Full Transcript for Tariff-Proof Pricing: Building Resilient Strategies for Uncertain Times with Per Sjöfors

The cornerstone of the process is the realization that everything you do in a company affects how you can set prices. Hence the subtitle of my book, A Holistic Approach to Pricing Power. I can give you a number of examples to illustrate how everything affects a company's ability to price. One company—a consumer goods company—they sell their product through vending machines. They came to us and said, “We tried to increase our prices seven years ago, and it backfired badly. We had to revert. But now it's time to try again.” What we found for this company was that if they positioned themselves differently from a marketing point of view, there was plenty of room to increase prices. That goes into the statement that everything you do affects how you can price. So, during one week, they changed the signage on these vending machines and increased their prices. That week, they went from being a $200M to a $240M company—because a different marketing position supported higher prices. A B2B example: a company that sells infrastructure products and software to certain organizations. They had been selling their hardware, installation, and associated software on a per-system basis. So, depending on the size of a facility, they’d quote $40K, $60K, or even more. Through our process, we discovered that a majority of buyers didn’t evaluate the purchase on a system basis—they looked at it per user. So, this company changed the monetization strategy last August to a per-user pricing model. When I checked in with the CEO about three months later, he told me, “Since we made the switch, we haven't lost a single deal.” And that was at roughly 28% higher prices. Aaron: Wow, that’s very interesting. Clearly, price perception and brand perception are interrelated. And being able to sell into your potential customer based on how they value the product is what makes the most sense. We can’t just assume a particular package or way of selling works—we have to adapt to meet the expectations of our ideal customers. Per Sjöfors: Yeah. Much of it comes from the fact that when companies talk to prospects and customers, a good portion of the people they talk to lie. And if they don't lie, they either withhold information they think would benefit the company in the next deal, or they say things they think the company wants to hear. It's a human trait. Imagine you're at a car dealership, and they have the model and color you want. Would you say to the salesperson, “Oh, you even have the color I want—so I’ll pay you another $2,000”? No, you wouldn't. You'd say, “You have the color I want, so if you knock off $2,000, I’ll buy it.” That’s how we all work. This leads companies to have a slightly skewed understanding of the marketplace. That’s why it’s so important to use a third party—like my company—because we do this anonymously. We research a company's marketplace without the market knowing who the sponsor is. Aaron: Making decisions backed by objective insights—supported with data, as

objective as that data can be—is extremely helpful for making those crucial business decisions. Per Sjöfors: Definitely. And having that data is so important. Without data, what do companies use? Gut feel. Guesses. They look at a competitor and say, “We’re a little bit better, so let’s price 10% above,” if they can get those prices. Aaron: Cost-plus, time and materials—that sort of thing. Per Sjöfors: Yeah, exactly. The best one in that category is CEOs—and I deal virtually exclusively with CEOs—who tell me, “We know the market price. We know the market price, and I send out my salespeople to take the best price they can.” If you're in B2B sales—how do they know the market price? They don’t. And sending out salespeople to “take the best price they can” means… a low price. Aaron: Exactly. If they don’t understand how their ICP values the product, they might be selling themselves short. Per Sjöfors: That’s absolutely true. Aaron: So, understanding how the person you’re trying to sell to values a particular service or product directly influences the price that you set. Per Sjöfors: But there’s something else that’s very important when it comes to this—and that’s something called price walls. These are psychological price points that affect sales volume significantly. And you want to make sure you’re pricing on the right side of those. The issue is that many companies do price testing, but price testing often treats pricing like it lives in a vacuum. And pricing does not live in a vacuum—hence, again, the subtitle of my book and my statement that everything matters when it comes to pricing. The two examples I gave you: one company changed their marketing position and could increase price; the other changed their monetization strategy and could also increase price. In both cases, they saw an increase in sales volume as well. So knowing where those price walls are is really important. Let me give you another example. One of the major computer companies—I had a conversation with one of their VPs a couple of years ago. He told me they’d been doing price testing. They have very simple pricing: it’s just cost-plus. But they did a little testing with one computer model. They started inching up the price and found they could increase it by $17 without any change in volume. But if they went up $18, sales just fell through the floor. They had found a price wall. It also meant they’d been leaving $17 on the table for every computer sold. If it’s a low-margin device and you sell 10,000 of them a day, it makes a difference. Now, it could well have been that by marketing this computer differently, that price wall might’ve shifted. Maybe they could have gone up $25, or $43, before hitting that wall. Aaron: It’s very interesting to think that a change between $17 and $18 would impact volume by so much, but humans are a fickle species. Per Sjöfors: We are not rational. The methodology that we use stands on the shoulders of three Nobel Prize winners in behavioral economics. Aaron: Richard Thaler— Per Sjöfors: Yeah—Kahneman and Tversky. In fact, one of my former team members here in Los Angeles was actually taught by Dick Thaler. Unfortunately, he passed away a couple of years ago—my team member, not Thaler. But understanding the psychology of pricing is crucial for any company. And that’s why the statement, “We know what the market will bear,” is just completely wrong. Aaron: Talking about how we make decisions around pricing—and the question of how to increase prices without affecting volume—this feels like a great opportunity to turn to tariffs. So I’d like to kick it off with a foundational question: when tariffs are introduced, who really ends up paying for them, and how does that impact pricing? Per Sjöfors: I did a presentation for a bunch of CEOs last week, and one of them asked me, “How do tariffs affect willingness to pay?” To which I said, “They don’t.” Because they don’t. Tariffs are a tax—an added cost. If you’re lucky and your company can sell at high margins, you might be able to absorb that added cost. Most companies are not in that situation. So, they’re forced to increase prices. But then the question becomes: how much? If they haven’t done the research to identify those price walls, increasing prices arbitrarily based on tariffs is either going to be hit or miss. If they’re unlucky, they’ll cross one of those price walls and lose 30–40% of their business. They might also be very lucky and not cross one—see no change in volume. Then they know they’ve been leaving money on the table for a long time. And because every company is different, tariffs are not going to be the tide that raises all boats. They’re going to affect companies differently. Tariffs will obviously be most painful for companies that are importing ready-made goods for resale. For those in manufacturing who import components, the impact will be smaller—especially in terms of pricing to maintain desired profit margins. Aaron: Assuming that a company has to consider increasing the price of their products, how can businesses handle passing the increased cost of tariffs onto their customers? How can they determine if it’s better to raise the base price or add something like a tariff surcharge onto the total cost? Per Sjöfors: I would recommend against adding a tariff surcharge. That’s simply because it points out to the buyer that their cost has increased. And certainly in B2B, it opens up a potential for negotiation. Some customers will say, “I’m not going to pay this surcharge because your competitors are not charging this.” It’s the same thing again—best practice in B2B is not to offer things itemized. When you offer something itemized, you open a can of worms for negotiations. When there is a price for whatever product you sell, that’s the price. It may include a few options for the product, but there should not be a surcharge. Aaron: That is interesting, because I’ve seen some conversations between people working in

merchandising and pricing, and I think the example they used was similar to what you see when you’re booking a hotel or an airline—where you get to the end and there are these additional charges. They said, “Could you imagine going on Amazon to order something, and when you get to the basket, you see a ‘Chinese tariff surcharge’?” And I was trying to think—how would I feel about that as a consumer? On one hand, I think, “Well, at least they’re being transparent. I understand what the increase is attributable to.” But the more cynical side of me thinks, “How do I know they’re not just padding their margins under the guise of a tariff surcharge? I have no idea what it really costs them to import this.” I suppose you’re saying this wouldn’t work for any type of business? Per Sjöfors: No. In the Amazon example, I would not click the buy button. I’d feel deceived. I looked at something that had a price, and suddenly there’s an add-on to that price. I had an experience during the pandemic at a local restaurant where I took some customers. When the check came, there was a “COVID surcharge.” I told the waitress, “I’m not going to pay this.” And she said, “You have no choice.” Obviously, I did pay it—but I didn’t leave a tip, and I’ve never been there again. They lost a potentially profitable, returning customer. I’m never going to go to that restaurant again. Aaron: Hmm. It also reminds me of Waffle House. During the egg shortage, I believe they added an “egg surcharge” to the menu. The more I think about this, the more I see pricing update notifications happening. You know—Netflix, for example. When I get an email saying, “Hey, we’re about to raise our prices,” I think, “Okay, I appreciate them telling me.” But maybe if they hadn’t mentioned it, I wouldn’t have noticed. Per Sjöfors: Netflix is interesting in many ways. First of all, we set their prices when they went from DVDs to online streaming. And for many years, they raised prices without telling anybody. Every time they did, there was an uproar—because customers would only notice when they looked at their credit card statement and saw it was a buck fifty more. So it negatively affected customer satisfaction. You mentioned transparency. I’m a firm believer that you need to be upfront and honest with your pricing. Just increasing subscription prices and telling customers nothing is not the way to go. Aaron: Yes, I think that’s reasonable. And even from the customer’s perspective, when I get those emails, they always say the increase is coming three months from now. There’s a little psychological mechanism there: in the present, I’m not being charged more—future Aaron has to deal with it. And so I don’t feel the need to cancel my plan immediately. Now that I’m aware of it, I feel like they’ve been transparent. I’m not angry about a surprise increase. But then, when the time comes… I almost never cancel. So it seems to be a very effective strategy. Per Sjöfors: That’s what I always recommend to my customers. But the one thing Netflix continues to do the wrong way is they send these notifications about price increases without justifying them. They could say, “We’re spending $14 billion on new content,” or “We’ve got 61 new shows coming this fall you’ll love.” Instead, they just say, “There’s a price increase”—which is negative. A price increase should always include a value proposition. If this is done by proposal, the value proposition should be read before the potential buyer sees the price. That way, they know what they’re paying for. So if you’re sending a price increase by email, include a sentence about the value you provide, and then mention the price increase. Even better—Netflix could say, “Over the past three months, you’ve enjoyed 127 hours of our great content,” then talk about new upcoming content, and only then mention the increase. Talk a little about me first—make it personal. If you’re selling cans of tomatoes, your value proposition needs to be on the label. When I pick up the can and read the price, I should already know what I’m getting for that price. Companies forget that. And it’s so fundamental. Aaron: Absolutely. Lead with value. Per Sjöfors: Yeah. Always lead with value. Aaron: I’ve sat in enough B2B sales calls to see that vendors are always leading with value. Sometimes I just want them to cut to the chase and tell me the price—but it’s always “lead with value.” Per Sjöfors: I do a lot of presentations for CEO groups. One of the things I offer is to review their B2B proposals. I’ve seen one proposal in the past couple of years that led with value. All the others started with features and functions—not value. And features and functions are not value. Aaron: It’s true. And that’s why I think a lot of these vendors that I’ve interacted with try to understand the business—me, my pain points, what I’m trying to achieve. And when they present, they always lead with: “Here’s how we can help you get to X, Y, and Z.” Then they walk through the use cases, eventually get to the features and functions, and only if I ask, do they explicitly share the price. Per Sjöfors: You must have experience with a different kind of vendor than I do. Aaron: Yeah. I think it’s a younger crowd of salespeople I’m usually engaging—millennials. I think they’ve learned a little something from their own experiences as buyers. Per Sjöfors: Possibly. Possibly. I also do something we call “price training for sales,” which is training people on value selling. And I know for a fact that when we start these trainings, I don’t think I’ve heard a single salesperson begin by talking about value. Again, they start with features and functions. And I don’t care about features and functions—I want to know what benefit it gives me. Aaron: So I’m wondering—if prices do have to be increased—I’ve seen recently a lot of conversation around “Will they or won’t they?” increase prices in light of the uncertainty around tariffs. My question for you is: when is the

right time for a business to increase prices? Per Sjöfors: Just about any time, to be honest. A bigger problem than the actual tariffs is this back-and-forth—tariffs are on, tariffs are off, they’re on again, then off again… for a while, maybe. But then what’s going to happen? And that creates uncertainty. When you have uncertainty, companies stop investing—because they don’t know what’s going to happen. At least if you have tariffs, you can act accordingly. Whether that means passing the cost on to customers or absorbing it—you can develop a strategy. But this back-and-forth means it doesn’t matter what you do, because it may change tomorrow. And because of that, a lot of companies do nothing. They stop investing in driving their business. They stop hiring. They stop building. They become paralyzed. That back-and-forth is the most damaging part of all this circus we’re in. Aaron: So then how can companies build resilience in pricing during these periods of uncertainty? Because that is the challenge. If you don’t know when tariffs will be implemented or how they’ll impact your supply chain, how can they possibly develop a strategy that allows them flexibility—to implement dynamic pricing or whatever strategy is necessary to remain resilient? Per Sjöfors: The first thing they need to know is the true willingness to pay in their marketplace. And guessing is not the way to understand willingness to pay. It’s absolutely necessary to know where those price walls I mentioned earlier are. It’s also necessary to understand how everything you do in the company—your marketing, your go-to-market strategy, your customer targeting, your messaging, your communication channels—all of it affects your ability to price. That considerable knowledge, which many companies believe they have but don’t—because customers lie, as we talked about—having that raw, objective understanding is critical. Then you know what the playing field is. You’ll know if you can increase prices to cover the added cost of the tariffs—and what will happen to your sales volume if you do. Maybe nothing. Maybe you can absorb a portion of the tariff so your end price doesn’t cross a price wall. Maybe you can pass on everything without consequence. Or maybe you’re already near a price wall, and if you increase your price, your volume will drop dramatically—and then at least you can plan for that. But if you don’t know, and you increase your prices to cover the tariff, and a couple months later you find out that your volume for this product dropped by 34%… what do you do then? So you can mitigate the negative effects of tariffs with knowledge. Aaron: I think that makes perfect sense. If they’re waiting for tariffs to be implemented—it’s too late. Per Sjöfors: Yes. Aaron: So I’m wondering—besides just building resilience into pricing strategies—are there ways businesses can lean into this moment? Let’s say, capitalize on it. Can they use uncertainty around tariffs to differentiate themselves from competitors in the way that they price? Per Sjöfors: You know, what happened during the pandemic was that a lot of companies took the opportunity to increase prices—maybe more than they should have. And the end result of that was inflation, for which there are no real winners. I think the same thing is happening again. Whether it’s the right thing to do or not is a question of ethics. Companies may ask themselves, “Should I take this opportunity to increase prices and blame it all on tariffs, even if I can absorb the cost?” It really comes down to: What are you going to use that money for? First of all, we have to establish that every company is in business because it adds value to customers. One of the questions I ask during CEO talks is: What is the sole purpose of a company? So far, nobody has given me the right answer. Isn’t that interesting? Aaron: They say profit. Per Sjöfors: They say profit, shareholder value, and so forth. But the right answer—the sole purpose of a company—is to create a customer. If you cannot create the customer, there is no point to the company. You’re solving a problem no one has. Every company is in business because it adds value. If you now increase prices and use tariffs as the excuse, and you don’t actually need that price increase, you can use it instead to add more value to your customers. Make your product better. Invest in R&D. Tariffs don’t apply to services—so develop services around your product. Invest in more marketing to raise awareness of the value you bring. If tariffs are reinstated, you’ll have a stronger value proposition and be in a better position than competitors. Aaron: Makes sense. And many of these businesses now have 90 days to get their situation in order. Per Sjöfors: That’s right. But again, the most damaging piece is the uncertainty. It hampers decision-making. Aaron: Of course. That’s an external factor many can’t control. You can prepare as best you can for uncertainty, but under the current administration, the only certain thing is uncertainty. Per Sjöfors: Right. That’s why I say—it’s a circus. Aaron: So I’m wondering—it's very challenging. There are ways that companies can try to mitigate the impact of tariffs or volatility by understanding what those price walls are, and by having a better understanding of the value they deliver and how their customers perceive that value. But besides that, have you seen any particular tools or technologies that are helpful for pricing teams to be more adaptive and responsive in volatile markets? Per Sjöfors: Not really. I mean, in my company and in my conversations, I deal almost exclusively with CEOs. Pricing teams do and think a little differently than CEOs, I believe. But you're absolutely right—and this is where the majority of companies fail. They think they know the value they bring to customers, and they don’t. Every company has some kind of corporate gut feel about the market—what the decision drivers and value drivers are. If that gut

feel is pretty well aligned, the company is doing really well. In most companies, it’s halfway aligned—and the company is staying in business but not doing that great. If the gut feel is completely wrong—they go out of business. You need to replace that gut feel with actual knowledge of how decision drivers work across your buyers and non-buyers. I call this the “decision landscape”—and it’s everything that affects willingness to pay and willingness to buy. With that knowledge, you have a resource in the company that allows you to plan—as much as possible—for the unforeseeable. And what we do in my company is, we go out and understand everything that affects willingness to pay—everything that affects pricing—and how it all works. Then we do the same thing inside the company. We say, “This is everything about the market and its drivers. Now let’s compare it to your internal perception of those same drivers.” There are always huge gaps. Once you know those gaps, they can be mitigated. They may never go away completely, but they can be reduced. And that means the company will start running on all eight cylinders. Aaron: The data, the insights—that’s what it’s all about. You simply cannot prepare for what you don’t know or don’t understand. So it seems like the silver bullet to tariffs—if there is one—is preparation: truly understanding your customers, understanding the value you deliver, and having a clear sense of where those price walls are… how far you can adjust prices as necessary to keep delivering your products and services without killing your volume. Per Sjöfors: Exactly. There was, I think, a German general during some war in the 1890s who said something that was then paraphrased by General MacArthur during World War II. And both of them said: “Battle plans die with the first shot. But planning is crucial to success.” Aaron: That’s a great quote. Per Sjöfors: I know it’s not verbatim, but that’s the gist of it. Aaron: Yeah, it makes sense. You train for a reason—it’s the act of planning that prepares you for uncertainty. I really like that. Per Sjöfors: The military is the largest training organization in the world. That’s what they do—train. Very seldom do they actually have to apply their training in real life. Aaron: So we’re almost out of time. I have two quick questions for you. First—over the years, you’ve shared more than 200 pricing research tips on LinkedIn. Of all those insights, which three do you think are most important for businesses to apply right now? Per Sjöfors: Wow. I think we’ve covered them. First: knowledge is power. Second: understand your customers—and more importantly, understand why non-customers don’t buy. Because that’s where growth comes from. Third: realize that you can take control of your own pricing. Aaron: Those are great. I especially like number two. It’s all about avoiding survivorship bias. If you only focus on the customers you’ve already won, you’ll miss the opportunities among the customers you haven’t. You’re not speaking to them—you don’t know who they are. That’s great. I like that. Okay—our final question. What books, podcasts, or other resources do you recommend to our community of pricing professionals—or to the CEOs and leaders you speak with about pricing? Per Sjöfors: Apart from my own book, of course, The Price Whisperer, I think it’s really important to read up on behavioral economics. We talked about the key figures in that field: Amos Tversky, Daniel Kahneman, and Richard Thaler. Those books are excellent, but they’re also hard to read. There’s another guy—Dan Ariely. He’s a professor of behavioral economics at Duke, I think. His books are much easier to read—more accessible. So I’d recommend those. There’s a wealth of understanding in that literature. It really drives home the point that pricing doesn’t live in a vacuum, and that everything you do in your company affects your ability to price for profit and growth. Aaron: And I would encourage people to check out Nudge by Cass Sunstein and Richard Thaler. It’s probably the most accessible book on behavioral economics out there—and I think it even includes some examples of pricing specifically. Great. Per, thank you so much for being on the show today and sharing your insights with us. Per Sjöfors: Thanks, Aaron. It’s been a pleasure. I hope the audience found some value in our conversation. Aaron: I hope you enjoyed our conversation with Per Sjöfors. Be sure to follow and connect with our guest on LinkedIn. For more information about AI pricing solutions, visit Competera.ai. Remember to subscribe to the show on your favorite podcast app to ensure you don’t miss future episodes. And please help us reach others in the pricing community by leaving a five-star review. If you found the insights in this show valuable, I encourage you to check out the Retail Pricing Community on LinkedIn, where you’ll find pricing professionals sharing their expertise and the latest trends. Thanks for joining us on this episode of Pricing Heroes. Take care—until next time.