This week on the Friday 15:

– Fast food chain Wendy’s faced a PR debacle after they talked about their dynamic pricing initiatives.  As Brian said, “don’t raise the price of my Frosty!”

– Is dynamic pricing coming to B2B?  Or is it already here?

— 

Brian Beck: Andy Hoar, welcome to the Friday 15 everyone with Master B2B. My name is Brian Beck and here we are back for another exciting Friday, breaking news and all the rest. Andy, happy Friday, pretty good weekend, I hope. 

Andy Hoar: I can’t believe it’s halfway through March already. That’s just amazing to me.  

Brian Beck: I know, isn’t it crazy? That’s unbelievable. And all the B2B companies out there listening, will you guys finalize your budgets already? We’re a quarter of the way into the year. I keep hearing about it. “We’re not sure what we’re investing in this year.” Well, you guys need to decide before the year and over. Right? Anyway, yeah, so welcome to Friday 15 everyone. We have a really interesting and exciting one today. And Andy, we’re going to talk about dynamic pricing, right? And how did this one come up? Well, some fun, breaking news, all about Wendy’s, that juggernaut of B2B commerce. 

Andy Hoar: So this was big news a couple weeks ago in late February, Wendy’s CEO announces that they’re going to be breaking new ground here and in the fast-food industry, they’re going to go with dynamic pricing. They’re going to buy digital boards, change the numbers, like you’ve sometimes seen retail locations because we moved away from the static pricing model to dynamic pricing, here we go, right?

Brian Beck: You’re going to overcharge me for my Frosty???

Andy Hoar: We’ll get to that in a second, but dynamic pricing is not a new concept. For the audience here, it just means that the prices change with supply and demand. And we’ve seen that in multiple industries, I mean, this has been around for 40, 50 years, if not longer in the airline industry, where you guys next to use paying one price for a seat and somebody else is paying a different price for a seat, but you’re all in the same plane. They’re trying to match supply with demand, right? And hospitality, same way. I’ve paid different prices for hotel rooms on one night and the different night, right?  But what’s interesting is it’s become more, it’s kind of crossed over into other areas more recently, in particular, into the rideshare business, right? So we know from companies like Uber and Lyft, that they’ve got this whole idea of dynamic pricing, but in Uber and Lyft’s case, it’s surge pricing, right? The prices don’t ever come down. They only go up when there are conferences going on, large groups of people. Well, unfortunately, and people re-framed this idea of dynamic pricing that Wendy’s was offering into surge pricing. And if you look at surge pricing everywhere – and this caused all sorts of problems. So much so that Wendy’s CEO had to drop the whole idea within a couple of weeks. The problem here is, as you and I both know, dynamic pricing goes up and down, not just up. Happy hour. You know, off-season bookings. 

Brian Beck: Yes, I have, I’ve heard of Happy hour. I think I’ve been to one or two. But Andy, did you see like that? I was reading up on the Wendy’s thing before our Friday 15 today. And it was that there was actually a group of netizens, and that’s the citizens of the internet, who came out and started a boycott Wendy’s, hashtag boycott Wendy’s. I mean, this is serious, emotional reactions to this stuff. It’s interesting because, you know, you just talked about the airlines, right? That’s been around for so long now. It’s almost like gamification, right? I talked – you know, my mom, God bless her. She’s sitting there looking at airline flights to come out to see us in California. And she’s like gamifying. She’s like, ooh, I book it now, but then I’m going to wait till tomorrow. And by book it tomorrow, well, I get $5 off. I mean, it’s so fascinating how this, almost, you know, the more it exists, the more it kind of adds to the psyche and the gamification and how people react to it now. It’s accepted, but fascinating that Wendy’s is, you know, it’s perceived as surge pricing, but to your point, people don’t realize it also goes down in the case, right, dynamic pricing. 

Andy Hoar: And that’s what they want to be able to do too. In off-peak hours, you know, when there’s less demand, they want to lower the price and draw people in, but somehow that got lost in the story. So what we wanted to address was, hey, is this dynamic pricing kind of metaphor coming to B2B e-commerce? And it’s a fascinating question because you can argue, it’s already here. You can argue that with sales reps, for example, there’s dynamic pricing. They’re setting the price as they go. You could, in certain instances, like electricity, you know, it’s already there, inputs into a lot of these things or they’re going to be price like oil, for example. These prices change constantly as inputs into the output. So you could argue it’s here, that said, they still publish prices, right? And there are contract prices that are fairly fixed. So the idea of truly dynamic pricing, you could argue, has not come to B2B yet, but you used to be a B2B practitioner.  Did you guys publish all your prices? 

Brian Beck:  I don’t think so. How many times are you hearing the conversation about published pricing still? Yes, I lived this, Andy. For 20 years, I was on the B2C side of e-commerce. And a long time ago, we were thinking, oh my gosh, if I published my prices on the internet, if I’m a brand, then all my competitors are going to see that and they’re going to know what I’m charging for my products and… okay guys, come on. This is the age of transparency. I talked about this in my book a lot. That’s old thinking, but it’s still persists, right? Hiding prices is something that B2B companies still want to do. They’re worried about competition. They think the pricing is a competitive advantage. Nope, ain’t anymore, in my opinion. I don’t know, Andy, do you agree? 

Andy Hoar: No, you’re totally right. And, you know, when was the last time you went to Amazon and didn’t see a price. I was just reminded of some research we did last year, a fascinating piece of research actually that said, among other things, 88% of B2B buyers research prices online. You go, okay, well, no doubt, right? But contrast that with the idea of hiding prices, hiding prices online, if the prices aren’t online to be seen. And again, have you ever gone to Amazon and not found a price? This is over. I mean, I am still shocked that we have this conversation, but I had a conversation with somebody just a couple of months ago. And they said we don’t want to reveal all of our prices because it’s a competitive disadvantage. And I’m like, have you ever thought about the lost sales associated with not revealing your prices? Because that’s also important here. 

Brian Beck: Yeah, it’s almost like there’s a whole swath of invisible opportunity costs. These companies don’t see when they don’t publish pricing. I think of this almost as an element of personalization of the experience, Andy, thinking about when someone needs the product or there’s a higher demand for the product. This is capitalism 101, man. The price goes up when there’s less demand, happy hour, or price goes down, right? If we think about the fundamentals of B2B pricing, dynamic pricing has actually been around for a long time. Think about contract pricing. Think about some of these companies that have thousands of price lists stored in the ERP and being able to present those, it’s a slightly different notion because it’s negotiated, but it’s the same general idea. We’re varying the pricing based on the need, the use, the buying power, the market conditions. Ultimately, the definition of dynamic pricing is varying price based on market conditions. Well, it has to do with everything from timing to the use case for the product, the value the product has to the buyer, the contractual buying power of that buyer. All these things, how much product you’re buying, this is dynamic pricing, guys. And to me, this is a key element. And guess what other big element we’ve been talking about, a lot lately, Andy? And it creeps into this with millions of products is AI, right? The ability to price correctly in a very intelligent way. This all harkens back to that airline example you gave early in this. And I think, I think it’s already here in B2B, I think the transparency argument is dead. In other words, you have to be showing pricing. Frankly, it’s one of the reasons Amazon Business is winning market share. 

Andy Hoar: And let’s face it, I would at least categorize it as at least slow motion dynamic pricing because there’s seasonality, the promotions that people do. There’s selling things at a lower price, of course in B2B, we know there’s a difference between the spot pricing and the sort of spec-in pricing. If you’re building, you know, a building, you’re not going to be looking for the concrete on the spot market that day. You have to plan that well in advance. That kind of pricing is different from spot market pricing, but my God, there’s a lot of spot market pricing in B2B. And increasingly, a lot of this planned stuff is getting shortened, the time periods have been shortened. People are making decisions in shorter frames of time. And so how do you have fixed pricing in shorter periods of time? Plus, again, the inputs are changing constantly. And when the inputs are changing, the price has to change. So I think we already have dynamic pricing in B2B. We’ve seen it. It’s either slow motion or fast motion, but your point about AI is a really good one. And the reality is, not only is price non-transparency impossible anymore. I think price arbitrage is almost impossible because bots, AI bots are going to be looking everywhere at all the prices that are published. And it has to be published. So how are you going to be able to charge economic rent on a certain product, as they say, in economics, right? When everybody else is charging different price. And one of our favorite topics, of course, is marketplaces. And those are 100% price-transparent. 

Brian Beck: That’s right. You raise the notion of getting into channel conflict a little bit here, Andy. Think about the value of the pricing being an element that the brand wants to control. And there’s actually software systems out there that will go out and it’ll scrape and they’ll look at all the different places that people post prices. And this is how Amazon does it, right? And they go out and they look, and they find the lowest price. And they say, we’re going to match that price. We’re not going to honor a MAP policy, et cetera. But you think about this price transparency as it relates to B2B. And the culture of B2B, very conservative, very relationship-based, the sales rep having the relationship. The price transparency thing and dynamic pricing and all of it, threatens, quote unquote, those relationships, and so I think this gets into foundational fears of channel conflict too. When we start talking about dynamic pricing and B2B true, when I say dynamic pricing, I mean in the spirit of American Airlines, you know, flight pricing or Wendy’s, surge pricing, whatever you want to call it. You know, it’s that kind of pricing dynamic, which I think strikes fear in a lot of B2B companies. But as you learned in B2C, you can’t control it. And because if you’re not there, look at what’s happening on Amazon and other marketplaces. Competitors will be exposing price. You’re going to have folks coming in or brand new entrants, brand new competitors that are offering products that are comparable to yours. And that customer who’s loyal now to the marketplace or the channel is going to buy from that other brand. So you’re losing relevance…but I’m extending my argument a little bit here, but bear with me. You’re losing relevance with that buyer because they’re going to buy something different than yours. If you’re not transparent with your price.

Andy Hoar:  I like your point about channel conflict too, because when you discount products through the channel, generally speaking that works, the manufacturer sells it for X and you discount it to 0.75X. And the difference is the value the channel offers. But when you’ve got a horizontal marketplace like Amazon and others that don’t have the same fixed cost and they’re not paying sales reps, then that discount changes a bit. And so all of a sudden you’re like, wait a minute, maybe the price is even better or more attractive on Amazon, which forces the channel to react, which means that that arbitrage opportunity changes. And that’s becoming, here’s the word dynamic. So, well, you know, it’s interesting because we actually did a poll like we do for all of these. And so this is our question: “Is dynamic pricing coming to B2B?” There’s a little graphic up here that shows kind of what the difference is between, you know, it’s like an economics textbook. But it makes the point that you’ve got to capture the different prices along the curve depending on the supply and demand. I think we both agree. It’s here. So we wanted to hear from practitioners. And so we posted a poll and Linkedin and we said, is dynamic pricing, which means very prices based on market conditions such as peak demand periods, coming to B2B?  I was surprised by this. Overwhelmingly, yes, 68 to 32%. 

Brian Beck: Yep, 68% said yes. And I think it’s acknowledgement of the fact that it’s really already here. I think the industry is somewhat comfortable with it. I don’t know if there’ll be some channel conflict concerns, some pushback from traditional selling. But look guys, this is here. I talk about this in my book, for example, it’s the age of transparency, arbitrage, you know, I think about it even as it relates to things like the car industry, Andy, like buying a car. And you know, there’s so much transparency now in pricing when you’re buying an automobile that you know you should pay. And so companies have to find different ways to add value. And to me, this is a good thing. This is sort of a natural evolution of capitalism to what it ought to be, right? It’s good, perfect information. Things aren’t being hidden from the buyer, things of that nature. So it’s a good thing. It allows real value to bubble the surface.

Andy Hoar: It’s a good thing except that all the layers in between and all the arbitrageurs built into the value chain, we’ve got to find new lines of work.