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The Innovation Table | Randy Mangum on The Art & Science of Pricing Pt. 1

By April 20, 2023February 8th, 2024No Comments

Continued in Part Two

Randy Mangum is an accomplished retail leader with more than 20 years of proven success across the retail merchandising and pricing industry. Randy’s deep analytical understanding, broad segment expertise, and passion for data transformation have helped him train and lead cross-functional teams that provide consistent and measurable business results across multiple industries, including high-end jewelry, grocery & supermarkets, department store, and mass merchandise.

A proven innovator and process evangelist, Randy helps organizations identify and adopt emergent pricing technology, improve their data analysis and strategy, and implement effective change management processes that deliver multi-million dollar benefits to the company’s bottom line. Randy earned an MBA from Kent State University and a BS from Brigham Young University.  When he’s not working, you’ll find Randy at the tennis court, pursuing community and church service opportunities, or supporting one of his four kids. 

Edris Bemanian: So Randy, I know what you do, and you know what you do, but here’s the most important question: What do your kids think you do? 

Randy Mangum: [laughs] When they were little they just said “Dad does math.” My older kids have a pretty good idea about what I do. But shopping with me is a long process because I get sucked into how every item is priced, what the retailer is doing, and what I think they could be doing differently. It drives my family crazy. 

EB: We’ve got some history together, but for the benefit of readers, tell me a little bit about your story so far. How did you get started in pricing? 

RM: We’ve gotta step way back here. This was ‘99 or 2000, and our CEO was flying on a plane, flipping through the inflight magazine. He landed an article about price optimization, didn’t know anything about it, and called my vice president and said, “Hey, we should investigate this.” I was just a business analyst at the time, so this thing kinda got dropped in my lap. And boy, it’s changed my whole life because I’ve been in pricing since then. 

EB: You were in the jewelry business at the time, right? From the outside that seems like a whole different world to where you are now.

RM: Absolutely, it’s very, very different. People don’t buy jewelry very often. It’s a big, emotional purchase, so it’s a little like buying a car – the item has a sticker price, but in reality, that final price is going to be negotiated. We figured out the best approach was to think of our prices like an MSRP, knowing there was going to be negotiating along the way. So we’d start with “what price is going to get this out the door,” and then work backward to decide on the shelf price. 

EB: When this piece goes out, Randy, there’s gonna be a lot of people who slap their foreheads and say, “Wait, negotiating was an option?!”

RM: [laughs] Yeah I’ll bet! We had a running joke that the closer we’d get to a holiday, the more items we’d sell for full price. In jewelry, you always get guys swooping in at the last minute for an anniversary or birthday gift and they’re like, “I want that one!” without thinking about negotiation. 

It was something we’d always laugh about there was some truth to it – “Don’t put any promotions around the holiday because we’re going to sell it all at full price and get better margins!”

EB: That’s really interesting…so you’re working in an environment where timing has a big influence on price elasticity. You don’t see that to the same extent in a grocery environment as you do in jewelry. 

RM: Exactly. And even though we knew elasticity was important, it was tricky to calculate it because we’d sell relatively few items compared to other types of retail. 

EB: Are there a lot of challenges like that, that are specific to the jewelry industry?

RM: Absolutely, it’s a unique sort of product. If you look at something basic, say a one-carat diamond, there are attributes like cut, color, and clarity that drastically change the value of something that from the outside just looks like a commodity. Customers are coming in to buy something they don’t fully understand, and you can tell them all day long about the components that make it worth more, but if one ring looks like another one, it’s not gonna affect how they buy. And as the retailer you start to wonder “Wait, are we being a little too smart for our own good?” 

EB: Do you think that’s changed over time? Are attributes driving prices more today than when you were at Sterling? 

RM: Well, I think customers are getting smarter. Customers are better informed, so you can get credit for the different qualities and values that you’re offering. But it doesn’t always translate directly because they’re also looking to get the best deal. Now there’s visibility to everybody else’s price for the same thing, so you can’t just bank on the value proposition alone. 

EB: So you’ve got two different drivers. You have price transparency, where competition is driving prices down. And on the other hand, you’ve got customers with a greater awareness of premium attributes who are willing to buy those higher ticker items because they “get it.”

RM: Yep, you’ve got both of those dimensions. And it’s interesting because this principle applies to commodity-based items, too. Whether you’re in grocery, retail, or farm goods, where I’ve been most recently, this same idea applies. Customers recognize quality differences. It’s the retailer’s job to help them accept the increase in cost that comes with an increase in quality. Even with common commodities, retailers can drive that price variation because they’re offering better service. 

Customers are willing to spend because of that perceived value, and that’s often about more than just the product. The key is to find that niche and build that into your pricing strategy and how you do things.

EB: Sounds like you learned a lot in a relatively short amount of time.

RM: Absolutely. It was such a great introduction to the industry. We had to work our way through a lot of challenges and I picked up a lot of principles that I wouldn’t have learned otherwise. I started to become aware of “What is it that’s driving the decision of a customer, what are all the components that are going on there?” 

EB: If you could travel back in time and talk to yourself when you were starting out at Sterling Jewelry, what advice would you give yourself? What’s the big idea you wish you would have known sooner? 

RM: Good question. There are definitely things that ring true over the years and have proven valuable everywhere I’ve worked. I guess one thing I’d say to myself, or anyone in pricing, is “Don’t get too close to details.” We kind of touched on this before as it pertains to jewelry – we worried about all the cut, clarity, color, you know, all those attributes that we knew about diamond, and so we priced accordingly. But assumed, and expected customers to understand, and customers don’t always do that. There’s no cookie-cutter approach that works for everything…you’ve got to totally understand how to sell the value to the people you’re selling to.

And I’ve seen that throughout my career as I’ve moved from, you know, jewelry to grocery to hard goods. It doesn’t matter. It all kind of follows that same principle that you’re successful when you can segment according to the needs of your customers. You need to know who you are talking to and what they need. I’m not going to go so far as to say personalized offering, but it’s the same premise.

EB: Was segmentation difficult back then given what kind of data you had access to? What was the software and analytics landscape like at the time?

RM: There was a lot of back and forth, people trying to figure it all out – what analytics matter, what pricing is, exactly, and how do you do it effectively? 

People were starting to get an inkling that data was important, but they weren’t really sure how it fit into the picture. So, I guess that’d be the other thing I’d change if I could go back in time. I didn’t understand the value and power of using data the right way. 

It was really cool to have attributes and data, but we didn’t use them the way we should and we didn’t cleanse and fix the data to make it more powerful. I think a lot of the challenges Ken and I had in modeling jewelry were related to that. 

EB: This is Ken Ouimet? 

RM: Right. When I got serious about price optimization I started working very closely with Ken and Tim Ouimet at their first company, Khimetrics. They seemed to be the ones developing the science and trying to figure out these challenges with data & analytics, and so we started digging in.

EB: Got it. Tell me more about “using data the right way.”

RM: Sure. Well, we were too rigid in our approach and too specific about certain qualities and attributes. So we couldn’t get good elasticity or data that actually helped us do what we wanted to do. 

And we didn’t make sure we had cleansed, usable data. That’s really critical. I don’t know how many companies have failed in doing big optimization projects, not because their ideas were wrong but because the data was wrong. When you act on bad data you can’t identify the cause of the problem. You just get bad results and end up bailing. 

EB: So I’m hearing two things. The first is to put your focus on the right areas. Don’t go too granular or get overly technical on attributes customers don’t care about. I guess generally just don’t over-engineer the process. And then when it comes to the data itself, it’s the classic “garbage-in, garbage-out” dynamic. 

RM: Yeah, that’s right. And both of these things are related to your strategy. Before you jump into doing any project in data analytics, pricing, or whatever, you have to take your time to do the legwork. First of all, you have to really understand what your customer cares about, and what you’re trying to accomplish in terms of strategy. And then that’s when you tackle the data problem. You figure out what data you need and how to cleanse and structure it to support your goals. 

And it never becomes automatic, you always have to use your judgment. We spend money on price optimization, and it cranks out “This is what your price should be.” The impulse is “Go go go!” and in some cases, you absolutely should. But other times, you need to take a step back and ask yourself what the customer is going to see. I always challenge my pricing analysts and category managers, before they make any decisions, to step into the customers’ shoes. Stand in front of the shelf and ask, “What does the customer see? What does the customer expect?” And then make your decision. 

EB: So you do the science and the math, and then there’s sort of a litmus test or sniff test to see if that jives with the sales or consumer psychology perspective. You have to layer the art onto the science. 

RM: Exactly! Figuring those things out and finding that balance is what has kept me in pricing for my whole career. I love that my work is so analytics- and math-heavy on the one hand, but there’s also the art and intuition on the other.  

Math can tell you the right answer all day long, but it doesn’t matter if the message isn’t resonating with your customers. Every shopper is a real person with things that are important to them that you have to take into consideration.

I use this as an example all the time. Let’s say the customer goes to the shelf to buy Jello pudding.  If they see five boxes that look the same – they are the same shape, they’re the same size, they’re the same whatever – they’ll expect those five boxes to be priced the same.

A customer doesn’t care that your cost for chocolate is more than the cost of vanilla or caramel or whatever that is. But if you’re just following the math, you’re going to price chocolate more than the other vendor, and the customer is just going to look at it and say, “These guys are idiots! You should be pricing these all the same because they’re exactly the same product.”

Now that’s the kind of stuff that just intrigues me about pricing. Every day you’re solving these problems. Here’s what the math is saying, here’s the science saying, here’s what the category manager is saying…somewhere in the middle of this is the right decision.  I love it because it fits so well with who I am. I’m an analyst at heart, but I love puzzles.

Continued in Part Two