Uncover the pivotal role of strategic pricing in sculpting the economic landscape and its intricate ties with technology and society in this insightful podcast episode.
Guest: Jean-Manuel Izaret, Author
On Linkedin | https://www.linkedin.com/in/izaret/
On Twitter | https://twitter.com/izaret
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Host: Marco Ciappelli, Co-Founder at ITSPmagazine [@ITSPmagazine] and Host of Redefining Society Podcast
On ITSPmagazine | https://www.itspmagazine.com/itspmagazine-podcast-radio-hosts/marco-ciappelli
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Episode Introduction
In a world where economic dynamics intricately intertwine with our daily lives, understanding the nuances of strategic pricing becomes imperative. This is the central theme of the latest episode of the "Redefining Society Podcast," where we engage in a thought-provoking conversation with Jean-Manuel Izaret, co-author of "Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society."
The episode begins with a reflection on the often-overlooked significance of pricing in technology and societal contexts. We question whether strategic pricing truly belongs in discussions about technology and its societal impact, only to discover its undeniable relevance. As Izaret points out, pricing strategies do more than just set the cost of goods and services; they shape consumer behavior, influence market trends, and even hold the power to dictate the course of society.
Izaret, with a rich background in economics and behavioral science, brings a unique perspective to the table. Drawing from his extensive experience in consulting and pricing strategy formulation, he discusses the evolution of pricing from a mere transactional element to a strategic tool capable of influencing societal outcomes. The concept of the Strategic Pricing Hexagon, introduced in the book, serves as a gateway to understanding how strategic decisions regarding pricing can lead to stronger growth and improved financial performance for businesses.
The conversation delves deeper into the psychological and sociological aspects of pricing. We explore how prices affect our purchasing decisions, the value we assign to products, and even our perception of brands. Izaret uses relatable examples, like the luxury branding of Gucci or the dynamics of the tipping culture, to illustrate these points. These examples highlight the complex relationship between pricing, consumer expectations, and societal norms.
Furthermore, the episode addresses the global impact of pricing strategies. In a world increasingly interconnected, a pricing decision in one part of the globe can have ripple effects elsewhere. This global perspective is crucial in understanding the role of strategic pricing in shaping not just local markets but the global economic landscape.
As the conversation unfolds, it becomes clear that strategic pricing is not just about numbers and profit margins. It's about understanding human behavior, societal values, and market dynamics. It's a tool that, when wielded wisely, can contribute to the greater good, promoting sustainable and equitable growth.
By the end of the episode, listeners are left with a newfound appreciation for the power of pricing. It's no longer a dry, technical topic relegated to economics textbooks. Instead, it emerges as a vibrant, dynamic field that intersects with technology, society, and human psychology, influencing our lives in profound ways.
📖 About the Book:
The right pricing strategy can change the entire trajectory of a business, a market, and even society at large. To help you create your best pricing strategy efficiently and confidently, two leaders from BCG are introducing fresh perspectives on pricing that take you far beyond the realm of mind-numbing numbers.
In their new book Game Changer: How Strategic Pricing Shapes Businesses, Markets, and Society, Jean-Manuel Izaret and Arnab Sinha simplify and clarify pricing strategy by integrating its many frameworks and concepts into seven distinct pricing games, each with its own proven tools, rules, forces, and structures. To help you pick the right game and play it well, Izaret and Sinha have developed the Strategic Pricing Hexagon, a tool refined through years of testing, iteration, and adaptation. The Hexagon is your portal to a business world where stronger growth and better financial performance come from a set of strategic pricing decisions, not endless myopic quests for optimal prices.
But more than that, the Hexagon will change the way you think about and talk about pricing. The current conversation around pricing – as expressed through economics textbooks, Excel spreadsheets, political discourse, and educated guesswork – makes it easy to believe that pricing is nothing more than a technical, tactical and, for most people, boring game of numbers. Game Changer changes that conversation bysharing stories and research that bring the Hexagon and its seven pricing games to life.
With research from BCG’s Bruce Henderson Institute and real-world examples from the world's most influential companies, the authors and their colleagues at BCG define pricing strategy as a business leader’s or business owner’s conscious decisions about how money flows in their market. They show how companies succeed in the long term when they focus on collaborative growth and value sharing with customers, not zero-sum value extraction from them.
Discover how you can create and implement a winning pricing strategy that changes the trajectory of your business, your market, and even society.
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Resources
Game Changer: How Strategic Pricing Shapes Businesses, Markets and Society: https://www.amazon.com/Game-Changer-Strategic-Pricing-Business/dp/1394190581#:~:text=%E2%80%9CGame%20Changer%20elevates%20pricing%20from,%2Dto%2Dmarket%20strategies.%E2%80%9D
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To see and hear more Redefining Society stories on ITSPmagazine, visit:
https://www.itspmagazine.com/redefining-society-podcast
Watch the webcast version on-demand on YouTube: https://www.youtube.com/playlist?list=PLnYu0psdcllTUoWMGGQHlGVZA575VtGr9
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Please note that this transcript was created using AI technology and may contain inaccuracies or deviations from the original audio file. The transcript is provided for informational purposes only and should not be relied upon as a substitute for the original recording, as errors may exist. At this time, we provide it “as it is,” and we hope it can be helpful for our audience.
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[00:00:00] Marco Ciappelli: Hello everybody, this is Marco Ciapelli. Welcome to another episode of Redefining Society podcast on IETSP Magazine podcast network. We have a bunch of different channels. This is one of the two that I have. The other one I tell story about storyteller and here we talk about society and technology which is a very, very wide, uh, angle.
Uh, to, to look at things because everything is nowadays related with technology. And I got this, uh, suggestion for a book about how strategic pricing shaped business market and society. And I was like, Hmm. I don't know. Is that really technology? Is it really something that people might be interested? But as I started digging into this, I realized that, uh, there is a strong connection with our everyday life.
And I think it's important that we understand why something caused the This much is not just because maybe it's a brand that they make you pay more money just because they say Gucci on it. And I'm not paid by Gucci to do, to say this, but just to give an example that everybody knows and how other product maybe are needed to be more control.
Uh, with the intervention of the government, because maybe they are more important. Maybe there is some reason why we want to keep the price. Yeah, in a certain way, maybe one country, maybe in another country has a different, um, leverage, uh, the decision, but I'm not the expert here. So I brought The author that wrote the book.
It's JMI. He's here with me. For people watching, you already see it on my left or right, depending on what you're mirroring on your computer. And for people listening, here it is. Welcome to the show.
[00:01:53] Jean-Manuel Izaret: Thank you very much, Marko. Nice to be with you.
[00:01:56] Marco Ciappelli: Well, it's a pleasure. So I already tried to paint probably a really, really bad, uh, painting of, of the concept, but I wanted to grasp the attention of people to know that, uh, this is kind of the direction where we're going.
But again, you're the expert, you're the one that wrote the book. And I think people We'll be interested in figuring out why they're paying this much for one thing, this much for another thing, and what is behind those decision making that happen nowadays. Let's start with you. What qualifies you to, to write such a book and, uh, and who you are?
[00:02:36] Jean-Manuel Izaret: Thank you very much, Marco. So I'm French, but I've been living in the U. S. For more than 25 years and for the last 30 years, my job has been to first help set prices, uh, in the first job I had ever. And, uh, and then I became a consultant and I have helped company. Uh, set prices. So from a background, I'm an economist, if you wish, with an economics background, as well as behavioral science.
I had a PhD in marketing, but more practically for the past 30 years, I've been in the details about how companies decide how much they should charge. Um, and I wrote this book because most people understand that the actual number you pay for things have a lot of influence about what you can buy, what you cannot buy, what you can afford.
Um, and, or inflation, for instance, is an example about how prices, uh, impact society. But I wrote this book in order for people to, to see that, in addition to the number, the structure about how we set prices also has a massive impact on how society works out. Uh, and that I thought it would be helpful for people to think about that structure and the consequences.
And this will have impact, for instance, about, uh, how we price, uh, Gen AI tools going forward. Um, you know, if we price Gen AI tool per user, um, well, that, that is going to be basically saying that these tools are helping, um, humans do other works. But if we price them per task... That is, um, basically saying that they might replace human.
So in the pricing structure itself is one of the fundamental questions about the dialogue about what will GNI do? Uh, is it replacing humans or is it enhancing humans? The way we price things has an impact on that.
[00:04:40] Marco Ciappelli: When you put it that way, and you know, my background is political science, and so I study a little bit of economy.
It wasn't my favorite, uh, cause I'm not a math person. I'm more like a thinker. But it kind of gives you that. That idea that everything is connected, there is synergy in everything that we do, and we discover that with the environment when I, when we talk on this channel about climate change and how one thing in one side of the world affect, I think, on the other side of the world.
I, I see the same thing as far as pricing, because we live in a global market nowadays. We've seen it with the wars. And so again, it sounds to me that you can do a lot to Control, not in a bad way, hopefully, but control society, but it's also coming the other way, where society influenced the way you price things, I'm assuming.
[00:05:35] Jean-Manuel Izaret: That's right. So, so it's a, uh, it's a back and forth dialogue, if you wish, between society and companies and so on. Uh, intends to find a good, a good equilibrium. Uh, and the word we have used is the word shaping. Um, is a company could shape things, can help make them happen. Uh, but also you can shape things completely differently from the market forces and what people want.
That's all. So you, you have a dialogue between what is possible with what you should do, uh, in order to, to drive outcomes. I think it is really important for us to look at how these pricing structures. Uh, do influence the, the outcomes of society. Let me take an example, uh, that, that came recently. Uh, recently people have been talking about tipping.
And it seems like such a natural thing, but we, we tip differently in the U. S. versus everywhere in the world. You have societies like Japan where there's no tips. Europe's where tipping is, uh, whether In German or French, it's called Geldmoney or Pourboire. It's just for you to drink, uh, or to have a drink on Friday.
But, um, in the U. S., it's to pay for your roof, your kids clothes, and everything, right? So historically, tipping in the U. S. has been to playing a much more important role for people that are service workers. Um, and more recently with, um, the, the famous swivel where you can now, when you go at a counter, you would have the turn to, to tap, you know, how much are you willing to tip?
15, 20, 25%, uh, people have been complaining about, well, you know, Um, I'm okay to do this in a restaurant, but in a place where, uh, for instance, at my orthodontist, it's just like, why am I tipping? You know, what, what, what's different? That's on. It's a good illustration of, uh, there's a change about how we do things and then people react and there's the balance.
And we can talk about, about the details about where tipping is coming from and where it is going, but it's clearly shaping society. During the COVID time, the fact that a bunch of terminals have been able to set up these numbers at 15 20 25 has meant that many businesses have survived better. They made slightly more money, and we were all willing to give a bit more money because we wanted small business to survive, even if we knew that we couldn't be in the restaurants, we couldn't be outside, we couldn't live our normal lives.
We wanted businesses to pass through that period. Uh, but now this, this, you know, we're back to normal in theory, but the way we tip is still quite different. And so there's a lot of dialogue, people saying, is it right? Is it not right? And so on. I think that's a normal process. And I could explain a bit about what the difference has been made, uh, between you scribbling a number on a piece of paper and, and tipping.
The main difference is when you were writing a number, it was a private number and you were doing the calculation for yourself about what you wanted to give, uh, in the restaurants. Now, it's public. People in the queue behind you are looking at what you did. Uh, the people in front, that is the cashier register.
Um, is looking at how, how much are you going to tipping me? And so therefore you have a psychological factor that has been brought into this act tipping that was not there before. And that creates a reaction for people that has changed the way price. And tipping is working out.
[00:09:06] Marco Ciappelli: Right. And that's, I, I mean, I live in Los Angeles, so I've seen the thing flipping in a coffee shop start at 25 percent and I'm like, I'm not going to give it 25%.
I'm actually getting my own coffee here. You're not even bringing, but, but I agree with the fact that during the pandemic. And again, you know, just somehow it's still going, but when we were really locked down, it was a sign of appreciation to say, well, I'm going to TPU even more because I need your service.
I don't want to be the one going in line. And so food delivery and all of that, but I was also connecting with that. I was listening to NPR a while back about the price of gas going up and they were saying, well, It will come back down, but somebody said, I think it was an art board economist say, well, usually when the price goes up, it comes down, but it doesn't come down back to the price that it was.
Once they jack the price, usually it stays. And I'm wondering when you were explaining how the tip system also did the same thing, if there is a connection that the kind of affect a lot of different product, not just the tipping and the service or, or the gas industry.
[00:10:21] Jean-Manuel Izaret: Yes. And it affects different product category in a different way.
And we saw this with the wave of inflation. There are a set of products, and gas is probably a good example of that, uh, that are based on supply and demand markets that are optimized every minute, every second, across the world. Um, and these markets tend to have wide swings. And it can sometimes go back down even more than it went up.
Right? It's, it's very, it's very random. And these are types of markets that we call dynamic markets. Um, that where you don't have to be like the supply demand forces are going to drive the outcome about how prices are going to be set. Uh, now you have other markets just take the extreme luxury goods. For instance, you were mentioning Gucci.
Um, yeah, price only go one direction. They are, you know, and, uh, you have other examples like, uh, uh, like Steinway pianos, for instance. The price of these pianos has been set up so that, um, they always go up year, model year after model year because they want to, and they never lose value. And so part of the, uh, of the attractiveness of the Steinway piano is not only is it a fantastic piano with a great touch, but it's also a piano that if you buy at a really expensive price, you can resell it for a higher price.
At least that's the promise. And, and that is set by essentially a very detailed mechanism that the company has set in play. So that price will always increase slightly a little bit so that they can fulfill the promise that they had for. You're making an investment on a piano, you're not just buying an instrument.
[00:12:02] Marco Ciappelli: It's almost like when you buy an expensive car or a collectionist car, right?
[00:12:08] Jean-Manuel Izaret: That's right. So a collection car will have the same kind of impact. So every luxury item will tend to be priced to the value that people put into these cars or art or things like that, that are very unique. Uh, and these kinds of prices will tend to not go back down.
Except if there is a massive bubble like tulips in the Netherlands and then it's right, right, that's, that's, that's incredible. And then, uh, we have the cyber, um, currencies and so on that went through the same cycle.
[00:12:43] Marco Ciappelli: Yeah, the tulip market. I was reading a while back about that and it's, it's incredible. Uh, let's talk about more, uh, everyday.
Items like the one where you look at if inflation it's it's happening or if if the cost of living if the salary is going up at the same time. So people stuff that people buy at the grocery store, people that that has that I don't know in English what it's called, but in Italian it's paniere, which is kind of like the basket of the the fundamental good that you need for pretty much survival.
Bread, milk. Uh, water, all that kind of stuff. How, how has that coming into place? I'm assuming completely different than luxury items. So very
[00:13:30] Jean-Manuel Izaret: different from luxury items. Um, even within the, what you buy in the supermarkets, you have different types of products that will be, uh, having different pricing dynamics.
Um, imagine you have a products where on a shelf, all of the products on the shelf belong to different companies. They're going to all price it in a way that is really dependent on how much volume they're going to get, depending on how much prices are set. So, so if you set your price higher up, less people buy your product, if you, if your price is slightly lower and, and if you price your product wrong, you're going to not have that much volume.
And so these prices tend to be quite competitive. And we've seen that in the inflation cycle we were through, these products have gone up quite heavily, uh, for some reasons, like, you know, costs went up and supplying constraints and the war in Ukraine and all that, but they also have started to come down, uh, partially also because the, the retailers are putting a lot of pressure and the value proposition of the retailers is to help people save money.
You know, which is what Walmart's and many others promise. And so, therefore, you had these prices went up and down. Uh, if you take some other day to day products, like the subscriptions we have, or the coffee, they're really priced differently because once you have decided to walk into a Starbucks, You've got to buy something.
And so you have a set of choices in front of you. And if you feel like you can't afford as much as you could a week ago because maybe you lost your job or you're a bit pressured at the end of the month and so on, you can always buy something slightly less pricey than you used to. But you are within the Starbucks environment.
It will be an extreme case for you to decide, I'm spending too much on Starbucks. I'm going to stop drinking coffee. I need to find a place to get cheaper coffee. Uh, and so within that environment, you tend to have, this is what we call the choice model, where you give customers the choice and they decide how much they want to pay.
We have a number of options in front of them. And in the choice model, you tend to not have prices go back down in the same way as they could in the retail environments. And so prices tend to tend to go up on average. That's the same reason why you're going to probably see all of the subscriptions you're going to have, whether on video or others will tend to progressively price up because once you decide you want to have the subscription, you're going to be.
Locked in within that choice.
[00:16:05] Marco Ciappelli: Let's go there in the more Technological aspect of things. So you mentioned starbucks Starbucks, it's it's a coffee shop, but it's also Yeah, kind of like an amazon in a way. They they calculate things. They know what they're doing Of course, they sell online. They let you order online They also as for what I understand and you know, like you living in In America, but grew up in Europe.
I know that the same chain That may have a story in San Francisco a story in Los Angeles I'm, not even going to go to the Starbucks in Las Vegas where things cost Even more but they price also accordingly to the location where they are. So Is that taken into consideration? The Overall social demographic that live in a certain area.
Uh, I mean, how complicated is to run those number to price it? It
[00:17:12] Jean-Manuel Izaret: can be quite complicated. Um, and so, for instance, the main determinants about how you price something should start with how much it costs. And it could cost different amounts depending on where you are. The, you know, the shop you are, the Starbucks shop will, you know, the renting and so on will be at a different price depending on where you are in the country.
So that cost will drive the prices up or down depending on how it varies. The cost of the personnel will also change things. Now the cost of shipping the coffee around is probably, you know, more, more uniform and more, more the same and the recipes and the marketing is probably more spread. But anyway, so costs is a determinant of price.
And then another determinant of price is what the value do customers get and how do that compare to other things they pay for. So you, you will find that in large cities, people tend to be wealthier. And the prices tend to be slightly higher and people are willing to pay more than in rural environments.
And that's true in the U. S., as well as it's true in France, and in Italy, and in other countries. Uh, and then the last components of how prices are set is the intensity of the competition. Uh, and different markets at different points, uh, behave differently. Sometimes you can have a price war, uh, where companies are really fighting for every...
Uh, every customer or, or some other times there's more peace time where, you know, you understand the market share is split in one way or the other. And so that will also impact how prices are set. But that means, and so we could go to how this, this, this will, will be, uh, impacted by AI, for instance, and technology.
[00:18:57] Marco Ciappelli: Yeah, let's, let's go there with algorithms and even Amazon or how they price, they price stuff according maybe to where your IP is and logins
[00:19:08] Jean-Manuel Izaret: are. Exactly. So these three things I talked about vary everywhere in, in different ways. Uh, in the old times, you couldn't calculate all the ways the costs and your price and the willingness to pay and it all varied everywhere.
So you set up, I don't know, five zones to price in the U. S. And for these five zones, this is, this is it, right? Uh, but now you have the ability with AI to consume much more data, to look at who is coming to my store. What are the prices of the stores that are around this? How should I optimize? If I move my price slightly up or down, do I get more people walking in or not?
How does that impact all of that? And so, uh, sophisticated AI technology has started to be implemented in pricing. For more than 20 years in different industries, but in the recent five to seven years, it has now been, uh, large chains of almost any kind of product and service. Have started to use sophisticated AI algorithms to price things dependent on the three criteria I talked about.
[00:20:14] Marco Ciappelli: Interesting and scary at the same time. To the point where I'm imagining always some utopian or dystopian scenario where it will be a price just made for Marco. Or for Jean, or according maybe to know how much money you have in the bank at the moment, how much you can afford. And, and it's a very, very, uh, sci fi scenario, which technically ain't that far.
It's not that far fetch.
[00:20:43] Jean-Manuel Izaret: It is not that far. And I think we should have a dialogue about whether it's right or not. And in which way? When is it right and when is it not? Right? Yeah. So let's talk about pricing fairness for a second. Yes. If you, uh, ask people what is a fair price, the main answer people will, will tell you is two, two things.
Mostly a fair price is a price everybody else pays if everybody pays the same thing. That's fair. Uh, another way to look at it is a fair price is a price set by free market. What does free market actually mean? Nobody, but like a free market seems like it is fair and so on. Um, in reality, when you dive deeper, you find that there are many circumstances where people don't agree that everybody should pay the same price.
Take, for instance, senior discounts. Who do we give senior discounts to people going to the movies? Well, people will tend to think, well, you know, seniors don't go to the movies as much as they should. Uh, we need to encourage them, plus they don't necessarily have that much money. Senior discounts seems like a good thing to do.
Um, but if we give discounts to people that are older, why don't we give discounts to people that are younger? And, and, and you will find a portion of the population that says absolutely we should give discounts to students, for instance, a way to define people that are younger. Uh, but then not everybody will agree with this.
And when you look at why, you will find that... Um, when you age, you tend to agree less to giving discounts to students, but all young people are okay to give discounts to grandpa. So on average, people are more in favor of giving discounts to, uh, to grandparents and seniors, um, because of, you know, how they relate to their, to their age.
And when you, you, you dig a little deeper, you find out that. Uh, as, uh, people that are conservative age, they are really against giving discounts to students. But as people that are more democratic, uh, in, in the U. S., or more progressive, if you wish, or more liberal, they think anybody should, you know, students should get discounts no matter what their age is.
So, so here we get to, all right, the perception of what a fair price is depends on who you are, the societal norms, what we've been used to. And when you flip these norms, you could get two different answers. If you ask the same questions for people in Japan, you find the opposite answers. Um, in, in Japan, people are really in favor of giving discounts to students, but not as much to seniors, partially because there's a great retirement system, the same thing in France.
Right. Right. So, so the way society is structured impacts how we, we see things. Now let's talk back about your problem about should, is it fair to have a price that is different for everybody? Well, let's look at airlines. They were the first ones to, you know, set up 25 years ago, 30 years ago, what's called yield management, which is basically getting the maximum price you could get for anybody on any seat.
So you could see it somewhere and you paid 150 bucks and the guy you know next to you paid 57. You're like, what? Why, why? How , how is that possible? But also in the first class cabin, you have someone who may have paid, I don't know, 600 or 800 mm-Hmm, . And what does that do to society to have everybody pay a different price for, uh, air travel?
Well, basically that means more people can travel. And isn't that a good thing? So, uh, uh, let's forget the CO2 issues for now, right? But that, that people and young people and people with not necessarily that many means could travel more and, and go around the world. Because we have different prices for different people, that is something that has grown, tourism, that has grown, like, and that has helped people connect to each other and understand other worlds in a better way than they would have otherwise, staying in their home, in their village all the time.
So, you have always different sides to things, and so, uh, that, that, that you need to, to, to look at, and sometimes, varying prices, according to what people are willing to pay, um, and the value they get from different things can be really good way to, uh, to essentially offer particular product or service to a wider population.
[00:25:13] Marco Ciappelli: So one thing that I look at things from a very personal perspective, when I look at this, it's like, OK, I understand this light variation, but when I see the difference to be...
Sometimes, even in the thousand dollar, if you're flying from LA to Rome, for example, or to Paris, it's not the 50 bucks. It's actually, you know, the thousand dollars sometimes. So you're like, wow, that's hard to justify in my, in my mind, right? Or Another thing that I can say is, uh, for example, when you pay for luxury, there is a point where the quality doesn't really affect that price anymore.
You're really paying for the brand. There is so much of a good leather that you can put in a pair of shoes or in a bag. On top of that is all brand and image, but What I really want to go with this is that you cannot control that. It's okay. It's the market Who cares if you can afford it pay for it if you don't want to buy it.
Nobody's forcing you It's kind of extra right ticket a little less because you have to travel but I would like to get to when there are Decision to be made on pricing of things that have effect on our society. So climate change, uh, electric car, like, uh, everybody probably wants to drive an electric car apart from the infrastructure that may not be there yet.
But it's also, you need to pay a way much more money to start with electric car, even if then you save money as you go. Right. But, How can the, how do different government, according to the politics and, and the kind of leaning left, right, conservative, liberal, whatever it is, is there a right and a wrong when, when we get those decision, moral, ethics?
[00:27:11] Jean-Manuel Izaret: So, um, I think we should, it's difficult to say this is right or this is wrong, but I think having a dialogue about this. And having a dialogue about why is it better one way or the other, and us as a society finding out together, uh, what is right with the market forces is the good thing to do. Before going into the car example, let me talk about the CO2 emissions.
And one of the ways to discourage people, so we, we want to avoid global warming, right? Uh, it's accelerating and it's due to greenhouse gases. Big greenhouse gas is CO two. So you want to avoid putting more CO two in the atmosphere. One way to, uh, to solve that is to put a price to CO two to say if you so to increase the price of all activities that involve burning, uh, some carbons and putting CO two into the atmosphere.
What should be the price of, uh, of this, uh, of this CO two? Well, if you come back to my example before, if you say everybody should pay the same price. Well, what will happen is, um, the price for people in less rich countries, uh, in Africa, in India, uh, that, that are, you know, burning dong in order to heat themselves.
And if you say you can do this, CO2 price, you're going to have to pay for this. You gotta have a revolution. People need to keep themselves. They need to survive. And even, you know, increasing the price by just a little bit can discourage them to find some new solutions. So it's not that it should not be a price, but the price could probably be quite cheap.
You offer the same price to some people traveling, you know, some business people, let's say in the US or in Europe traveling around. That same price that will be the right to discourage people in Africa and in India to, uh, to burn too much stuff is going to not discourage anybody at all to fly around.
So you need to have a different price. So come back to your, your point about people tend to understand price variations by 10, 20, 30%. It's okay. We had the example of, uh, of the CEO of Uber who was really surprised at the surge pricing he was talking about. Uh at some point had multiplied the price by five for someone to go back for uh, Within new york from from a concert like oh, I was really surprised and so on So when the price is multiplied by an order of magnitude people are upset and it you know, it doesn't seem fair but let's go back to to the co2 because of Uh, the cost of living in poor countries versus rich countries You're going to need to have a price of co2 that would vary massively for different people.
So, how do you do that? Well, we have other markets where we do vary the price of a bag. Not all bags, you know, are the price of a Gucci bag and so on. And so you differentiate the bags, you differentiate the offer, you build the brands, and you get two different products. I believe on CO2 we should do the same thing.
And, and there are technologies that cost a lot more. The equivalent of leather for CO2 is direct air capture. It's, you put through massive ventilators, a bunch of air, and try to re, to retake the CO two out of it. That costs between, depending on where you look, 200 to $400 a ton. Planting a tree is around five to $15 a ton, and, and avoiding burning something that you wouldn't is, is even less than this.
So there we go. We have here prices that vary in a different way. And it's actually, you know, if we structured markets in a way where we would encourage or maybe, you know, use some legal means to, to force people in the rich countries to have a price of CO2, we should have a price of CO2 that is very different.
And direct air capture is not necessarily a bad idea. For, you know, all the rich countries that have put so much CO2 in the atmosphere, maybe they should be in charge of paying to take it out. And so there's all sorts of details that you need to go through, but I'm coming back to your point about, yes, you should not pay prices that are 5x, 5 times or 10 times different for the same thing, but you can vary what you buy.
And by varying what you buy, you could essentially incent the right behaviors for everybody. Everybody needs to burn less fuel, whatever fuel that is. We should probably have different prices for CO2 across the world.
[00:31:48] Marco Ciappelli: So I, I like your, and I go back to the example of Starbucks, you walk in there and you can buy the mugs, you can buy the more expensive reserve coffee, whatever that is, and you can buy the basic coffee, but you can.
If you walk in there, it means that at least you can afford the basic coffee, and then you can upgrade according to your wallet and what you think is fair to pay for a coffee as well. So the problem, it's hard, and I think everybody understands that. It's like, okay, I can get this pen, I can get this pen, I'm looking at a pen, but there is a difference in what I get.
It's when you pay the same thing. I mean, when you pay a different price for the same thing that you have that controversial position that you were talking about. That's right.
[00:32:44] Jean-Manuel Izaret: So, uh, for exactly the same thing, it is hard to vary the price too much. We've, we've seen it everywhere. Um, uh, pricing varying by 30% is, you know, admitted by most people in ev in most countries, in most markets, as, yeah, that's fair.
That's okay. You probably don't even notice you or you notice, but if you, you, if you see you, you buy a TV and then your friends buy the similar TV two months later. And he got this for 10 percent less. You're like, yeah, sure. Maybe I didn't negotiate enough. I didn't wait. Right. Right. If you find that he got the TV for five times less than you have, you're like, what did you do?
Like, like how did you get that to happen? You know? Um, so that's why companies, um, sometimes when we have an interest, whether as a company, whether as a society to have different people pay different prices. We should really have people pay different prices for explicit reasons that justify this. Right.
Right. Which is my point about the CO2 emissions. If you think about the CO2 market as one single market with everybody, everything is comparable. That is not fair to these markets because then everybody's trying to go to 15, and then you will not use direct air capture because it's too expensive. Why would you pay for 400 when, uh, when you could have something for 15 and so on?
And for sure, we should plant as many trees as we can. Now, given the amount of CO2 we have in the atmosphere, we should also, if we can, Uh, have the ability to capture and, and, and get the technology to be more advanced in order to capture air and various CO2 on the grounds, as opposed to letting in the atmosphere where it serves us.
As a way to hit ourselves.
[00:34:27] Marco Ciappelli: Well, this is fascinating conversation because it it's very much not economical for me But it's sociological So i'm m psychological and I I would love for you to come back and maybe we go in Areas that we haven't covered because I think it's fascinating. I'm sure the audience is liking that but I I do have a question when we were talking about um personal pricing Uh, in the utopian world with AI, but also I want to put into the game, not only what somebody can afford.
Or where do they live? Or what is the final means for a week? Okay, I'm paying two dollars more because I know that a percentage of this product is going to plant the tree, which is a great marketing promotion. But you know what? If it also helps the environment, let's do it. If a dollar goes to, uh, if I mean a non profit that resolves anger in Africa, cool.
If you can afford it. But there is a perception where, uh, psychology in advertising and marketing is, is if it costs more, it must be better. Very human thinking. And I feel many company, obviously they're there for making more money. They'll leverage that. But is that really true? And can a company ride that wave?
Long enough before the market kind of realized that, uh, what the hell, especially with social media nowadays where things are a little bit more transparent.
[00:36:19] Jean-Manuel Izaret: So, um, there is no doubt that there are some products where we have what we called, um, in the, in the business. The inverted demand curve where the more you charge the more people want to buy your stuff Which normally
should not be the way it works. It works the opposite way Uh, but that's the characteristics of of luxury items So you have some items that work this way And if you increase the price you you might get quite high demand and some companies can take advantage of it now what I personally like because uh as I'm in favor of markets and, uh, and transparency.
And I think we get to better societal outcomes of how we have this is we have now with social media and that started 15 years ago, 10, 15 years ago, a number of products and offers where some companies try to push the prices up with the simple logic that. I think we can, and you won't dare to quit, um, you know, using our product or using our service.
So, we priced higher because we can't, we didn't change anything, we don't add any more value. We don't do anything more for you today than we did yesterday, but we want you to pay us more money today than, than, than, than yesterday. And you have a number of examples where, uh, people in social media apps is...
This is ridiculous. Why do I pay this 5 fee now for the same debit card that I used to have? That was one of the first examples of the debit card just in 2011. Um, and there's a woman who basically started two, two campaigns. And she was upset about like, you know, we are in a time when we don't have as much money.
We're going into a recession and now all these companies are jacking up prices on us. And she managed with a great social media campaign. To get, uh, all the companies were planning on some price increases to go back then. What that shows is that transparency and market pressure can work better in the technology space than when we had no technology and no communication, as much as we can talk about a number of problems with social media.
This is an example that I thought was one that was positive in that it was helping the market forces play out. And it's not true that every company need, you know, can jack up prices and not suffer the consequences. Most of them will suffer the consequences. There's a few exceptions, and usually it comes from some market characteristics where they have managed to add value to a number of people that really want to pay for that money.
And at that point if people can afford it, I don't see anything wrong with that.
[00:38:59] Marco Ciappelli: Yeah, and let's let's not forget that the value often is You know something you can measure it's people have their own priority They have their own value If you are a disney fan and you go to disneyland and you want the little hat with the ears And and you're paying a lot of money because you bought it at that Disneyland and it's you're okay to pay more and it's not nobody forced you to do that.
It's your decision Well, maybe your kids forced you to do that, but that's a different story, right? So well again, I think we just look at the, at the tip of the iceberg here. Yes. I think there is a lot more conversation. I can think many, many different aspects, especially if we wanna dig more into algorithm and, and, and the way also, maybe if you come back and again, I'm inviting you to come back to look at what it used to be.
Right. Before the internet, what, how would we, you mentioned the tulips market, which I think is fascinating and to, to go into something like that, and then how the prices are decided, maybe on the fish market in, uh, in Tokyo for in the morning when the fish arrives. And so there is a demand and a third, and how much fish did you actually catch that day versus another?
And so. A lot of different variables that come into play.
[00:40:21] Jean-Manuel Izaret: There are very different roles. I'm happy to come back. Uh, just a teaser or something for people to think about. It used to be that most of what you paid for, cost something to the company who was offering it to you. I'm buying a car. There's a physical car.
I have it in my hands. It costs to build the car. It has the, so I'm paying for that car. A big chunk is I'm paying for the cost of building the car. Uh, as we move to a world that is more digital, um, when I'm listening to a song. It doesn't cost anybody else anything to get that song to be come to my ears.
So digital goods have no marginal costs. And, and the, the theory about how to set prices for things that have no marginal costs have evolved massively. And it's one that I call progressive pricing, that you need to have your prices differ depending on people, depending on the value they get. Otherwise you don't survive as a company.
In other words, Spotify can exist because there are people who are using it for free and because there are also people that are paying for that. And if Spotify finds a really good way to charge different prices to different people for something that could be relatively similar, but they differentiate it.
That will make the digital goods more usable by everybody. What is true for music can be true for news, can be true for video, can be true for all digital goods. And maybe that's something we'll talk about next time.
[00:41:43] Marco Ciappelli: Absolutely. I'm up for that because, uh, nowadays we, we don't really own. Much of what we pay for the day that you close the account, uh, let's say on Apple music or Spotify, it's all gone.
You don't have the vinyl and cassette to, to, to keep for your kids or anything like that. Well, uh, John, uh, fascinating. Thank you for stopping by. I'm going to put the link to your book and to your social media and everything you want to share with the audience in the notes, uh, promises to invite you back to keep this conversation going and I hope people enjoy it and, uh, that they have more questions than answers in their head right now because maybe they discover something and think about something that they never really paused that much.
Thank you. To think about. So again, everybody subscribe. Stay tuned. And John, thank you very much.
[00:42:41] Jean-Manuel Izaret: Thank you, Marco. It was a pleasure. Bye everybody.