The Psychology of Pricing

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.lennysnewsletter.com/p/the-art-and-science-of-pricing-madhavan

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