Decoding Pricing for Practitioners with Maciej Kraus and Alex Galkin

In this special episode of Pricing Heroes, we welcome back our very own Alex Galkin, who joins us for our conversation with today's guest, Maciej Kraus. Maciej is a Managing Partner at Movens Capital, a growth equity firm, where he helps companies generate more profit for their development and growth. He is also a guest lecturer at the Stanford Graduate School of Business and the author of three books, including "The Future of Pricing: A Guide to the Next 10 Years of AI" and his forthcoming book, "Pricing Decoded: How Leading Pricing Practitioners Manage Practice to Boost Profits." Maciej is also one of the longest-serving members of Competera's advisory board.

Recommended Resources

Maciej recommends several resources for those looking to deepen their pricing knowledge:

• Value-Based Pricing by Stefan Liozu
• The Strategy and Tactics of Pricing by Thomas Nagle
• Mark Stiving's Impact Pricing Podcast

----------

Get your free copy of Get Ready for the Future Of Pricing with our A-Z Guide.

You can access all of our Pricing Heroes episodes featuring our interviews with retail pricing experts at https://competera.ai/resources/pricing-heroes.

Interested in joining a dynamic community of pricing experts? Check out the Retail Pricing Community on LinkedIn, where you will find a community of professionals sharing their expertise and discussing the latest trends.

For more information about AI pricing solutions, visit Competera.ai.

Transcript

Aaron: Welcome to Pricing Heroes, a podcast sponsored by Compaterra. This series features interviews with best-in-class retail pricing experts who are driving bottom-line metrics for major retail brands and the industry as a whole. Today, we have a special episode for you.

We welcome back our own Alex Galkin, who's joining us for our conversation with today's guest, Maciej Kraus. Maciej is a managing partner at Movens Capital, a growth equity firm, where he helps companies generate more profit for their development and growth. He is also a guest lecturer at the Stanford Graduate School of Business and the author of three books, including "The Future of Pricing: A Guide to the Next 10 Years of AI," and his forthcoming book, "Pricing Decoded: How Leading Pricing Practitioners Manage Practice to Boost Profits."

Maciej is also one of the longest-serving members of Competera's advisory board. Maciej, welcome to the show, and Alex, welcome back.

Maciej Kraus: Thanks for the invite. Great to see you.

Alex Galkin: Thank you so much for joining us today. In my personal opinion, you're one of the driving experts on this pricing topic. I want to use this podcast to give our audience more insights. What inspired you to write this book?

Maciej Kraus: Thanks again for the invite, Alex. It's always great to chat with you. You remember we wrote a book together a year ago or even more, "The Future of Pricing," where I shared some of my experience. But I think the main part was delivered by you and Marina Diaz on how to use AI to better manage pricing and utilize technology.

This time, I joined forces with Danilo Zatta, my good friend and author of several amazing books. We reached out to many of our friends, colleagues, and former clients to share their insights on how to effectively manage pricing from the inside. I always repeat that pricing is a craft.

You can get the best technology and the best pricing consultants, but ultimately, you have to do the heavy lifting yourself as a company. Technology can help you a lot. External consultants can structure the process and help you, but you have to do the heavy lifting.

I always compare it to training for a marathon. You can get the best coach, the best shoes, someone helping with your diet. Ultimately, you just have to get up in the morning, lace up your shoes, and do the running. It's the same with pricing. My experience working with different companies from various industries, not only retail, is that there is no single, perfect formula for pricing.

Of course, there are general rules about what to do and what not to do, but ultimately, you need to mold this pricing muscle, as I call it, to your organization, your culture, and your processes. So I wanted to show in this book this vast area of different industries and how they manage pricing.

Alex Galkin: I love this analogy with the marathon. My best analogy is buying a Formula One car or high-performance car, but you're not trained to use it. Even if this car is simple, with just two pedals and a steering wheel, the organization should change. You're right that the goals need to be aligned psychologically.

I often see the CEO wants one perspective and strategy, the commercial director another, and the CFO a third. The company is not aligned internally, and giving them technology like Competera, for example, will only make the situation worse. I like that you're bringing this to the table in your book because it's the same perspective we have in our projects.

We call it business discovery, where we try to understand the maturity of the organization and how ready they are to approach pricing. What's your perspective on maybe the top one or two things to think about when considering changing their approach to pricing? I always highlight that price is one of the technical buttons to make your profit or revenue. It's very important, but yeah...

Maciej Kraus: I wanted to share a couple of perspectives and contexts. One is the C-level perspective. What I still see, although it's changing, is that many CEOs consider pricing as a tactical thing. They think they don't have to bother with pricing, that it's three levels down where someone is just doing a calculation, and they hope they get the price right.

The other perspective is that they trust their people, often the salespeople or category managers who are experts and have been in the business for 20 years. They think these people know what to do. But my experience, including projects with you, Alex, and Competera, is that those category managers, while experts, sometimes still make very basic pricing mistakes in standard price management, promotions, and other areas.

One of the goals of the book is to show CEOs that the best-managed companies have a strong pricing muscle. This strong pricing muscle consists of three major elements:

1. Technology: It's super important, but as you said, Alex, technology alone will not save you. I often compare it to a magnifying glass. If you have poor pricing practices, the technology will just make it worse. However, if you know how to manage this and have an aligned strategy, it can be a very powerful tool to execute on the strategy.
2. People: You need to have the right people on board when it comes to pricing. Often when we start a project, one of the first questions is, "Who should we hire for pricing?" My answer is, "I don't know yet, because I don't know how we want to structure the pricing processes." Do we need someone very senior who was managing pricing for a big retail chain, multi-channel, or do we just need tactical people who will do the checking and manage the platform?
3. Processes: The processes around pricing are important. How does the pricing team at the retailer interact with store managers, category managers, purchasing, and marketing? How do you align these pricing processes?

Strategic alignment is also crucial. You've probably seen this many times, Alex. If you ask the CEO what the main goal for a retailer is, they'll say it's margin and mass margin. But then if you optimize pricing and footfall or market share falls a bit, they'll say, "No, we can't compromise on footfall or market share." This schizophrenic approach to pricing makes it very difficult to manage because one element is pulling in one direction, and another is pulling in the other direction.

Alex Galkin: Exactly, I completely agree. I think the people who will read this book, especially C-level executives, should definitely read it because you're absolutely right, they're still thinking this is just a tactical tool.

For me, it's also a question of whether pricing should be run by category managers who have many other things to do. It's critical for C-level executives to have this tool, and maybe there should be a role of price architect or price manager inside the organization who is independent and reports directly to the CEO. This independent person can align those goals.

Honestly, from what I see in retail, most CEOs still don't recognize this. They still think it's tactical stuff that the experts can handle. But they can really only handle it for maybe two or three products. And sometimes they only consider margin as one factor, maybe competitors as a second if something goes wrong. It's really hard to combine all these factors.

Your words resonate with me so much. These are exactly the pitfalls we're always chasing. By the way, here's an interesting fact: when we try to allocate extra budget for what we call change management—someone dedicated who will align those goals and prepare the company for the implementation of software like Competera—guess what usually happens? This budget usually gets cut. They say, "Don't worry, we'll do it ourselves. We have a very cool project organization here inside our retail."

Maybe you could share a few expert opinions on how they should start or trigger this discussion with the C-level, maybe having some budget to help them align those goals with third-party support. What advice can you give us?

Maciej Kraus: My obvious advice is to show the value first. Don't start by saying you need a budget for a pricing project. Start with the value perspective. For instance, do a simple calculation. We have a wrong price architecture, just a basic thing. You know, a large bottle of Coke is cheaper than the small bottle of Coke, stuff like that.

Then, if we just adjust those simple pricing mistakes using a platform or technology that will help us, this will give us extra X million in profit. So, just show what the potential is or how much money we're losing today with suboptimal pricing. Then come up with how we want to tackle the problem.

I think many C-level executives are still not aware of the potential in proper price management. So I would definitely start by building a business case around the potential gain, not by saying, "Oh yeah, we need to hire consultants, we need to spend money on technology." That comes next.

Alex Galkin: Got it. Cool.

Aaron: Maciej, I'm wondering, are pricing managers aware of the issues before they bring in a consultant? Is it clear to them? Or does someone like you come in, look at the strategy, look at the processes and the tech stacks they have in place, and then point out the issues? How do they know when they should look for support? How can they know that they need to hand it over to someone who has more experience in this space?

Maciej Kraus: I would say that most of them are pretty aware of what's not working in their pricing organization. But often what they lack is the internal drive or perseverance to go to the C-level meeting with a case on how they want to change the pricing.

A lot of pricing managers are good at everyday price management. They are not change agents. They are not change management consultants. They are not experts in how to redesign processes. So they lack this expertise on how to make the change. I think they're amazing with everyday price management, but not with change management.

This is really the challenge very often. We expect pricing practitioners to be pricing consultants that drive change. And I think this is the challenge that a lot of these people face because they don't know how to do it. So they just don't want to get out of their comfort zone. They just do things as usual and carry on.

So I would say it's not a lack of awareness. I think it's more that it's a different perspective on pricing. We need different pricing skills to make a change. They've never done a pricing technology implementation. They know how to use their Excel sheets where they adjust the prices. They send it to the stores or they update prices online. They know how to handle that perfectly, but it's beyond their imagination when the guys from Competera are going to come in. They wonder, "What's going to happen? How are we going to do the transition?"

So I think this is the perspective. I don't know what your take is, Alex.

Alex Galkin: It's a very important angle you bring up, Maciej. You're right that when we think about these big organizations, they're often running in silos. The pricing team is sitting there doing their stuff, and the people in the stores have no idea what's going on there. Sometimes they even overwrite the recommendations coming from headquarters. They have too much freedom there.

This absolutely resonates with me. Honestly, I spoke recently with one big executive who said, "Alex, this is not my monkey. I did these formulas, I aligned with the CFO, but these guys can't execute."

Probably just to summarize for the audience: guys, if you have a feeling that something is going wrong, or if you feel like the retail organization is very complex—it's a super operational business with thousands of small micro business processes happening at the same time—how do you help the organization identify when something is going wrong?

If you can see those kinds of signs that the pricing team seems to be working well, you shouldn't blame them right away. It's usually just a lack of communication or transparency. For me, the question you should ask is: how transparent is my pricing strategy? This is something that we just feel is floating in the air.

I always ask in my discovery calls, "Guys, show me the pricing strategy. Where is it written? Who is reading this document?" At the very least, it should look like we have a premium strategy. How is it determined across store formats? If we have different formats because they have different locations—and believe me, even big organizations, billion-dollar organizations struggle to answer these basic questions. If we have small stores located nearby, what's the pricing strategy there? Do we have a similar pricing strategy everywhere?

Maciej Kraus: I think there's one other perspective we should add here: the power perspective and the internal power struggle. Obviously, pricing is a very powerful tool, and the person responsible for pricing has a lot of power. Often during transitions, this power gets reallocated somewhere else. Now the technology is responsible for more of the pricing decisions. It's not so much discretionary. So that's another element—someone sometimes blocks the pricing change because they don't want to give away their pricing authority.

Let's also remember this: As you said, Alex, if this whole pricing strategy is vague or there is no strategy, I usually compare it to soccer. Poland is a soccer or football country, and everyone is an expert in soccer. Everyone has a say, but when we got knocked out of the Euro, no one was responsible. I think it's the same with pricing. Everyone knows what our pricing strategy should be. Should we be more expensive or less expensive than competitors? What promotions should we run? But when there's no accountability, it's difficult to make a change.

Alex Galkin: Yeah, yeah. That is correct.

Aaron: So, Maciej, does "Pricing Decoded" discuss how an organization should think about its organizational structure in terms of pricing? How can pricing have a seat at the table and be able to voice when intervention is needed? How should pricing take priority and ensure there is more alignment and transparency around the pricing strategy and process?

Maciej Kraus: Yes, there is one chapter I would definitely recommend. This one was co-written with LOTTE, a Japanese food conglomerate that we worked with on helping them structure a pricing organization. In this chapter, we describe the whole journey we went through: how it started, what the challenges were, how we analyzed and established the status quo of the existing pricing processes, what the inefficiencies were, how we designed the future pricing organization and how to do the transition, what technology we identified as needed, and then the process of whether we should purchase it on the market or build it ourselves.

So there is a whole, I think, super insightful chapter on those very practical, step-by-step aspects of building a pricing organization. Of course, like every story in the book, consider it as inspiration, not as a manual on how to do it.

Aaron: Great. Thanks for that answer. I like to occasionally bring up topics that have appeared in the media. Pricing has been making headlines recently. Politicians, government agencies, and even customers have expressed a lot of concerns around pricing practices, including topics such as price gouging, dynamic pricing, even collusion among others. Does "Pricing Decoded" offer any insights into how practitioners can navigate these sensitive issues, balancing both ethical standards and public trust with business objectives?

Maciej Kraus: Yes, there is one chapter exactly on this topic. Actually, it's more about how to communicate a price change to customers. I think what didn't work, and why we now have this whole issue with politicians getting engaged in pricing and accusing retailers of price gouging, is that these retailers failed to get the customers and shoppers on board with the new pricing strategy.

Let's face it, and I'm not here to judge anyone's moral standards—what's moral, what's not moral—but dynamic pricing is something that's been with us for ages. If you look at any market out there in medieval times, if you were selling carrots, depending on the market situation and everything, you would dynamically adjust the pricing. When you trade commodities on the stock exchange these days, the price changes every single day, every single minute or second.

When you buy a ticket for a plane, you're not surprised that if you enter the website and search for a flight, five minutes later you get a different price. And for those, no one's accusing airlines of price gouging or exploiting the maximum willingness to pay. Why? Because I think we simply, as consumers, as users, as shoppers, we've gotten used to that.

In this case, I think it was a failure of communication and building trust with the customers. Let's think about dynamic pricing. Actually, you could equally sell it as using dynamic pricing to mark down prices for products we just want to get rid of. Or for groceries, we use dynamic pricing to reduce waste. I'm just making this up, but I think you can build a very compelling story and narrative for why you do dynamic pricing.

Obviously, when something's changing and you don't know why, your first reaction is fear. You think they want to cheat me, they want to steal, they're doing something against my interests. But when you understand the rationale behind it, or someone gives you this rationale so you mentally understand why certain things happen, then I think it's easier to accept.

So, just to sum up, in this case, I think it was a communication failure.

Alex Galkin: I absolutely agree. I think we should add some practical examples. The early dynamic pricing tools were often used incorrectly, without proper communication to customers. There was a notable case with an e-commerce flower retailer who attempted to implement airline-style pricing, but didn't understand the complexity behind airline algorithms. They made obvious price changes based on factors like the type of device used to access the site, which customers found unfair.

I believe retailers should be less afraid of dynamic pricing because consumers are increasingly used to it. We did a great project with dark stores - these are last-minute delivery services for groceries. We found that when liquor was out of stock on Friday evenings, it negatively impacted customer satisfaction much more than raising the price by 20-30% to maintain stock.

Customers were often happier paying up to 20% more for liquor rather than finding it out of stock. This makes sense because it's an urgent need at the end of the week, and they're willing to pay a bit more for convenience.

This aligns with what Maciej mentioned - if you can be proactive in your communication and explain that the price increased due to high demand, customers are more likely to understand and accept it.

Maciej Kraus: Exactly. Think about an old-school countryside farmer's market where there's only one person selling eggs. They don't need to be taught pricing - if they're the only one with eggs, they'll raise the price, and no one would accuse them of price gouging. It's just looking for the price optimum.

In the book, there's an interesting chapter co-written with a service company about how to build transparency, fairness, and long-term pricing relationships with customers, rather than being accused of short-term gain optimization.

Alex Galkin: I 100% agree. This is also important for our audience to understand that pricing is often treated as tactical by many retail organizations, and they act tactically with only a short-term perspective. If we create the organization properly, using the knowledge Maciej shares in the book, we can build long-term, short-term, and sometimes tactical rules.

It's sometimes super hard to create a to-do list, but it's easier to create a not-to-do list. For example, we never increase prices under certain conditions.

By the way, dynamic pricing has always existed in markets. When you go to a traditional market, the seller looks at you and immediately creates a price - you never see a fixed price there. It's nothing new, it's just that technology is changing how it's done.

Maciej Kraus: Three days ago, Stefan Liozu launched his new book on value-based pricing. I've already read through it. It's an amazing read, and you don't have to be an expert to understand and get a lot of interesting insights. So this is a very recent publication I very much recommend. Stefan is an expert on value-based pricing.

Of course, if you want to get better, there's the famous "The Strategy and Tactics of Pricing" by Thomas Nagle. It has tons of information on how to understand the mechanics and dynamics of pricing. That would be the second one.

I really want to give kudos to you, Alex, and to the Competera team for all the content that you share on your website and in social media, with the cases. I remember when we just started years ago, there was nothing, and these days, spending time with your content is another amazing source of insight.

Obviously, maybe I'm not too modest, but you can follow me on LinkedIn. I try to publish things around pricing every week or so. Those would be the ones that I would definitely recommend. Also, Mark Stiving, who has the pricing podcast, is another very insightful and good source of insight. Alex had a very interesting episode there. So yeah, I think there is a lot of content out there.

Alex Galkin: Yeah, there's a lot of content being produced right now. We're also trying to create it because there are no universities training people to be pricing experts. We're trying to make a place on the internet where you can have as much material as you can. This is why we're running these pricing podcasts, sharing these stories, and you can follow, of course, the people behind these stories. This is how you can learn more.

Maciej Kraus: Ultimately, you don't get better at pricing by reading books or listening to podcasts, but by practice. So just go out there, practice, make price changes, see what happens, have a structured way to verify, adjust, then learn. And make your pricing better every day. Pricing is a craft, and you learn it by doing.

Alex Galkin: Super. Yeah. And technology is an accelerator.

Maciej Kraus: Very important. Technology is super important to manage your pricing. Without it, I think the era of managing pricing in Excel is long gone. If you can still manage your pricing in Excel, kudos to you, but I think you're missing a huge opportunity that technology can bring.

Alex Galkin: The crafting foundation is very important. I mean, any professional, if you can, you know, having only a hammer and build the house, this is also fine. Right? But of course, with technology, with all this, you can build it faster, more efficiently, et cetera. But knowing how to use the hammer is still like an important base for all of that.

For C-level who is listening to us guys, this is a very important piece of your organization - the pricing organization. This is what Maciej's company is doing, helping you to define and actually structure and create your pricing organization inside your company. And this is very valuable because all the tools like Competera or any others, they come after that. First of all, this alignment of the goals, having the understanding of how price organization should be built and why, what they should bring to the table.

This comes first. Maybe this is, you know, my shade, this is what we are seeing on those retailers trying to buy something like Competera, like predictive software. It's like a very professional BMC bicycle driven by champions, never driving any bicycle before. It's, you know, absolutely no sense.

I see that most of the successful implementations, they all come from switching. We never sell Competera to someone who's using Excel before. No way it happens, even if built super simple, right? There are two buttons, but most of them are switching from existing software and house development or from big consulting. What does it mean for me? They're already mature enough to appreciate the complexity and the new way of doing that.

Maciej Kraus: I sometimes use the other analogy of skiing. So I'm a ski instructor, and I remember when I was working actively as a ski instructor, there were people just coming, let's say, in their late 40s and they thought that if they buy the most expensive skis, then they would learn how to ski in a day. And then after this one day, which was just a misery and disaster for them, they got discouraged and actually they blamed the skis, of course.

Alex Galkin: Yeah, exactly.

Maciej Kraus: So in this case, so like Alex, you can confirm or not, but it often happens that you just get this sophisticated technology. You, it doesn't work or you don't know how to use it. And obviously you blame the technology. So we spend so much money. We got this fancy technology. It doesn't work. It's not my fault.

Alex Galkin: Yeah, yeah. And you know, this for me, so we try to put this budget for like, for price consulting, for change management, all this stuff. They always try to cut this budget. Living. Oh, let's do this run. And then it's like, guys. And then we will end up like, for me, the reputation risk is even higher for you. It's another project, for me it's like a huge reputation risk.

Maciej Kraus: Alex, you know it perfectly well. We have so many successful stories that someone came to you for software, and then you started to ask some basic questions around what are your key value items, what's your strategy, how you want to position, and then there was just a missing emptiness. On the other side, so people just didn't know how to do it. So then we were just helping a bit on how to get answers to those strategical questions. And then the technology can help you to enforce it and to make it happen.

Alex Galkin: Yeah, very often, guys have given with Maciej when we see this on the business discovery that you guys are not ready, we really suggest to work with Maciej's team. They can help you really quickly. Actually, this is like a three to six months project to create the entire organization pricing revision in your company. See how it goes. It will already be super beneficial for you and later on you can come closer to the selection of the technology what can just accelerate your success.

Maciej Kraus: Yeah. I think it's important what you mentioned that sometimes your customers want Competera, so they want this, you know, let's say carbon bikes, but they are not ready to use it and it's even not within Competera's best interest to onboard those customers too early because then they will just suffer. And you just have to get to a certain maturity level to make use of the technology.

Alex Galkin: My friend here in Cyprus, he just bought a motorcycle. He spent all his money on this motorcycle. And now he is concerned because he needs to buy equipment. See, like, what do you think about before? It's the same as the analogy with the carbon bicycle. You need to wear specific equipment, you have specific shoes, and when we're asking guys, what is your KVI strategy, etc. We need it as the inputs to the model or your data is super garbage. You never save any historical stock data, etc. Then they start playing all these technologies, right? But you guys are just not ready for that because you're not collecting the right data.

Aaron: Maciej, Alex, thank you for being on the show and sharing your insights with us today.

Alex Galkin: Yeah. Thank you for this insightful conversation. And of course, good luck with your book and thank you for producing this.

Maciej Kraus: Thank you. Thank you for the invitation.

Aaron: I hope you enjoyed our conversation today with Maciej Kraus and Alex Galkin. Be sure to follow and connect with our guests on LinkedIn. For more information about AI pricing solutions, visit compaterra.ai. Remember to subscribe to the show on your favorite podcast app to ensure you don't miss future episodes. And please help us spread the word by leaving a five-star review so that others can discover the show.

If you find the insights in this show valuable, I encourage you to check out the Retail Pricing Community on LinkedIn, where you will find a community of pricing experts sharing their expertise and the latest trends. Thanks for joining us on this episode of Pricing Heroes. Take care. Until next time.