The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher)

Lenny's Podcast: Product | Growth | Career

Lenny Rachitsky

Technology, Business, Entrepreneurship

5 • 1.5K Ratings

🗓️ 8 December 2022

⏱️ 99 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Madhavan Ramanujam is a senior partner at Simon-Kucher, where he works with tier-one tech companies like Uber, Asana, and LinkedIn to help them develop their pricing and monetization strategies. He’s also the author of the most widely read book on pricing strategy, Monetizing Innovation. In today’s podcast, we talk about all the elements that go into your pricing strategy. Madhavan gives real-life examples of having conversations about “willingness to pay,” how segmentation should impact your pricing, and when to start thinking about pricing. He also shares tips on how behavioral pricing impacts your thinking, how to restructure your pricing during a downturn, and much more.

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Find the full transcript here: https://www.lennyspodcast.com/the-art-and-science-of-pricing-madhavan-ramanujam-monetizing-innovation-simon-kucher/#transcript

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Thank you to our wonderful sponsors for making this episode possible:

• Lemon.io—a marketplace of vetted software developers. Get your match within 48h: https://lemon.io/lenny

• Mixpanel—product analytics that everyone can trust, use, and afford: https://mixpanel.com/startups

• Miro—a collaborative visual platform where your best work comes to life: https://miro.com/lenny

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Where to find Madhavan Ramanujam:

• Twitter: https://twitter.com/madhavansf

• LinkedIn: https://www.linkedin.com/in/madhavan-ramanujam-1533063/

• Website: https://www.simon-kucher.com/en-us/leadership

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• Newsletter: https://www.lennysnewsletter.com

• Twitter: https://twitter.com/lennysan

• LinkedIn: https://www.linkedin.com/in/lennyrachitsky/

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Referenced:

• Monetizing Innovation: https://www.amazon.com/Monetizing-Innovation-Companies-Design-Product/dp/1119240867

• It’s Price Before Product. Period: https://review.firstround.com/its-price-before-product-period

• Rahul Vohra on NFX podcast: https://www.youtube.com/watch?v=JCiMqVC6Dok

• Leaders, Killers, and Fillers framework: https://kevinacohn.medium.com/leaders-fillers-and-killers-creating-bundles-that-work-7f4c7329cf53

• Predictably Irrational: https://www.amazon.com/Predictably-Irrational-Revised-Expanded-Decisions/dp/0061353248

• Preorder Unlocking Growth: https://www.amazon.com/Maximize-Profits-Prices-Products-Services/dp/1119633060

• Confessions of the Pricing Man: https://www.amazon.com/Confessions-Pricing-Man-Affects-Everything/dp/B08TZPRKVY

• Simon-Kucher books: https://www.simon-kucher.com/en-us/resources/books

• Mastering SaaS pricing (Kyle Poyar): https://www.saas-knowledge-base.com/docs/mastering-saas-pricing-from-mvp-to-ipo

• 6 Must-Reads on Pricing a Product: https://review.firstround.com/our-6-must-reads-on-pricing-a-product

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In this episode, we cover:

(03:24) Madhavan’s background

(06:29) How Madhavan got into pricing and monetization

(08:02 ) Why he wrote Monetizing Innovation

(09:43) Why pricing is a cross-functional discipline, but ultimately a function of product

(11:27) What “willingness to pay” is, and why founders need to have conversations about it early and often

(15:23) How Porsche built their SUV around customer feedback and willingness to pay

(18:46) How testing helped a marketplace company avoid building something customers don’t value

(23:50) Several methods to use to learn willingness to pay

(33:38) When and how the willingness-to-pay conversations happen

(37:08) How many customers you should be talking to

(38:13) When to revisit pricing

(39:20) Segmentation strategies

(42:42) Why you need to act differently to your segments that have different needs

(44:33) When to think about segmentation

(47:49) Examples of segmentation done well

(52:24) The importance of dynamic segmentation

(53:19) The three pricing strategies: maximizing, penetrating, and skimming

(55:49) How to use bundling and packaging to unlock segmentation

(59:50) Why how you charge is more important than how much

(1:03:30) Subscription vs. usage

(1:07:40) Pricing options and structures

(1:10:22) How to run tests to see which pricing model works best

(1:12:06) Focusing on benefits vs. features

(1:16:13) What behavioral pricing is and why it’s important

(1:20:54) Tactics for behavioral pricing

(1:26:33) Determining pricing thresholds

(1:28:23) Tips for pricing in a depressed market

(1:32:50) Madhavan’s new book

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Transcript

Click on a timestamp to play from that location

0:00.0	But when we talk about pricing, many people quickly gravitate to like dollar figures.
0:04.4	That's just a price point, that's a dollar figure.
0:07.2	But when we think about price, we think about it as a measure.
0:10.6	Like, you know, LITRA is a measure of volume, price is a measure of value, and when you think of it
0:14.7	this way, it really stands for, do people actually want your product and would they actually
0:19.3	buy it? And that is the whole willingness to pay conversation.
0:22.8	And entrepreneurs and companies need to do this much earlier
0:25.9	so that they can understand, you know, are they on the right track?
0:28.8	Welcome to Lenny's podcast. I'm Lenny and my goal here is to help you get better at the craft of building and growing products.
0:37.5	Today my guest is Madavon Ramunu Jam. Madavon is the author of monetizing innovation, the most widely read book on pricing strategy.
0:45.6	He's also senior partner at Simon Kucher and Partners, which is the premier consulting
0:50.4	agency for companies looking to get help with their pricing.
0:53.6	And unsurprisingly, when asked people on Twitter, who the smartest person on pricing is,
0:58.0	Madavon was by far the most mentioned.
1:00.5	In this episode, we get deep into all manner of pricing strategy
1:04.0	especially focusing on five lessons four product teams on thinking about pricing
1:09.2	Enough talking. Let's get into it. I bring you Madhavan Ramanajam after a short word from our wonderful sponsors.
1:17.0	This episode is brought to you by Lemon.io.
1:21.0	You've achieved product market fit. You're able to activate, engage, and retain your customers. But you don't have the engineers that you need to move as fast as you want to, because it's hard to find great engineers quickly, especially if you're trying to protect your burden rate.
1:35.0	Meet lemon.io.
1:37.0	Lemon.io will quickly match you with skilled senior developers who are all vetted,
1:42.0	results oriented, and ready to help you grow.
	...

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