SBE alumna Esther Baaijens fills gap in the market with price management company

Esther Baaijens spent 10 years in various marketing and commercial positions before founding The Pricing Company. “Companies weren’t really bothering with price management”, says the UM alum of her motivation at the time. “And there were no professional consultancies around that were 100% focused on pricing. I filled a gap in the market.”

It was a fairly radical step that the business economist, born and raised in Brabant, took in early 2005: she quit her job as chief commercial officer for a major car hire agency and started her own business in Amsterdam. “I never doubted it for a second. I knew price management was becoming increasingly important. It’s an underdeveloped discipline, even in universities. Economics programmes tend to highlight the traditional patterns and focus most, if not all, of their attention on costs or cost-making tools. These are not unimportant, certainly in leaner economic times. But the sales prices of products and services are equally crucial when it comes to turnover and profits. As Warren Buffet once said: ‘Pricing power is more important than good management.’”

Portfolio

Baaijens was spot on. The Pricing Company filled a gap in the market and is now considered one of the better consultancy firms in the field of price management. In addition to business partner Tijs Rotmans, the firm employs several in-house specialists and hires external experts when necessary. Their portfolio consists of both large and small organisations, including the big names in various listed companies. One thing is immediately clear: pricing is not branch-specific. “That’s right”, says Baaijens. “In every sector companies are looking for the optimal sales prices. Chemistry, finance, telecommunications, entertainment, media, business-to-consumer, business-to-business, retailers, producers, providers: they all want the same thing. When we sit down with management, we often find that their sales prices could be smarter, that they could make better use of value in the market. Many of our clients could afford to raise their prices by about 10% without scaring off their customers.”

That sounds simple enough. “It’s not, of course. There’s no such thing as a fixed product price anymore. Just look at mobile phone plans, tablets, plane tickets, insurance policies, audiovisual products, home appliances, hotel rooms. All these products see huge fluctuations in price. A hotel room is much more expensive in the high season than in November. Online retailers experiment with dynamic pricing for their products based on customer segmentation and other factors. Amusement parks offer package deals on quieter days. And gas prices fluctuate throughout the day. It’s important to understand price elasticity. But you can’t just calculate everything in Excel; it’s also a question of psychology. What are people willing to pay and what are their perceptions? Can you justify making a Big Mac cheaper in Groningen than in Utrecht? And how do you present your products in a way that nudges consumers towards the better prices? A good example is the pancake restaurant that lets customers set their own price on quiet nights. The result? If customers are satisfied with the service, they’re willing to pay at least the same. That’s much more effective than offering discounts.”

Essential

Price management is a complex but essential part of business. “If sales is the life blood of a company, then price is the oxygen in that blood”, said Jeffery Immelt, CEO of General Electric. “That penny dropped a long time ago in industries that have always had thin margins”, Baaijens says. “But this realisation is starting to grow, partly triggered by the crisis. Companies are casting a critical eye over their costs and are slowly beginning to realise that pricing can be a crucial tool in increasing profits. A 1% price rise can have a huge impact on profits and returns, especially in sectors with high volumes and low margins.”

This realisation has meant hectic times for The Pricing Company. “There aren’t enough hours in the day”, says Baaijens with a laugh. “That’s just one of the many joys of entrepreneurship. But doing business also means making very clear decisions. We’d love to hire more people, but good pricing specialists are hard to find. We need experienced and cross-functional people who can work with clients in various sectors. They need well-developed left and right brains capable of making in-depth analyses. But they also have to strategise with the clients and handle the consequences of implementation. Fortunately, universities are starting to pay more attention to pricing, which means people are becoming more conscious of price management at an early stage in their careers. For that reason I still occasionally hold lectures in Maastricht and other cities.”

Amsterdam

Baaijens moved to Maastricht in 1991 to study business economics, graduating in 1997. “The choice for Problem-Based Learning was a deliberate one. And for the city, of course. Towards the end of my studies I was offered my first job in Amsterdam, where I still live. I had a great time in Maastricht, but I don’t plan on moving back. I like Amsterdam and it offers better business opportunities in my sector.”

Still, it is clear that her alma mater still holds a special place in her heart; Baaijens recently agreed to join the jury of the Local Heroes Student Entrepreneurship Award during the Global Entrepreneurship Week. “An excellent initiative. It’s a great way to bring together education and practice and to stimulate much-needed entrepreneurship among students.”

By Jos Cortenraad

Source: UM Magazine, 20 February 2013

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