though, right? They give away the farm and it's kind of like the case you just described where they don't renew. Well, somewhere in there, there needs to be a proper calibration of what they're doing so this is not on the product manager. This is on or in product management. This is directly in sales. Mm-hmm. Between sales and finance. We did this, but what happened? So the gamble that they're making there, right. They need to be very careful with that gamble.

Brian:

I understand you. I understand the picture you're painting. I would say that I don't agree. I think product management should be in the middle of this discussion. Here's the way I think about finance. Like they're experts. I think they just set the, , in the driver's test, they set the cones up. The fact that business comes in and knocks down certain cones, whatever, like we're gonna drive over these cones to parallel park or a three way, you know what I mean? Yeah. Three point turn or whatever we're gonna drive over these and there's nothing you can do, like you can judge us, but there's nothing you can do, it, look, I've, again, this is the same as a CEO or like the private equity firm that comes in and takes out a big loan. Like we're, this is our loan now we're gonna pay it all back. And the finance people are like, oh, how are we gonna do this? Their job is this the Instapot story there? it's basically the, it's basically there were financial people at Instapot that probably recommended we probably shouldn't do a special dividend Yeah. Of all of our cash and then every penny and then take out a loan for double, triple, whatever it was yeah. We probably shouldn't do that. And they're like, cool story kid. And you know what we're doing double because you. Because I wanna get paid. That's like, put that cash in my hand. Again, like this is the way that I look at the finance folks. Like they're, a risk indicator. Okay. Yeah. But they're not the ones that are telling you like, oh no, you can't spend this cash. You can't do this, that's the product manager. Because are they a product manager or are they the backlog admin, because again, we're back at this main point, right? Yeah. Are they the ceo of the product? I'm gonna beat that dead horse. I'm gonna bring it up every time I can. or do they just manage the backlog on when we need to have adult conversations?

Om:

They leave.

Brian:

Yeah. Get out,

Om:

yeah. I mean, on the whole, yes, I agree. But I do think that there are cases where companies will undercut pricing to get into a market or get into a customer just on the promise of future revenue stream.

Brian:

listen, I'm a hundred percent down.

Om:

Don't pan out

Brian:

again, you convene that pricing group.

Speaker 4:

Yeah.

Brian:

And you talk about, yeah, we're gonna break our policy because of. X, Y, Z and then we talk about the risks, and then we make a decision and then we do it. No, that's absolutely not. But there room is your point. And, and I agree with that, right? Yes

Om:

Sales can't just go out there and deal with customers or prospects turn him into, customers come back and say, we've made a sale. By the way, we're not making money on this one, but,

Speaker 4:

correct.

Om:

Like they can't do that by themselves, but that's how it happens quite often. Right. It should be a collaboration, is what we're saying and I agree with that a hundred percent.

Brian:

Oh boy. All right, well let's pivot to the next category. But before we pivot, I wanna say launching your product without doing pricing research is product management maelpractice. So get your lawyers lawyer up is what I'm saying. It's product management, maelpractice disguised as speed. Speed to markets. Oh, speed to market. Move fast and break the law. That's what I'm saying.

Om:

You're gonna be taken to the cleaners. So lawyer up and lather up.

Brian:

Yikes. Oh, lather up. I like it. It's a little saucy, but you know. Hey, I'm for it. Research provides data, but product managers must also know when to change prices post-launch. So when to change price. What signals do you need to monitor? That's, that's interesting because I don't, of all the podcasts and everything I listen to, I don't ever hear anyone talking about this.

Om:

This is why.

Brian:

No, you guys are here. You know, one, one person. I would say Daria tech. Tech, but make it real that channel on YouTube. Yeah she talks about this. and a little bit of Elena Verna, she talks about a little bit pricing. But pricing is a product feature. And it requires iteration just like any other product feature and product. And if you set pricing once and set it and forget it then well, basically you're doing the equivalent of ignoring feedback. That's what I'm saying right now. So what you should be looking at is the value delivered in your products. If you are measuring your value delivery every year, then you have some kind of percentage figure year over year, right? If you're working for those executives that I was talking about, special projects or whatever, where you add this feature,'cause this one customer asks for it and then nobody cares about it. Nobody uses that feature, right? If you're not measuring your feature adoption, also, you're gonna have a hard time doing this. But if you're measuring your feature adoption and you see that your features are getting used and you're adding value your outcomes right through your software, then you have a leg to stand on. When it comes to price increases you over year. And if you're not. Growing your revenue and you have like static pricing, I feel as a product manager, there's gonna be some uncomfortable conversations with your executives behind

Om:

closed doors. Yeah. I agree with this. So he, here's the thing though, right? How do you know what value your products are delivering? We talk about that briefly. So you have features that are, that are in your product. Yes. And they're out in, that's a whole different podcast, right? I, yeah. we are not gonna deep dive too much here, but you do need to figure out how much value you're delivering per feature over unit time. Whether it's annually or quarterly, whatever it is. It's, it's contextual. But if you're not sure about measuring those, you're, you're probably not gonna change your pricing.'cause nothing's informing that price change.

Brian:

Well here so or maybe inflation on, on the I would say pro, probably a lot of companies do. They say if inflation is a certain percent, then we raise a certain percent. Yeah. And that's probably the only way they're adding more, or, or they just say, we're gonna sprinkle AI in and pixy dust yeah. And then pixy dust inflation into it. Anyway, like a Daria has a great channel, like technical make reels a great channel because she talks about the typical SaaS businesses versus AI businesses because the AI businesses with tokens it's not a predictable amount of revenue you're gonna bring in because your customers could blow you up with tokens. Sure. But the, the steelman in this category, I'll, I'm gonna try to make a quick, the steelman in this category is a frequent price increases, like it confus customers. It confuses sales teams. it bothers customers, especially with AI products it bothers customers. And then stability in your prices. It builds predictability and trust over time. People know what they're gonna get. They know what your costs you're all reliable. Which I feel like that that's a kind of a number one point is frequent price changes. And also I would, I would sprinkle in a system doing Salt Bae. So I would also like sprinkle in that. complex AI related credit related stuff. Yeah. That changes all the time. Like the curses of the world, like the AI vendors that have been changing their models left and right, you know that's an example that enrages, it enrages

Om:

enrages people. It's, an example of what the market will bear. They're figuring it out and they, oh, we can make more money here, right? So let's just change up, the package size and the variations, right?

Brian:

Yeah, and that, that versus price stability. I mean, that's really the, the steel man. I mean, that's really the two things in this category that we're talking about. I will start immediately by saying like the market conditions move faster than your annual revenue cycles. So you're not like year to year repricing not good enough anymore. Like you, like 90 day window. I would want to be, if I had a pricing team that I could convene right. Myself, CEO CFO maybe somebody else in the business, I don't know, marketing, CMOI don't know who it would be. Yeah. You know, four people talk about pricing. I would meet every, I would put a 90, every 90 days, I'd just drop a meeting on the calendar if, if they didn't do it, which they won't, they probably, they prob no, actually the CMO probably would before that.

Om:

CMO, if they're looking to squeeze more of their problem, they will.

Brian:

I would. Exactly. I would expect that they would, if they're marketing initiatives are not squeezing ringing us. You know, more, more, more bringing the sponge dry. That's right. Get more, get more.

Om:

The dry sponge

Brian:

liquid outta that lime. That's what I'm saying right now. Yeah. I would expect this. So I would expect people are gonna ask me, so I'm just gonna proactively just put a 90 d Well,

Om:

product person is the right person to initiate this, I think. Yes. Because when you're in this meeting, you have to bring in other factors like who are still active players in the market for your product who are the competitors? Did we lose one or two of them? Did we gain new competitors?

Brian:

What you just said is let's, every 90 days, let's reevaluate the customer's value perception of our brand versus other brands. To see if other brands have matured more in that period. Or maybe there's new competitors that emerged on the market in that period. And we just, we are unaware 'cause we are all super busy and important and we have yachts to attend to. I don't know

Om:

Right. Golf games to play.

Brian:

Do we have yachts?

Om:

We sold ours.

. Brian:

Why? Why would we do such a thing? my kind of takeaway in this category is that static pricing in a dynamic market or an emerging market, right, that, well, that's, that's just like a decision to leave money on the table.

Om:

Yeah, I agree. Absolutely.

Brian:

So if there's a takeaway in this category, which again, this was a very quick category. The steelman in this category is pretty good. But if you're going to you need some kind of signal monitoring. Apparatus. That's why I said like 90 days, it could be different for your company. I don't know what market segment you're in, , I would think like your wins and losses by price point by customer. If all your customers are the same price point, maybe it doesn't matter. You need, your 90 day review needs some metrics to go along with this, you know discount frequency. If your sales team can give discounts, well, sales kind of needs the ability to flexibility how often are they leveraging that? And then what's, the trade off? What is the steep discount? There's the upside on all of those things. Feature adoption rates. If you've got that sales guy, strategic vp what are the adoption rates of that thing that they're saying oh, the customers love this one trick. Like, okay, but I'm gonna measure you on this. And then fire you on this or whatever. Every 20 months, in my experience like a reassessment every 90 days sitting down with your executive or with your pricing panel, whoever that panel is, right? Again, I had a bunch of CC level executives. Maybe it's not that for you. Maybe your is really, really big and it's like one director and then the other thing we didn't talk about is if a particular metric moves, you might wanna reevaluate pricing, whatever that metric is. Maybe that metric is a certain number of customer growth above a certain number. Although if you have a services component to your products, your products and services if a certain number of hours or customers onboard or whatever, basically what I'm saying is if you're taxing your services component of your business a lot, you might wanna raise your prices like significantly, to be like, Hey, because I'm providing my services and I'm super stretched thin, I want less customers. So you need to make it more expensive on purpose.

Om:

Yeah. You talked about if the, if the customer base grows, it, it also applies the other way, right? You have attrition and you might wanna reconsider, maybe your price is too high or you could just do trials, promotions, whatever else. The point I wanna make here is the apparatus that you mentioned that monitors all of these different factors, the radar or radars the monitoring happens all the time. That's not a three monthly thing where you get together and say, what, what's, what happened in the last three months? The marketing happens all the time, but the price adjustments don't happen all the time. Sure So maybe quarterly, whatever cadence is right for you have the meeting there, but you're bringing in all of that knowledge of what's changed into that meeting.

Brian:

So we covered the case. For the pmd own pricing strategy, execution collaboration with the other departments and whatnot. Yeah. We gave you a system for tracking these kinds of things. And let us know what you think about the system or with all this in place if you, if it still is not enough to convince executives and whatnot to involve you. The main crux of this podcast, we talked about that pricing is product strategy. And yeah, there might be a skill gap. There may, maybe that's a hiring problem. Maybe that's a learning problem. Maybe that's a organizational problem.

Om:

These can be overcome.

Brian:

Yes. I feel all of them can be overcome. All these kind of boundaries. You can knock 'em all down, and then once you knock them all down. You need continuous monitoring and continuous kind of working together to reassess and keep yourself updated and on the edge of the market. This is an interesting one for me because I know a lot of product managers out there are not dealing with pricing, right? You should be dealing with pricing. I think that was my takeaway out of this podcast. And maybe we've given you some tactics to kind of get your foot in the door.'cause once your foot, once your foot is in the door, much like that, VP of strategic Operations and special kids' birthday parties or whatever I was talking about, you stay there a while stretch out, lay on the couch, put your feet up.

Om:

That's right. And despite all of those things, if you still don't get any traction or headway, keep that resume updated.

Brian:

Oh, I thought you were gonna say like, subscribe the podcast.

Om:

And then

Brian:

update your resume. You definitely should do both of those things. Yes. In whatever order you want.