Ibbaka with its partner Leverage Learning has been working with Becton Dickinson for the past three years on a series of marketing capability projects. One of the most innovative is on Pricing Excellence. Our internal thought leader was Joe Schneider, who brings wide experience from different fields to pricing leadership. Joe has his finger on some of the most important challenges facing pricing today: how to make the transition from products and services to solutions, how to manage pricing in large complex sales that can combine highly differentiated offers with others under commoditization pressure, how to manage changes in the value chain and pressure from stakeholders to reduce overall costs in the healthcare system.
Ibbaka: How did you come to a pricing leadership role at Becton Dickinson?
Joe: I came into pricing almost by accident. Working with business leaders, we found that people did not really know why they were using the pricing models or levels they were. They had just accepted what had been done before and were working within that framework. I wanted us to take a step back. We needed to put pricing more in the context of customers and not just let prices be driven by habit, our internal needs and our competitors.
We needed to develop a better price setting process. One that was rooted in our customers’ need. One way we tried to get people to change their thinking was with a simple question. We asked people to take a look at their offers and pricing and ask “If someone tried to sell us that would we be willing to buy at that price? Why?” Asking that question to ourselves, made us think about how we were creating and capturing value with customers in the marketplace.
The way of thinking we are working to drive into the company is based on customer driven strategies. We have to look at a few things in detail.
How are we creating value? (i.e. What really is our strategy to create preference with customers in a market?)
What is the business model for Becton Dickinson and for our customers and business partners? Does that business model enable or hinder our strategy?
How should we price? (Capture value !)
At what price should we simply walk away? (One cannot afford to win all deals, especially not to win them on price.)
Ibbaka: You have done a lot of things over the years, and currently play a key role in areas like customer insights for Becton Dickinson. How do you bring these different skills to bear on your pricing work?
Joe: I started my career as a research scientist in biochemistry. This gave me two key traits that have shaped my career, curiosity and the need for a rigorous process for generating and testing hypotheses.
I am genuinely curious about how we create value and about what we know and what we just think we know. We have to ask …
What do we know?
Why do we think we know this?
What are our hypotheses?
How can we test them?
Pricing requires people to be very inquisitive and data driven at the same time
After my research career I had the opportunity to work in sales. Sales is really a great way to understand needs, problems and solutions with a degree of granularity that is hard to attain from other sources. It also a very nerve wracking and humbling experience. Your customers tell you a lot. I was fortunate to have a great mentor in Steve Goodstein (nurse who moved into sales executive roles) who taught me a key lesson when I was starting, which i still recall to this day:
“I don’t want to know more about my solutions than the customer. I want to know more about the customer’s problems than the customer. If you know that, then people are glad to see you.”
This is hard and the exact opposite of the “leadership” role that many companies want to play with their customers. At Becton Dickinson we are getting better at this. We used to see our business in terms of products and manufacturing plants. This is going to be harder to be successful with going forward, as our customers change and as our competitors change. Our competitors can have very different profitability requirements depending on how they are financed (public vs. private companies). The capacity game is over. We have moved from pushing our products to our customers to having our customers pull solutions from us. We want our solutions to impact our customers’ key performance indicators.
Products are a much easier thing to manage than are customers. You can see the direct contribution of a product to the P/L. Can we get to a point where we understand the contribution of each customer to the P/L?
We want to become a customer driven business, one that is built on a deep understanding of our customers and how we are creating value for them. This requires a change in mindset on how we engage.
Pricing plays a critical role in this transformation. I was able to bring a new perspective to pricing at Becton Dickinson as I did not live in a part of the business with P/L accountability. That let me be more agnostic and introduce a more rigorous approach.
The combination of research discipline with sales experience is critical to my success. Both of these teach one to deal with contentious topics. To succeed in pricing one has to be able to understand and integrate different points of view.
Ibbaka: How have pricing challenges and opportunities changed as Becton Dickinson has moved towards solutions?
Joe: Becton Dickinson has a strong position in several markets. We enjoy a combination of high margins, high market share and are able to charge significantly more than our competitors. We try to better understand why our customers are making these choices. As we move to solutions there is the potential that may earn lower margins, but have a more “competition proof” customer base. It is critical that we understand the tradeoffs between price, gross margin and perceived value, even as we are moving from managing products to managing portfolios that can provide value across the whole path of a disease or for an entire provider system. The basics never go away.
As part of this transformation, we need to get better at designing and managing risk-based contracts where we share risks and rewards with our customers, and performance-based contracts where we are paid for impacting key performance indicators. The organizations that develop these as core competencies are going to be among the winners going forward.
This will require a good understanding of game theory. One has to be able to understand one’s own risk, the risks the customer is taking on, and even the risks facing competitors. We have to think about pricing and our business as a whole as being involved in risk transformation for our customers. How do we change their risks?
As we start to price based on outcomes, we have to start asking ‘How can I align my business model with that of my customer?’
Ibbaka: What is changing in your markets and how will this impact pricing?
Joe: There is going to be a lot more pressure all along the value chain to demonstrate value and show that pricing is justified by the value being delivered. This challenge will be felt across entire disease states and for all healthcare providers, and is coming from customers, regulatory agencies, and political systems.
The government will be putting more and more pressure on the healthcare system. The percentage of the gross domestic product (GDP) spent on healthcare cannot continue to grow. This is going to put pressure on the whole value chain beginning with the pharma companies, but pressure on companies like Becton Dickinson to demonstrate value will also be intense. The value models of many parts of the sector will have to change and become much better defined. Intermediaries like pharma benefits providers will also come under a lot more pressure.
This means there will be a need for a lot more pricing transparency right out of the gate. As I guide our businesses through their pricing strategy and pricing decisions I want to make sure that what we are doing is fair, transparent and will stand up to external scrutiny.
Digitization is going to have a big impact here. Digital business models mean that a lot more data is collected and available for analysis. Digitizing the healthcare system should lead to a lot more transparency for all participants, and this will then feed back into strategy setting.
Becton Dickinson will have to get better at managing prices in the context of the value being created across the entire value chain. We will need the skills to deliver profit management through the solution, customer and portfolio lenses.
If I boil this down to three things, we are going to see a lot more value chain integration, a demand for transparency and an expectation of fairness.
Ibbaka: What are your passions beyond work?
Joe: I have young and very active children and we do a lot of things together as a family. We ski, play soccer get out of the house together, but we also sit down and play board games and work on puzzles. We also love food. Food of all kinds, especially ethnic foods. I have to travel a lot for work and one thing I enjoy is trying out all sorts of different ways food can be prepared and served. I think every culture has some form of a dumpling...food wrapped in dough. It makes me think there is some basic need for humankind to put food in a dough wrapper for easy consumption. I also know I have yet to try a dumpling that I have not enjoyed :).
Ibbaka: What is the lasting impact you hope to have with your work?
Joe: When you get down to it, it is about the brand we are building at Becton Dickinson.
“Advancing the world of health.”
To really deliver on this, we have to have processes that support it, a way of thinking that embodies it, and we have to be able to create and communicate value. The way to do this is by thinking differently about our customers.