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.—Find the full transcript here: https://www.lennysnewsletter.com/p/the-art-and-science-of-pricing-madhavan—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—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—Where to find Lenny:• Newsletter: https://www.lennysnewsletter.com• Twitter: https://twitter.com/lennysan• LinkedIn: https://www.linkedin.com/in/lennyrachitsky/—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—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—Production and marketing by https://penname.co/. For inquiries about sponsoring the podcast, email podcast@lennyrachitsky.com. Get full access to Lenny's Newsletter at www.lennysnewsletter.com/subscribe

Madhavan Ramanujam, who wrote the book on pricing products, discusses common pricing mistakes and the importance of focusing on benefits instead of features. He also shares insights on picking the right monetization model and highlights the impact of CEO involvement in pricing. Additionally, he explores different pricing models, understanding customer willingness to pay, and the significance of personal support in business.

My guest today is Madhavan Ramanujam. Madhavan quite literally wrote the book on how to price products, it’s called “Monetizing Innovations” and his concepts have been used by companies across the world like Porsche, Uber, LinkedIn, and SuperHuman. Our conversation is a masterclass on pricing. We discuss common mistakes when pricing products, why you need to focus on benefits rather than features, and how to pick the right monetization model. Please enjoy my conversation with Madhavan Ramanujam.   For the full show notes, transcript, and links to mentioned content, check out the episode page here.   -----   This episode is brought to you by Tegus. Tegus streamlines the investment research process so you can get up to speed and find answers to critical questions on companies faster and more efficiently. The Tegus platform surfaces the hard-to-get qualitative insights, gives instant access to critical public financial data through BamSEC, and helps you set up customized expert calls. It’s all done on a single, modern Saas platform that offers 360-degree insight into any public or private company. I’ve been so impressed by the platform that my firm, Positive Sum, recently made an investment in Tegus. As a listener, you can take Tegus for a free test drive by visiting tegus.co/patrick. And until 2023 every Tegus license comes with complimentary access to BamSec by Tegus.   -----   Today's episode is brought to you by Brex. Brex is the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest-growing companies. With Brex, you can move money fast for instant impact with high-limit corporate cards, payments, venture debt, and spend management software all in one place. Ready to accelerate your business? Learn more at brex.com/best.   -----   Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.    Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:02:48] - [First question] - How he arrived at a radically different way of building products [00:05:07] - An example of coming up with a price before the product [00:08:35] - Distinctions between a willingness to pay and positive feedback  [00:10:29] - How to make sure you’re talking to the right potential customer in the first place [00:13:32] - Productizing for different customer segments  [00:16:16] - Questions companies should be asking to get accurate feedback [00:21:18] - What he’s learned about the motivations of potential buyers [00:22:43] - What leaders, killers, and fillers are [00:24:37] - Some of the biggest mistakes companies make while following his formula [00:25:35] - A rule of thumb for what is a benefit versus a feature [00:27:35] - Five distinct pricing models for charging a customer [00:30:46] - Whether or not the value piece of all of this revolves around time and money [00:33:27] - What he tells entrepreneurs about pricing their products that most surprises them  [00:35:16] - Defining the first four categories of failure  [00:40:13] - Reasons why so many innovations fail to monetize and pricing being a CEO topic [00:41:51] - Good rules that leaders can use to have a general sense for effective pricing  [00:47:38] - Behavioral changes and observations as the absolute price move up and down  [00:50:36] - Is there a pricing genius we should take note of? [00:53:18] - The single question every leader should ask themselves [00:53:46] - The kindest thing anyone has ever done for him