I first met Bob Vezeau this spring at the Professional Pricing Society’s Atlanta conference (May 8 through May10). He was speaking with a group of his colleagues about Craig Zawada’s keynote (Craig is the Chief Visionary Officer for PROS, the leading pricing and revenue management platform). He had some interesting things to say about pricing at scale and I reached out to him to get his insights into how to build a pricing function at a large organization.
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Westrock is one of the world’s largest packaging companies, with revenues of about US$20 billion. That is a lot of corrugated cardboard. It is an interesting business in that it operates in a very commoditized space. Corrugated packaging is well understood, but almost all of its revenues come from customized solutions. This combination of commoditized products and customized solutions is going to become more common over the next decade as the forces of commoditization accelerate (agile innovation, rapid dispersion of knowledge, software eating everything) and the demand for solutions grows. All of us have a lot to learn from Bob Vezeau and Westrock.
Ibbaka: What was your experience before pricing and what drew you towards pricing?
Bob: I am a financial guy. I have my CPA and it was always the analytical aspects of finance that most interested me. I want to use data to make better decisions.
Early in my career I worked for the banana company Chiquita. I spent some time analyzing our shipping services and realized that if we could rotate ships more efficiently, we could get by with fewer ships and save a lot of money. I took this to the COO and he said, well, if you really think you can do this I am going to give you the chance, and if you are right you can even sell the ships. He sent me to Antwerp as CFO of the shipping company and gave me the chance to prove that my analysis would work in action.
Ibbaka: And did it?
Bob: It did and I was able to sell the ships. This led to my next challenge which was in operations. I moved to Costa Rica and went to work on improving the operations side of the business.
I left Chiquita after that and went to Driscoll Berry as the CFO. Later, I moved to Unisource, a distributor of printing paper, packaging and supplies, then owned by Bain Capital. Bain places a lot of weight on pricing and I was asked to take on pricing reform as one of my responsibilities. Well, as you know, pricing is all-absorbing and I had to focus all of my efforts on this. As part of this work, we implemented the pricing platform Zilliant. Altogether, the pricing work contributed to a 300 basis point (3%) improvement in the bottom line, within just a couple of years
You can’t just go into an organization and change prices though. A change in how you price requires a lot of change management if it is to succeed. There is almost always pushback from some part of the business. We pushed the change through, but there was some resistance, and when a corporate reorganization put some of the people who had most resisted the changes in senior positions, I thought it was time to leave.
Ibbaka: Which brings us to Westrock.
Bob: Well it wasn’t Westrock when I joined. When looking for a new job I found a company right in my neighborhood that looked like it would be a good fit. This was RockTenn. RockTenn was part of the roll up that became Westrock, and I went from working at a US$11 billion company to a US$16 billion company. We’ve recently grown further and are now at $20 billion.
I was brought in to create a pricing function. While I have been here, we have grown EBITDA from 11% to more than 20%, and this could not have been done without pricing.
Packaging is a mature and commoditized market. It can benefit from the kind of analytics that the pricing platforms bring, so one of my first steps was to bring in Zilliant. I thought I had this all set up, but I came back from vacation to find that my budgets had been cut and that I would have to put Zilliant on hold.
We had no choice but to build our own tools internally. We first focussed on a price segmentation and optimization tool. This was critical because of the nature of our market, where we are selling a commoditized product but offering it as a customized solution. The bigger part of that challenge was to be able to deliver quotable pricing guidance to our sellers at the time of quoting. Our tools are giving good pricing guidance.
We then turned to providing our sales force with quality slice and dice analytics to portray pricing quality and profitability
Ibbaka: How did you go about building these tools?
Bob: We built the analytical tool in QlikView. It is hard to program, but it provides good dashboards and visualizations, as well as flexible pivot tables. This includes the segmentations and the pocket price waterfall. We can display a combination of profitability and pricing quality metrics across virtually any combination of product attribute, customer, business unit or seller. The data is updated daily, so it’s practically real-time. This same tool also provides our pricing analysts the ability to see the integrated economics, looking through transfer prices to know the total economic impact to our company of any selected piece of business. Given the nature of our business, we need to make the best use of our manufacturing assets. We can also look at the opportunity cost of business and pricing decisions.
Ibbaka: What impact has this had on the organization?
Bob: We have used the same analytical approach to redesign sales compensation. This was another exercise in change management. We made sure to get input from the sales council and sales reps. The goal was to align reps around selling value and to move away from cost plus pricing. There was initial pushback from sales people, but we designed this so that they could, and are, making more money.
In the first couple years, with pricing guidance we saw a 150 basis point margin improvement. Once we aligned the sales people we were able to get this up another 400 basis points. I had speculated that over maybe two years we might achieve a 400 basis point improvement, but once sales and sales compensation were aligned, we got there in six months!
Ibbaka: What else has the pricing function been doing to drive innovation?
Bob: We have been using the LeveragePoint platform to help people understand, and then to sell on value. (Note – I was a co-founder of LevergePoint and still own a small number of shares.) We have a person leading this work that we hired from the pricing program at the University of Rochester. LeveragePoint has been very effective for us. It helps us to develop a common view of value both inside Westrock and with our customers. LeveragePoint provides us with interactive tools that we can use with the customer to get to a common understanding of our solutions. Our sales people have become confident enough to use LeveragePoint with customers. As customers ask questions and challenge assumptions. They gain a feeling that they own the value and our sales people grow more confident to have conversations about value, rather than just being cornered into talking about price.
Ibbaka: What new challenges are emerging for the pricing function?
Bob: Half of our business comes from very large accounts. These buyers have very sophisticated procurement groups. We have a good deal desk, but our sellers were getting out-negotiated and we were being pushed into cost plus negotiations or reverse auctions. To address this, I brought in Reed Holden and his Negotiation with Backbone program. This has been a big win on both sides. It has given Pricing more credibility and been very well received by Sales. It has driven alignment between Pricing and Sales and helped us move toward more value-based selling.
We are also starting to work more with product development. We are working to make value metrics part of each gate in our stage gate process. The earlier we can insert concepts like Economic Value Estimation into the product development process the more successful our innovation offerings will be.
We are also looking at how to interface electronically with our customers. Should we provide prices electronically, and if so, how? This is easier with our existing customers, where we have already worked to establish value and pricing models. It is a lot more challenging with new customers.
With new customers, we have to provide a framework so they can self-segment. It is important to remember that any price we propose at this stage becomes the ceiling. This makes us very cautious.
Ibbaka: What advice would you have for a young person early in their career?
Bob: Developing expertise in pricing is a good career path. As a CPA, this has helped me to have an influence on the business rather than just keeping score. You become a valued advisor to the business and get invited into many different conversations. If you want to come to have an influence on the business, then pricing is a good place to start.
Pricing is a critical skill in many areas – commercial, sales, operations and product development. It can even be a path to senior management. It is a career rich in intellectual and business challenges.