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Madhavan Ramanujam

lines on the record: 108
first: 2022-12-08
most recent: 2022-12-08
sittings or episodes: 1
sources: podcast

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“Online, I mentioned LinkedIn. So Madhavan Ramanajim. So that's on LinkedIn and Madhavan SF on Twitter. That's probably where you can find me online or even at the Simoncoacher.com and you can search for leadership and you'll probably see my name there. What can listeners do? I think I would probably say that the fundamental level, if you can talk about this topic, actively share what you have learned if there are sections of the book, for instance, that you like. talk about it. The biggest biggest thing that we can all do is to educate each other and everyone that there's a science behind all of this and it's not just an art. And if that's relevant, then I think message accomplished. That's also why we wrote monetizing innovation.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“On product like growth, pricing, et cetera. I mean, he's an alumni, Simon Kochscher, so we are proud of our alumni. But it's some fantastic work that he has done. He has also written some SaaS pricing guides, et cetera. So I would highly encourage you to check Kyle's work. I think that's fascinating. And I also feel the folks at first round are pretty good at putting some good content on pricing product, et cetera.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are a number of resources. Our founder Herman Simon of the Simon of Simon Kushra has done a lot of books. Particularly, I like one which is called Confessions of the Pricing Man. I mean, he started this business 35 years ago and literally out of university and academia. And we have grown to where we are today. But it talks about some of the lessons that he has learned. I find it fascinating. And it's probably the better book, Compared to Monetizing Innovation. So I think I would urge readers to definitely read that. The other book that probably we also put out, which is topical right now, is one of my partner colleagues, Adam Hector and Herman, wrote a book on pricing during inflation and inflationary times. So I think that's a very topical book that I think readers can pick. This is within our Simon Kuchera sets of like, you know, people who have actually written books. Another resource to probably look at is Kyle Poyar from OpenView. He puts out some really good stuff.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. If you look for unlocking growth and even bookmark it, you're going to have it in your list of books that you want to buy”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the pre order probably is still open in Amazon, so I think that's something you can check. I haven't checked lately. But you can follow me on Twitter at MadhavanSF. That's M-A-D-H-A-V-I-N-S-F. I usually tweet about this book in general, or follow me on LinkedIn or add me on LinkedIn. I think those are probably some good ways to keep in touch. The book is supposed to be out in Q2, tie a Q2, Q2 three time frame, so watch out for it.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“But what ends up happening is most people don't understand the interaction effects across these or they in the worst case they even treat it as silos. So the acquisition team works on something for the monetization team is not looking at the interaction of what they actually do. For instance, 90% of customers or people who we meet who claim to have a land and expense strategy are only landing. They are not expanding because they gave their farm away in the land. So how do you actually think about a land and expand strategy in such a way that you can acquire, monetize, and retain customers? So this book actually goes into breakthrough strategies to balance the trade-off between acquisition, monetization, and retention and build the right products and come up with the right pricing strategy.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“I will try to see what I can talk about without getting too detailed. But the thesis of the book is the title of the book Unlocking Growth, Growth That is Profitable Meta, et cetera. So unlocking growth. And the subtitle is Breakthrough Strategies for Acquisition, Monetization, and Retention of Customers. So this is a bit like where monetizing innovation stopped and this book picks up from that. I mean, let's assume you've built a great product, you know, based on what customers need, what they value, what they're willing to pay for. Now what? You need to acquire customers. You need to monetize them. You need to retain them. So this book actually gets into all of those dimensions. And the key pattern that we have seen, Lenny, over and over again is, now most companies would have teams and people dedicated to these three functions. I mean, acquisition, monetization, retention. That's the, you know, if you unlock these three, you're getting to profitable growth, right? I mean, that's literally the three things you have to focus.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot more compared to a perceit model because that's really where the value is actually getting derived. I mean, just as an example. So three things again. One is thinking about changing your pricing model, three non-pricing actions that you can take. And then how can you defeature something and keep it in your back pocket so that you can have a proper pricing conversation and not just drop a price?”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And they would opt into a usage based pricing because they are going to pay lesser because they're not using. But when times are good again, they're going to use it. And basically what you did is you just lodged in a usage-based pricing easily compared to like trying to do that when the times are good. And people are saying, oh, I actually want fixed or I want the usage and things like this. You actually just took that as an opportunity to change. I mean, one extreme example that was interesting during the pandemic is a software company that was actually providing software to like hair salons, right? I mean, just as an example, hair salons. And this company, it used to be a perceipt model. I mean, they're just used to make sense, but they want to think about usage. During the pandemic, no one, for instance, went to a haircut. They were all taking this at home. So they said, okay, let's change it to a per hacket basis. But of course, when things are back again, that kind of model can...”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Product for one year at the same price that they're actually paying. So I think that's a non pricing alternate, or it could be change the contract terms. Like, you know, say that, okay, take a three-year contract or two-year contract and then think about that as an alternative as opposed to like reducing price or things like, for instance, payment terms, like, okay, if you say it's difficult, I'll change it from 15 days to 30 days and live with a payment terms as opposed to like changing price, right? So like three non-pricing actions, we write about some of these also in the book. And the last one I would probably say, you know, is think about changing your business model or pricing model. You talked about usage-based pricing. Frankly, an outcome-based or attribution-based pricing. Frankly, there's a best time to actually think about these things. Like if people are not using the product, changing it to a usage-based, people would say that's great because there's a downturn. We're not using the product.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exchange to actually justify that price discount so you're taking value away in a defeatured product and hence you can discount. Having that kind of price integrity is super important with your customers. So don't just rush to like dropping price. That'll be the absolute worst thing you can do to yourself. At that moment and also in future so like having these kind of less expensive alternates. Second one I usually say which is in line with not dropping the price is to think about three non-pricing actions that you can do when this actually happens. Like for instance, do I give more product to preserve the price? That's a non-pricing action. So like I give more value say, hey, you know, times are tough. Take the best product professional. You've been a great customer. Earn the loyalty. But when, you know, times are great.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think it's a great question because we need to prepare for it, but of course be proactive. I would say three things that founders can keep in mind when it comes to product pricing. If there is a downturn, especially the first thing to think about is building a lesser expensive alternate compared to what you actually have and keep it in your back pocket. So, for instance, if you have a product, SaaS product, I would think of like what can I defeature from this product and then create a lesser expensive alternate that I keep in my back pocket to reduce churn. So if someone says, you know what, I can't afford this anymore, it's a downturn, give them the lesser expensive alternate, keep them in the system as opposed to them going away. If you just discounted price, guess what's going to happen? Six months later, that's going to be your new price. So before you price discount, think about what value can you”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And often we are able to validate this statistically and significantly as to what are the different thresholds for your products in the market. And this also gets a bit more quickly complex, and that's why the testing is important, because it's not just about the product, but what happens when you have add-ons, what happens to the thresholds when you have price structures, or what happens to the thresholds when, let's say, you have a platform plus a usage strategy. So then the testing and learning becomes inevitable and there's no rule of thumb that you can just apply. Of course, there are certain things like 30 bucks a month or whatever. That's a usual threshold that we see or 999 famously, you know, made famous by all the subscriptions that we probably use.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you look across B2B SaaS or consumer products, you'll find some thresholds that often make sense. Like, for instance, if you are looking at $29, most people would say equate that to $1 a day and say that $30 is a threshold. So you see some of these things. Beyond this, you need to test for your own products and categories because the anchors are also referenced based on other competitive alternates, you know, what their perception of value is and so on. So doing the exercise like I described earlier, the acceptable, expensive, and probably expensive, would give you a psychological threshold. And by the way, that's also a behavioral pricing thing because you're saying if you cross 99 to like 101, there's a steep drop in the demand curve. And if you didn't know this, you can do all the quantity you want. You're going to probably optimize your price to somewhere. But at the end of the day, people are also looking at pricing from a psychological standpoint.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, I think the Panini effect comes from the Panini sticker books, whatever, like all the things that we used to use. Not the sandwich. Okay.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And if you take a ride every day, or you take a light during evenings, or if you give people a task or a puzzle and show them the puzzle and show them that you have done this, but then these are the other things that you have not done, people change their behaviors because they actually feel a compulsion to finish it. Starbucks actually launched a bingo cart, which is the same principle, right? So the Panini effect is a nice way to actually think about how to showcase your products in such a way that you create compulsion for people to buy multiple products. I mean, there's show notes in your podcast, I'm happy to give you some visuals that you'll see here. It's bloody awesome. Absolutely.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you list the products, usually 20% of people will buy more than one product or they will attach themselves to more than one product because most of them are just buying one. Like you have a real estate product. Let's say you have a brokerage product. You have a different investment product, et cetera, right? You just list all the product. But if you show it as a puzzle and you actually say, hey, these are the six products that we offer. And if you complete it, you complete the puzzle, you have actually finished checking a few of these and these are empty and that's like the first thing literally people actually see when they come into the product. We actually see the attached rates going crazily up like 40 to 50 percent of people suddenly start taking more products because there's a compulsion to say yeah if I didn't finish this one even in a b2b SaaS setting but of course if you're a b2c customer like say you're a food delivery platform or you're a you know ride hailing for instance if you say okay this is your weekly puzzle”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“For a SaaS product is very similar. If you actually have a Maybe an advanced version of like a behavioral tactic that I would probably talk about from product side is what we call as a panini effect. The thesis for this is like when we were kids or for those of your listeners who have kids at home one of the most repetitive exercises that we all went through as kids was to like build puzzles or like fit different things together, right? I mean, I mean, I used to do that. I thought I grew out of it. It so happens that you never grow out of this from a psychology standpoint, right? People love to fill puzzles and have a compulsion because they just started with most of this in their childhood. So it's a panini effect comes from the sticker book album that we actually used to collect when we were kids or building puzzles 500 pieces, whatever, all of these kind of things. So when you actually build a product and even in the most complex SaaS industries like financial services, when we have tested this with our clients,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's like, for instance, it is $29.99 if you actually take an annual subscription, but it's $40 a month if you actually do monthly subscription. But you're still messaging the price as a monthly price. Because if you actually just do the computation and say, okay, instead of saying $30 a month, I would end up saying it's $360 a year. That price could actually look like a higher price. But if you reframe it, it looks like a more attractive price. So that's a penny a day kind of effect. I think that kind of makes sense. On a product side, if what you're building is products and consumables, then things like the razor, razor blade model actually makes a lot of sense. Most famous, made famous with razor blades, right? I mean, if you think about the gelette steak that you are buying, it's probably cheap, but that razor blades add up very quickly. So that initial pricing or investment is less, but then you're making money on the consumables, right? Like the HP print cartridges, same thing. The printer is cheaper, but then the cartridges add up.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are a few, right? I mean, the compromise effect is the good, better, best, that we talked about. The next one is what we call as, let's say, pennies a day effect, or like how you actually frame your pricing. So, for instance, if I tell you a $30 per month price, it's very different from $1 per day. Like the way you actually frame your price, if you can actually showcase some kind of bargain, like AWS does this really well. The price that you actually see is so less because also the units and consumption is so less. But of course, the bills stack up if you use it a lot. But if that started with like a higher price point compared to a lower price point, there could have been different situations. Similarly, for instance, when you take, let's say you have a monthly subscription in your SaaS business, and you also have an annual subscription, you need to showcase your annual subscription as a monthly price.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can talk about these topics all day long, and I'm probably going to keep telling you what I know, but tell me when you're bored.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“A well known behavioral theory where people avoid the extremes. If you are quality conscious, you'd go to the right. If you are budget conscious, you'd go to the left, but most people will compromise in between. If you actually see your packaging mix is like this and it's not the normal distribution, as in most people actually prefer the entry-level product, you're giving the farm away. Maybe you should think about how to change your features and benefits so that you can actually steer more outcomes towards a middle package compared to the entry level one. And also then charge based on the value that you're actually bringing to the table. So we have talked about many behavioral pricing strategies in the book dedicated an entire chapter to this.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“You'll see a small popcorn for $7, an extra large popcorn with butter on it, huge one is $8. Most people will say for $1, I'm getting this extra large one. Let me buy it. But that $7 popcorn is a decoy. I mean, if that was not there, most people would be scratching their head saying, why am I paying $8 for popcorn in the first place? It's not about deceiving your customers, et cetera, but it's just about framing the products in such a way that it also appeals to the irrational side of the brain as much as the rational side. The example that I talked about in the SaaS product on the three products and compromising to the 99 rather than going for the early product is simply product discipline. Don't give too much away in your entry-level product. Don't give the farm away in your entry-level product, sort of at least preserve something for the $99 product. So if you build the packaging correctly, you can emphasize a compromise effect.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because of the same kind of reasoning. And then what they actually did is they built another product at 299, which was simply a decoy to make the $99 product look attractive, right? So if I put a $99 product that looks awesome next to a $299 product, it looks even more attractive. I mean, God bless the 2% that even take the $299 product, right? But what you actually see is the mix shifted. More people took the $99 product because the pricing made sense. It was respecting the psychological thresholds. And next to a decoy, it actually made more sense to pick that product, right? I mean, so this is just reframing the conversation. It was a 30 plus percent increase in MRR and ARPU right after they actually did this change. No changes in products, no changes in features, just in terms of how they reframe the conversation. I mean, these kind of things are around us and we need to understand these. Like for instance, if you go to a movie theater,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And they had three products. And I remember asking the CEO why do you have three products? And he said, I learned that Good, Better Best is a great strategy in business school. So I'm like, okay, that sounds great. But when you actually look at what was going on, they were giving the farm away on their entry-level product. So they had three products, 49, 79, and 149. That was price points. And what they actually were doing is they gave a lot of features for the 49. So they were giving the farmer raise to 60 to 70% of people were taking the $49 product. Not many are actually opting to the others. What they did was actually super interesting. They just reframed the argument and they found out that between 79 to 99, the pricing was inelastic and there's a threshold at 99, not at 79. It is the same exercise that I talked about in the acceptable and expensive price, et cetera. So they moved the price from 79 to 99. And they moved the price of the 149 to like 199.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Behavioral pricing basically is tapping into the irrational modes of our decision making and not just rational. I think that when I talked about the break-even exercise, if you take a very rational view in different would always win. But like I said, I have never seen it. So there's always a irrational side of our brain that actually makes decisions. And understanding this as a product person would lend yourself to like building products and also positioning or framing the product conversation in such a way that appeals to both sides of the brain predictably rational was a great book from Dan Ariali made them in the concept very famous. We build on top of that where we actually talk about product and pricing strategies that actually you need to take care when you think about the rational side. That's what we call as behavioral pricing. To take a concrete example, and he may be, I remember walking into a company.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Take non SaaS example. My favorite, I'll come back to Porsche again because their value communication is to me a legendary. Like when they launched Tekon, which is the electric car, their value communication was something like this. I'm trying to remember it, but it was something like Tekan is not your most affordable electric vehicle. But that was never Porsche's goal. Porsche's goal was to actually build a car that was first and foremost a Porsche. That kind of value statement, what they actually build totally resonates with their audience. Taking a maybe SaaS example, Shopify is one of my favorites in terms of like looking at the plans in terms of their actually put out. All of the plans emphasize benefits and less features. Like for instance, the number of locations that you can track inventory is a benefit because if you actually have a more complicated supply chain, it's different from that.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“It could just be that if you're too passionate about your products, then your chances are as a product person you're talking features.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“The good outcome of this could be that people actually don't understand what they're getting and then actually changing the speak to being more benefits is key. To take an example, for instance, smug mug, which is a ridiculously awesome company, they used to actually publish their pricing plans, which was like, you had to scroll literally three or four pages. And then you would see the price. It's all the features, everything else that the company did. They changed it to benefits-based communication, so like a very simple thing. Like for instance, the ability to sell photos online is a benefit. There are probably 15 features behind that that actually enables that stuff. But then focusing on the benefits, they add a double digit improvement in revenue, no changes in products, right? We show that before and after also in monetizing innovation, if someone is interested in what it was was what they actually did. So if you don't see enough fraction, that that could be a marker coming back to your question.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I see some markers or pattern recognition as to when people are talking more features as opposed to benefits. First of all, just to set the nomenclature, right, what you build as a product person is features, what people actually get out of it is the benefits. It's like what do the features actually do? And that's the benefit that a customer gets. And you need to pitch benefits. If you pitch features, you're not talking value. And if you're not talking value, no one is going to get it, right? So if you are super excited about the product and passionate about every single thing that the product is doing, most likely you're talking features and not benefits because you're showcasing how cool your product is and how the different belts and whistles actually work as opposed to focusing on what is the actual benefit for the customer. There are probably also other signs like, for instance, if you don't see market fraction for what you actually build, it is, I mean, either what you build is off-base, but in the”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's always people who pick one or the other. So then you actually start understanding what kind of model might make sense. I mean, same thing with B2B SaaS companies. You would say let's say you have 100 seats and I would charge you, let's say $1,000 and $10 per seat, or I would charge you $2,000 flat, or I would charge you $500 and the rest in the seed base amount that I equates to $1,500. It's all the same. People would say, I mean, I like the lower platform fee and the variable, or they would say, I like the fix. So the indifferent never wins. That's an easy way to test pricing models, what makes sense.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's definitely possible. There are ways to test this. It's a science. I mean, there's also what we do with many of our clients for a living, but maybe the easy Monday morning thing that I can actually ask your listeners to do is what we call as a break-even exercises. So let's assume that, for instance, let's take a marketplace. Let's say you're selling a dollar, a hundred item, and as in your customer is selling it, if you ask them what should the pricing model be 3% transaction fee on the $100 item or 1.5% transaction in dollar 50 cents or $3, RRU indifferent. This is a basic question because if you do the math, all of those numbers are the same. So an economic human being, rational, everything that business school taught us would say, okay, people will pick their indifferent option. I mean, I've done this thousands of times. I've never seen the different actually.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. So you could take a rake on the transaction and there's probably a platform fee or a subscription fee. So that comes down to, again, a hybrid or a structure. So there's a portion that is predictable. And then there's a portion that is the usage base. It's not a reg-based model, but it's similar to the hubspot model in principle.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“It actually incentivizes product led growth. That's a whole different conversation. So, what we would do is, for instance, on one axis, you have seeds, and on the other axis could be the number of departments that the product is being used at, departments is HR, legal, et cetera, right? And then the more users and the more departments you get a better per user price. So you've automatically built an incentive to actually say, if you want the better price, sure, you drive the right behaviors, which is get more people on the product and put it in the hands of more departments. So people can self-govern their pricing as opposed to just you come up with a price and you're just negotiating, right? So when you think about pricing models, you have to think about first picking pay as you go subscription premium, then thinking about the metric, and then thinking about the price structure.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“For B2B Saas, I think those are probably the options. I mean, your data subscription, pay as you go, premium, these kind of things. And of course the price metric that you actually pick, like what measure are you charging on? And then how do you structure the price structure that you pick is important because for instance, are you flat for a certain amount of time and then it becomes variable? That's a structure, right? I mean, and then, or for instance, can you be two-dimensional in your structure on two metrics? So like the more people actually use your product and take actions that benefit you, the better price you get. I mean, this is something we call as a value matrix. For instance, I mean, in B2B SaaS companies that actually want to achieve like wall-to-wall adoption. I mean, in many companies, it's still a pipe dream. I mean, it just, yeah, you can talk product-led growth, but if your pricing model”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like an AWS pay as you go can make sense, or even probably lastly, if there's some most important thing for pay as you go Lenny is you need to have clear metrics that you can actually track and identify an attribute value and your customers would agree to that value generation, then pay as you go would make sense. If you can't track what you are charging on, often it's a really bad idea. And then, of course, you can also be more hybrid sometimes. And that's also a winning model. Like, for instance, if you take HubSpart, it's a hybrid model between a PSU go and a subscription and it actually works well for them because there's a certain component on a fixed monthly basis. And then if you exceed those kind of quotas and limits, then you actually get into a pay as you go model. So I would urge the readers not to rush into one versus the other based on what is in style at the given point in time, but give it a deep thought and say, you know, what is your business? How are your customers? How are they situated? What are you servicing? And what.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, like, making it easier to buy an AWS kind of thing, you onboard people and then you grow over the product. And I think those kind of situations make sense. Or when customers would demand transparency and fairness. Please note that don't mix transparency and fairness with being predictable. Those are very different things. Transparency and fairness just means that you charge for the product right. For instance, if you don't use a subscription for a few months, is it fair that you're being charged for those months? That's fairness. That's nothing to do with being predictable. But if they're demanding fairness and transparency, often usage-based pricing model could make sense. Or alternatively, usage is intermittent or episodic and the value delivered is also episodic and not ongoing. For instance, booked the movie theater ticket or you booked a flight. It's also intermittent usage, intermittent value. So the pay as you go kind of makes sense. Or maybe there's even some underlying cost that scales with you.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“In all of these kind of situations, a subscription actually makes a lot more sense, or it will also be like usage is intermittent, but the value delivered is ongoing, right? I mean, like Lifelock is a great example. It's a product that you probably have to protect your identity theft protection. The value is ongoing. The usage of the product is only episodic when your identity theft gets compromised. I mean, if they say, okay, I'm going to price based on usage, I would be dramatically wrong pricing model, right? So in those kind of cases, subscription makes sense or simplifying the pricing conversation is to your advantage, let's say that Spotify was a good example, right? If everyone wants to listen, everyone used to listen on a per song basis, but having a subscription actually made sense. It simplified the pricing conversation same as Netflix, all of those kind of situations. So don't just rush to something like usage just because understanding that is key. Usage makes sense when people want low commit or less friction.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say this way. It's like most B2B SaaS companies follow what is actually in Vogue at that present point in time. If subscription is in work, then they say, Oh, subscription is the best strategy. Usage is made famous by Snowflake and others, they would say usage, right? I mean, so I think usage is obviously, let's say, invoked right now. I think it comes down to really understanding based on your business situation, does subscription make sense or should you be usage or pay as you go if you're a SaaS company, right? I mean, there are different markers which actually identify this. If customers demand, let's say, predictable bills or usage is very similar month over month, as in if you're subscribing for tithe pods, for instance. Not like you're going to wash more clothes one month versus the other. The usage is the same month over month. Or when the usage is highly variable, which is changing quite a lot between month over month. And if you price based on where as you go, then your bills are also going to be dramatically different. Month one versus month two versus month three. So you're going to have a very tough conversation with your customers.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Tracked users was a much better metric into how customers perceive value. And that was the more fairer metric for customers. Like if you're tracking more users in segment, you're probably willing to pay more compared if you're tracking less. So the packaging was changed to like a monthly track user instead of APIs. This is literally exactly the same Michelin per mile kind of models on a B2B SaaS versus number of monthly tracked users, right? So that was a different example. So the how you charge question is super important, way more important than how much. If you don't focus on it and just rush to one or the other, often you're suboptimizing like crazy.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Model, I mean, then obviously most products can actually explode this kind of route, especially in a software setting. But the key lesson here is how you charge was the most important question, was not how much came about because of the how you charge. Another SaaS example that is probably top of mind for me is B2B SaaS's segment. This was before they went to Tuleo. They used to price based on APIs. the number of APIs that you actually have with segment that used to dictate which plan you would be and how much you would pay for it. But increasingly they were also shifting gears towards selling to different personas within companies. And what is an API is a debate, probably a marketing person does not necessarily understand exactly what an API is and how you charge question became very critical. And what they actually did was we work with them and we kind of identified that monthly.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Business. So, what they actually did was they changed their pricing model or monetization model, and they said, okay, we are going to charge based on the number of miles that a person would drive. The truckers actually love this model, right? Not just because it was pay as you go and they could pay when they actually used the tires and how and everything else. That was the obvious reason. But now they could also invoice their end customers and say, okay, my journey was 798 kilometers or miles, and that's the amount of tire costs and they could pass it through because it became a variable cost. And people love this kind of model. And of course, Tias lasted long. Michelin recouped that, but more people jumped into the Michelin bandwagon because now they could actually buy a tireless on a pay as you go basis. Now if a tire could be actually, I mean the age-old model for tires is on a per tire basis. If a tire could actually be sold on a pay-as-you-go kind of consumption,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“We usually say how you charge is way more important than how much you charge. Take a quick example and then bring the point home and then we can talk about why this is actually essential. So like taking a nonSaaS or software example, if you think about Michelin, which is like a tire company, probably one of the most price sensitive, let's say, markets because think about it, you actually go into a tire store, you see all of these things look similar, but they somehow priced differently. How are you supposed to make a decision? I mean, it's very hard. And you need to understand what you're paying for. And they came up with this new tire, which was supposed to last 20% longer. Was it true innovation in the industry? And these were tires that were used for moving trucks from, you know, moving trucks from point A to point B, right? And when they thought about it, they said, okay, if we go and ask for a 20% premium, there's no chance they would get it because the price sensitive market, right? If they don't ask it, the tires are going to overrun and they're going to cannibalize 20% of their business.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, exactly. So when you do those most and least kind of questions and you stack rank them, the must-haves will pay or must have table stakes would be the leader products or leader features or benefits. You know, the ones that are nice to have and might consider paying or nice to have those kind of features are probably the fillers and that don't need other killers”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“What happens is it just depreciates the willingness to pay across the entire customer base to the point where no one actually wants it. So you need to find pockets of customers who want it and then maybe only sell it to them. So the rule of thumb that I usually say is, you know, if 10 to 20% of your customers want something and they really want it badly, that's usually an add-on. That's not something that goes into a package unless you have an advanced package just for them kind of thing. And if more than 50% of people want something, that's a leader product. So if you understand all these leaders, fillers, and killers, then you can configure your product in such a way that you're productizing to segments and you will unlock maximum value.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Call it a happy meal. And you know, most people who wouldn't have bought a French fry coke, but if you just say for a dollar or two more, you can actually get this. They would say, let's get the happy meal. So you're actually bundling it in such a way that with marginal increase in price, you're also able to sell multiple products. Which they wouldn't have if you didn't have it. The killer is the one where if you put it in the product, it just kills the bundle for everyone. So for instance, if you put coffee along with French fries and a coke and a burger, that's just going to kill the bundle. No one needs a double dose of caffeine when they're having a burger. But there are people like me, Lenny, who love to have coffee with their burgers. So these are great candidates for selling them as add-ons. Because if I actually, I mean, I would pay for the add-on because I actually won the coffee. So I would take the burgers stand alone and I would take the coffee stand alone. And that's why it's actually listed separately in the menu, right? If you bundle it,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Way to unlock your segmentation is to think about bundling and packaging as in you're configuring your product based on what customers need, what their value and what they're willing to pay for. Either you put a bunch of benefits that people like and call it packaging and put that out, or you're taking multiple products and calling it bundling and putting that out. So it's a question of, hey, that's the way you unlock segments, you're productizing. It's like the iPhone X versus the iPhone AS, different products, different features, different packages, et cetera, right? The way the quick framework to think about packaging bundling, we call it the leaders, fillers, and killers exercise of framework. So if you think about the classic, let's say, bundle, you know, like a Big Mac or a happy meal. I mean, that's the Big Mac is the leader product. In the happy meal, right? That's what people go for when they go to McDonald's. When you look at French fries and coke, those are the fillers. You can put a burger along with French fries and”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Also, what we write about in the book How to Pick One, not just pick one, but how to build your products around this executed, live and breathe your business model strategy, which leads you to your pricing strategy.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Volume game. Often I see entrepreneurs who say, let's just price low to like gain growth. That's a fallacy. I mean, if you don't have a business model that actually supports this compared to Amazon, then you probably shouldn't be in a penetration strategy. And even in a company like Amazon and AWS has a very different strategy compared to their e-commerce marketplace, right? I mean, so within even business units, you can actually have different pricing strategies. And the third one is just maximization, which is you're neither on these two extremes, but a bit in between and you're saying, okay, what can I maximize in the next couple of years? I mean, in my opinion, at least Microsoft will probably belong in that kind of category. And if I look at Apple, Microsoft, Amazon, I mean, companies have reached trillion valuations in our lifetime, probably the only three in some way, shape or form. They have dramatically different pricing strategies. The point is not about just picking one, but it's about executing the one that you actually pick.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, when we talk about pricing strategies, we hear many buzzwords and it's irrelevant. So when we take a step back and look at it, there's literally only three types of pricing strategies. And if you know this, then you can follow one of these and build breakthrough success products. The first one is skimming strategy, which is like your Apple iPhone. They launch at a particular price. The next generation is probably at a higher price, but the previous generation actually goes down. So they launch at a higher price and then they start lowering the price. So they're skimming the market. And connotation of these kind of products is also a premium product. Price is a signal of quality, et cetera, et cetera. If you take penetration, that's probably made famous by Amazon. And Amazon, you know, I mean, they're probably operating at much thinner margins, but they're playing the volume game, much more harder game to play because you need to have all of your costs in order, supply chain, everything else, and you're fine-tuning to it.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source