Ep. 250 - Cactus Raazi, Author of Price: Maximizing Customer Loyalty Through Personal Pricing on Price Innovation

On this week's episode of Inside Outside Innovation, we sit down with Cactus Raazi, Author of the new book, Price: Maximizing Customer Loyalty Through Personal Pricing. We talk about the important, but often overlooked topic of price innovation, and how companies can use technology and experimentation to move from the traditional model of revenue maximization towards that of loyalty maximization. Let's get started.

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Interview Transcript

Brian Ardinger: Welcome to another episode of Inside Outside Innovation. I'm your host, Brian Ardinger. And as always, we have another amazing guest. Today, we have Cactus Raazi. He is the founder and former CEO of Elephant. Now part of EXOS Financial, and author of the new book, Price: Maximizing Customer Loyalty Through Personal Pricing. Welcome Cactus. 

Cactus Raazi: Thank you very much. Appreciate you having me. 

Brian Ardinger: Cactus, I'm excited to have you on the show because this is a pretty important topic that doesn't often get talked about in the innovation front. You know, if you think about pricing, a lot of the pricing models have probably been around for 50 years. And yet when I'm working with startups or people introducing new products, they're always talking about how do I set my price and that. So, I'm really excited to hear your thoughts on that. 

To get started, in the book you talk a lot about, and you encourage companies to look at price differently. So, we'll dig into the details, but how did you get involved at researching and writing about the topic of price?

Cactus Raazi: You know, it's interesting. My day job is in financial markets. And what we, myself, and the team have been working on for years are various algorithms to be able to automatically price different bonds at different times of the day for different customers under a wide variety of different conditions. 

And we started thinking about on the one hand data analytics and I had done a masters program at NYU in business analytics recently. And then on the other hand, I started thinking about the challenges of running a business in today, particularly in the B2C world. But a lot of what I had thinking about also has applications in B2B and really thinking about internet price transparency, and the destructive effects on pricing power for companies, large and small.

And so, I kind of put everything together and started really thinking about why do we think so simplistically around pricing? Why has my professional experience, as you mentioned, generally been a table of old wise men and women sort of guesstimating a price or using a sort of rudimentary cost-plus approach.

And most importantly, I think with everything that's going on around us, so many of the pricing approaches fail to take into account the individual customer, or they made it an unspoken assumption of homogeneity of the customer base. Or sort of an indifference. I don't care really who buys this good or service so long as they pay a certain price.

And I don't think that that's going to be a useful way of thinking about the world going forward. There's a whole host of tools at our disposal. Referred to generally as data analytics. And there's a whole host of new threats that one needs to be thoughtful about, particularly around internet-based price comparison. Browser-based automated discounting. And we could go on and on, we talk about it in the book. 

Put these two things together and you think to yourself, look, am I in the business of maximizing the revenue of any potential transaction in the moment, or am I actually in the business of cultivating an increasingly loyal customer base. Such that my enterprise value starts to gravitate towards sort of that have recurring revenue streams.

And this conversation is applicable for businesses, large and small. And we use a lot of examples in the book, anything from a sole proprietorship, maybe a hairstylist, all the way up to multinational corporations, airlines, things like that. 

Brian Ardinger: And I love that thought of moving from revenue, maximization to loyalty maximization. And a lot of that probably again, hasn't been really dealt with because of technology. And now we have some tools and data and that, that we didn't have at our fingertips to make some of those leaps that we can now. What do you think is holding people back from taking advantage of some of these technologies and actually going towards a more loyalty maximization model? 

Cactus Raazi: You know, in my survey of the landscape, I'm not necessarily aware of an impediment to use data in increasingly sophisticated ways. As we all know, there's so many off the shelf products. There are so many courses, everything from sort of how to use Excel on Coursera, all the way to, you know, a PhD in artificial intelligence or something along those lines at the other extreme. I feel that, particularly when it comes to pricing, just to not give you too general and answer, when it comes to pricing, I feel the fundamental question has yet to be asked, are we doing this correctly?

And have we really unpacked the assumptions of our approach to be thoughtful around whether this is the right approach and whether we should be using a different set of tools. You know, even industries that are renowned for their ability to differentiate with price something. We could use airlines as an example.

And I'm sure at maybe at one point in your career, you were probably some form of a frequent flyer. And I'm sure you would probably agree that while you were perfectly happy to pay different prices, based on various profiles and times of day. That that was not a price for you personally, it was a price meaning that if you were to log into a website, as a loyal customer and I were to log in to the same website you and I were to try and book the same thing, we wouldn't see a difference in price. 

We would see a difference in price on different days or, or, you know, you name it. There's a variety of obviously supply and demand techniques. And so right there you say, well, that's a sophisticated industry, but it hasn't really moved forward with thinking about the customer, rather than thinking about any customer who's willing to sit in the seat.

And that's really at the core of the suggestions in the book is to say that step one, start collecting data about your customers. Obviously in an appropriate fashion and in a transparent fashion, such that you can start to identify behaviors, objectives, or any other elements of the customer, which you can then correlate to the types of behaviors you'd like to see from your customer base.

And the book really exists at the level of strategy. And frankly, this conversation exists at the level of strategy. How should we be thinking about some of these questions and are there a new set of tools to be able to answer some really interesting questions around what the right price is, and right is defined as in my case, as maximizing loyalty. 

And also at the same time, there's this elephant in the room, which is the internet, and mobile commer...