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

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Dec 8, 2022

Guest

Madhavan Ramanujam

Madhavan Ramanujam, a senior partner at Simon-Kucher, specializes in pricing strategies for top tech firms like Uber and LinkedIn and is the author of "Monetizing Innovation." He discusses the crucial role of early pricing conversations in product development and how understanding customer willingness to pay can drive success. Madhavan also delves into dynamic pricing strategies, the psychology behind pricing, and how market segmentation can tailor offerings. He shares insights on adapting pricing during downturns, reinforcing that effective pricing can unlock significant value.

01:38:32

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ADVICE

Early Willingness to Pay Conversations

Discuss willingness to pay early in product development.
This helps validate product-market fit and allows for product pivots.

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ANECDOTE

Porsche's Cayenne Success

Porsche successfully launched the Cayenne SUV by focusing on willingness to pay.
They tested every feature with customers, ensuring product-market pricing fit.

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ANECDOTE

Prioritizing Features Based on Willingness to Pay

A two-sided marketplace prioritized features based on internal assumptions.
After testing willingness to pay, they realized their top feature was unwanted.

Get the Snipd Podcast app to discover more snips from this episode

Navigating Pricing Strategies in Innovation

03:30 • 11min

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Early Pricing Conversations for Product Success

14:05 • 24min

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Revisiting Pricing Strategies and Market Segmentation

38:10 • 8min

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Targeting Market Segments for Successful Product Launches

46:07 • 2min

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Dynamic Pricing Strategies and Segmentation

48:11 • 24min

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Communicating Value: Features vs. Benefits

01:12:13 • 4min

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The Psychology of Pricing

01:16:02 • 12min

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Strategic Pricing in a Downturn: Alternatives and Integrity

01:28:23 • 4min

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Unlocking Growth Strategies

01:32:50 • 6min

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Confessions of the Pricing Man

How Price Affects Everything

Hermann Simon

In 'Confessions of the Pricing Man', Hermann Simon shares insights from decades of experience, illustrating how pricing is a powerful tool for businesses to maximize value and gain a competitive edge. The book explores the psychology, economics, and strategies behind effective pricing, using real-life examples to demonstrate its impact on profitability.

Unlocking Growth

Mark Billige

Eddie Hartman

Madhavan Ramanujam

This book provides a framework for business leaders to enhance customer acquisition, monetization, and retention by focusing on strategic pricing. It offers insights into diagnosing growth strategy shortcomings and leveraging price models to drive profitability and customer loyalty.

Monetizing Innovation

Simon-Kucher & Partners

Predictably Irrational

The Hidden Forces That Shape Our Decisions

Dan Ariely

In this revised and expanded edition of the groundbreaking New York Times bestseller, Dan Ariely uses a series of illuminating experiments to show how expectations, emotions, social norms, and other invisible forces skew our reasoning abilities. Ariely explains how we consistently overpay, underestimate, and procrastinate, and how these behaviors are neither random nor senseless but systematic and predictable. The book covers various aspects of decision-making, from the power of placebos to the effects of social and financial norms, and offers insights into how to make better decisions by understanding these irrational patterns.

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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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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Where to find Lenny:

• 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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