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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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“But truly understanding dynamic segmentation and how to offer product and services around the fact that people switch segments. So like if I'm ordering on a Friday night on a food delivery platform, maybe I'm thinking pizza Tuesday afternoon during my office time. Maybe I'm thinking of like a different type of cuisine. So if I know all of these things, healthy choices was not when can I productize what then you actually start getting in a dynamic views of segmentation. First, do the segmentation right. That's the basic getting an ecstatic view. Maybe if it's relevant, even a dynamic view at this is the next frontier.”
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 back? Great. And you know, they also launched this thing called Comfort, which is a bit between black and Uber X in terms of both price and also the types of cars. But it comes with certain features. Like, for instance, you can say, you know, quiet preferred on a comfort or a black. And that's literally why I take one of these, because I'm probably working on my override over and I like to just have the quiet and just work on things. And I'm willing to pay for that. And I'm belonging in a different segment. But of course, if I'm using, you know, let's say Uber for my everyday commute sometimes, maybe I do pool. I mean, so depending on even my point in time or depending on my situation, I might actually belong to different segments. And understanding this and then productizing towards Z becomes key. So the topic that we have been focus with many companies nowadays is not just doing a static view or segmentation.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“What customers need, what they value, and what they're willing to pay for, and how can we productize towards that, right? Maybe another example that is obvious and in front of us when we use our apps like Uber is a great example of also segmentation, right? Because you have different car types. I mean, if they just had one car type, then, okay, then that's a very different company, very different strategy. There's an Uber black, the Uber X. We used to even have the Uber poor pre-pandemic. I don't know if it's back now. I think it's”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“At what they have today, they have like three plans, and because segments behind this. And if you look at the plants, like there are plants like, for instance, the entry-level plan has something like you can only launch an event with like one ticket type, like a general admission, right? Okay. And then if you take the middle plan, it has unlimited entry type. So you can have a gender admission, a VIP admission, whatever when you're actually having events. It actually makes sense because if you're, let's say, hosting your local wine club meetup, whatever, even you probably just need the general admission and that's it. But if you actually are a bit more professional and you needed like multiple event types and you're having an event of that nature, then there's another product that actually appeals. But because of doing this, the one that has only one event type, that product is cheaper than the other one. So there's an essential product and there's a professional product and they have enterprise product. So this comes down to truly understanding”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“That for $7.99, and I picked the AS and I walked out. I belong to that segment. I was not belonging to the iPhone X. But there's a product that has been productized for different needs segments. And if you look deeply, Apple is not just priced their iPhones, they're productized to different price points and willingness to pay. And that's where it gets actually fascinating. So I think that's a great example of understanding differentiation and then sort of productized to different needs. And I think that's a good example. Another one that comes to mind where we worked with, this was in the pre-IPO days, Evenbride, which is a B2B SaaS company. They used to have one product that was actually servicing all of their customers. And then we went through an exercise of understanding who are their customer segments and how do we productize to different segment needs. And if you look”
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 probably start with a few obvious and famous examples so that you just remember the point in some way and then we can drill down further if needed. But if you look at for instance Apple, let's assume the conversation on Apple was something like this. Hey, we need to just build one product, one iPhone, because we need to maximize our market share and we will throw it out and slap on a price and hope to get the market. They wouldn't be the most profitable company in the planet today. What did they actually do? There is an iPhone for $299, $399, $499 all the way to 1499. They have built products to different segments. I mean, I remember walking into the Apple store when iPhone X was launched. I didn't want to part with a thousand bucks. I was checking the phone out and I looked at the features. I really didn't want the retina features and all these kind of benefits. And then I saw that there was a phone without.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, keep getting these tweets from Peter. Yes, I mean, I love the product, actually. It's like water packaged as An $8 product. So it's great, right? I mean, that's a segment of customers that love that.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly, that's totally acceptable because, I mean, it's not like everyone has resourcing to launch into five products, five segments, everything else. Complexity, I mean, and plus, you don't probably want to be too complex when you're launching your products, but focus on the right segment and launch it for that first.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“What is the size of these segments? How to prioritize them? Which one to pick first, and which product to build first for that segment, and then productize to the other segments later. If you're lazy and sloppy, you'll build a product, you'll slap on a price, you'll throw it in the market and say, I will attract everyone, you'll attract no one.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's also an often asked question in the sense that as a startup, as an early stage founder, often the excuses like, hey, we don't have time. We're actually putting stuff out of the wall. We need to get something out there. It's okay. Time is of the essence. So we need to build a product. And usually they would say, let's build just a product, which is like every awesome thing that we are working on. And then we come back and revisit whether we want to build other versions, et cetera, right? And we don't have resources to even build multiple products. That kind of logic makes sense when you don't understand the concept of segmentation. If you truly understand the concept of segmentation, you would say, you know what, as a first conversation, when you're having that willingness to pay conversation based on your idea, you would say, who's actually willing to pay for this innovation? What do they need? How many of them are there? Can we productize to this first company?”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's find the people who want to drink it in a bottle. Let's find the people who want to drink, you know, have gas. Would they pay for it? And then when you understand these segments, then you can say, okay, what do I build for these different segments? And then focus on that segment when you launch the product, have the marketing message for that segment, and target that segment, as opposed to just building one thing and hoping that somehow these four groups will sort themselves out into your product. And that's the key thing.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the three most important words in what you said is you act differently. So, you as in your product teams, your sales teams, your marketing teams, your finance teams act as in come up with new products, build a business case, come up with a product marketing messages, sales strategies, differently as in there's no point in doing segmentation and having the same reaction or treatment to everyone. You need to be able to act differently. So what that means is if I know what you need, what you're willing to pay for, you know, and what you value, then my conversation with you will be different than someone else who needs something else and is willing to pay something else. I productize something for any and I productize something else for the others. And the key here is to understand if there is a significant, let's say, total available market or size of the market where the needs are similar and they're willing to pay. As in, let's try to find all the people who would want to drink water in a fountain.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of productizing to segments as opposed to building one and positioning it to different segments. I mean, usually when I walk into these companies, they'll say we are building a one-size-fits-all. I would quickly collect them and say one size fits none. So it's a bit of that. That's where this topic is deep because people get the definition of segmentation wrong.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“I want it in a fountain. I want it to carry it around. I probably take it in the bottle. I like the taste. I take gas in it. Or I'm just simply ultimately lazy and I would pay the $5 till I get it out of the minibar and not go down the hotel lobby and get it for free because that's my need, right? I mean, if you don't understand these kind of needs, you will never be able to productize to those needs. So you will just build one product and try to position it to the different needs-based segments and you won't get it right for anyone, right? And we've worked with all kinds of industry verticals. We have not found a single vertical where, you know, our customer, where their clients' needs are homogenous. It is heterogeneous whether you want to accept it or not. If you accept it, then you would start getting into the heart of segmentation and say, where is that heterogeneity? How do the needs differ in the market? How does the willingness to pay different in the market? And what can I productize to different needs and willingness to pay segments?”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Based on what customers need, what they value, and what are they willing to pay for, and how do you productize package to different segments. So the key lesson that I want your listeners to take away is you need to be able to productize to segments. If you're trying to build a product and try to position it to different segments, you've already lost the battle. Because segmentation comes down to needs and understanding needs. And building products based on those needs and willingness to pay so that you can treat your customers differently. Because if you build the same product and want to treat everyone similarly and say you have a segmentation strategy, you actually don't have it. I mean, take a simple example. You know, if you think about the water that we drink, in a fountain it's free, in a bottle is $2, you put gas in it is $2.50, throw it in a mini bar, it's $5. It's the same damn water, but it's packaged, productized differently because people have different needs. I mean, I'm price conscious.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Look, segmentation is a topic again, just like product market fit is a well understood term for many of your listeners. Like when we go and ask companies, do you have a segmentation strategy? Roughly about 60% would say, yeah, we have it. And then when we check it, probably 10% of them actually have a meaningful segmentation strategy. What I mean by this is most people think of segmentation as a demographic or persona exercise or how do I position this product to like different personas and things. And they get it horribly wrong. I mean, Tang and Chik, I'll give you this example. If you think about a person who's 70 plus years old, lives in a castle, incredibly wealthy in the United Kingdom, you probably think about Charles, but that also fits Aussie Osborne. And I would probably wager that both of them have dramatically different tastes, need different things, value things differently, and are willing to pay for things differently, right? I mean, if you just base things on persona, you often get it wrong. Segmentation needs to be”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, start educating yourself that there is science on this topic. It's not just an art. Get confidence that people have done this before, not only just startups, but like companies like Porsche, you know, and then read chapter four and do it.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Usually we say at least every six months pass and think whether you should revisit it within 12 to 18 months probably there is time to revisit especially given market dynamics in most industry verticals that people are in today and also there are some pivot points where it will make sense to think about this like you're introducing a new plan or you're introducing some new features all of those kind of moments in time from a product journey standpoint would necessitate having this conversation”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“I get this question all the time, and I say, at least talk to one person. Jokes the part because most companies are not even doing that. But in terms of willingness to pay conversations, but if you're, let's say, a B2C company, of course, you have scale in terms of reaching customers, you might have hundreds of thousands and millions of customers, consumers. In those kind of situations, more of a quantitative validation might be easier to run. So if you get even a thousand, 2,000 responses that could be statistically significant and easy to do and pull off. If you're like a B2B SaaS company and you have, you know, you're focusing on, let's say, 20 to 30 accounts leading 80 to 90% of your business, try to talk to as many of those as possible so like at least in the 20 to 30.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then when you actually do this more and more, like I said, eye trading or refining things, then you can bring this into other pieces of the conversation and get more smarter before you launch 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
“Yeah, exactly. I mean, I would think of it as. I wouldn't say necessarily user research, it's a bit before that. I mean, user research probably gets more into usability and how people actually use it. This is a one-step before conversation where you're trying to understand testing and learning whether people buy into your idea, do they see the value? Is there an ROI? And frankly, what needs are you actually solving in the market? These people can articulate all day long. What is their jobs to be done or what is their needs pain point? What product to build is your job in some way as a product person. But when you showcase the product and say, okay, this is the product that I'm building, which will actually meet this need. You want to see if people's eyes slide up. And that's also when you need to have the willingness to pick conversation. Because it's not just about saying, but actually meaning what you say. And that can only be brought in if you actually use willingness to pay in the conversation. Otherwise, it's a bit of an empty self-fulfilling conversation often, right?”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Company, it could be multiple decision makers increasingly in B2B SaaS, for instance. It's not just one person deciding on a software budget. It's like a team. So it's usually done with a team having that kind of conversation. It can also be done in terms of like focus groups where you bring in a set of customers and then you sort of mediate and moderate answers and trying to get to like what is the right thing to do. And often we also do a quantitative version of this where we are doing more tests and learn through either A-B testing or most importantly through control surveys that we would actually have invite participants to actually participate and that they would give their opinions on these various concepts that we're actually testing and then we try to understand what is the willingness to pay in the market based on those kind of responses. So from a basic qualitative one-on-one validation all the way to more quantitative testing using other instruments.”
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 usually either a one on one conversation with a customer, much early stage, you're a founder and you're having a conversation. It's basically you're pitching the idea and trying to understand not just product market fit, but a product market pricing fit. Let's say if you're a bit more late stage and you have a cross-functional team, this could be a conversation that the sales teams could actually be having along with the product teams to actually understand this. That's also what happens in companies like LinkedIn. For instance, when they launch a new innovation, you know, the team has to book in a credit card or lock in a budget from a customer for pilot POCs and everything else and if they don't, they don't necessarily go down the route of productizing it because they didn't, I mean, there was no final verdict on whether people would actually pay for these kind of innovations, right? That's kind of how I see it. So it depends. If it's early stage, more like founder-led, early conversations, if it's more late stage than a cross-functional conversation. But usually it's a one-on-one with one-on-one as in with the”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of these things become incredibly relevant. Sorry, it was a long answer, but there are so many methods, it's all summarized in chapter four. So just one chapter to read in the book.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Different methods are actually applicable at different stages of a product and different stages of a company. If you're very early stage, let's say just an idea, just have the conversation. I mean, just even asking, would you pay for it is a good question. Because if someone says no, then ask why, then you hear a lot of good information. If someone says yes, ask them why would you pay for it? They would articulate back the value that they understood and that should be in your value messaging. So that's just a simple question. If you're somewhere in mill, then maybe some of these if you're in the series A or seed stage, maybe some of the purchase probability questions, all of these things can actually be a quick and dirty way to at least get to an answer and a point of view. Or if you're launching a product and it's in late stage or late stage in the product or the company lifecycle and you need to get more precise in terms of like your pricing and packaging strategy than some of the methods around trade-off exercises mostly.”
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 realistic and it's akin to real life based on how they choose these products, what we are trying to reveal is the mental models and rules that people use to make decisions. So for instance, if I add certain amount of features and increase the price, people say, you know what, I'm not going to buy anything more. What that actually tells you is the addition of those features people were not willing to pay the addition in terms of price. So they would actually opt out of the lineup that you actually have for your customers. So these kind of things, if you do these kind of exercises, you can get more precise on things like price elasticity, build some simulation models, try to understand how the market would react, 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
“This people can do all day long because they're just picking the two, right? And then we will change the set of six, another combination from the ten, and ask that same question. So if you do this a few times, you would be able to prioritize entire feature set in a relative fashion and truly understand what drives willingness to pay. The last method which gets into more advanced methodology is what we call as more trade-off exercises. So here what we do is we put people through actual buying patterns or actual buying scenarios and say, okay, if you have this packaging and pricing, for instance, for your software product, what would you do? Which is akin to a real life question. Like, you know, you put all the features, all the price, the number of plans, et cetera. Then we would change that and say, okay, if you change the features and the price, how would you react? Would you buy any of these products? Or would you say, I won't choose any of these? These are more like shopping scenarios per your products.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probabilities and elasticities. Two more, if I may. I think another one is what we call as most and least kind of questions. And the thesis behind this is if you go and ask people, okay, I give them a list of 10 features. Let's say and I say rank them one to ten, most people will find that exercise painful, horrible because there is always this messy middle where everything is gray. They all look the same, right? I mean, there's a lot of psychological theory that people are very adapted identifying the extremes when it gets in the between that's when things become tougher. So what we do is if you have a list of 10 features that we want to understand, whether people have willingness to pay for when we are prioritizing the R&D roadmap for our clients, we would take a subset of, let's say, six or so features out of those 10. And then they say, in this set of features, identify the most important.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Questions. So, if you ask someone okay, would you buy this product? That's like a meaningless question. At least if you ground them on a scale and say on a scale of one to five, would you buy it? One is I'm not at all interested. Five is most likely I would buy it or I would buy it for certain. And four is like most likely, for instance. And three is I'm neutral. What we have actually seen is even if people say five, you know, they are probably only like 30 to 50% sure about whether they will buy. No, I mean, so like you can start and if they say four, it's like 10 to 20 percent if they say three and below they're never going to buy it. So you can start, if you do this at scale, you can start coming up with, let's say, a demand curve and then say, where is the price optimal, et cetera? So you can understand purchase probabilities. And if someone says, let's say three for a certain price point, then you can lower the price and say, okay, would they actually move their ratings to a four or five? So I think these are some simple ways to understand.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“The psychological thresholds become important. Rahul Wara from Superhuman actually read the book and he talked about this in an A16Z podcast. He actually used this method to come up with his $30 price point for the superhuman app. And I think that's a quick and dirty way to actually get to what is a willingness to pay and what's the psychological threshold. So I think that's an interesting method that you can do Monday morning. But the key here is to not just ask the question what would you pay, but have that sales and marketing conversation tell people where they actually might get the benefits. Basically exactly everything you would do after launching the product to create awareness and showcase the benefits, do it, and then ask these questions so that you're priming them to the value that your product gets and you're not just having a random conversation. There are other techniques that go more and more, let's say, rigorous. For instance, purchase problem.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then follow that with what do you think is a prohibitively expensive price? And now across thousands of projects that we have done, what we have come to realize is acceptable prices, the price where people not only love the product, but they also love the price. If you're in true growth mode, maybe you can put it there. It's a no-brainer price, no friction, et cetera. The expensive price tends to be the price that is value priced. As in they don't love you, they don't hate you, they would pay you, but it's a neutral reaction. prohibitively expensive tends to be the price that they will laugh you out of the room, right? And if you do this at scale, what you'll start seeing is that there are some cliffs in these kind of demand curves where suddenly when you cross from, let's say, 99 to 101, you know, 20 or 30% might say it is expensive or it's prohibitively expensive. And that's what we look for to see if there are some psychological thresholds that if you actually cross, you know, you have a perception of being expensive. So hiding behind someone.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Relative ways of asking these questions are the most basic ways of actually doing it. Then we have questions where there's some methods where we actually want to understand, are there some psychological thresholds or budgets when it comes to willingness to pay? So the way to do this is let's take your product that you're going to launch, pitch the value to your customers, have that exact sales and marketing conversation that you would have after you launch the product but before. And then you ask them, what do you think is an acceptable price for this innovation? Look, I mean, everyone would like to lowball. They will negotiate with themselves. Let them give an answer, clock it. Then ask them, what do you think is an expensive price?”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“A meaningless answer. But if you actually ask it in a relative way, people actually give responses that are meaningful. So for instance, if you're a B2B SaaS company and you're trying to see if your product actually has willingness to pay, one way to have that conversation is to say, okay, hey, to your customers, do you use products like Salesforce in your install base? Yeah, I do use. Okay, Salesforce was indexed at 100 in value. Where do you think we are in terms of the value that we bring to your, let's say, day-to-day business operations? People can answer all day long. They might say AD. They might say 120, depending on whether you're more or less compared to like, let's say, what a Salesforce can do, which is an established in Solbase. And then if you say, okay, Salesforce was indexed at 100 in pricing, where do you think we should be? That also people can say, okay, if they say 110, what they are saying is you can be more premium than that and we would still pay for it. At least you've gotten some information that is meaningful at a very basic level, right? So this is some.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Kind of talked about that. Yeah, we can go deep into this and you can pull me back or ask me to go deeper, whatever. It doesn't matter, right? We have written an entire chapter in the book, Chapter 4, it's called How to Have the Willingness to Pay Conversation If there's one chapter, just read that. That is, I mean, it's quite detailed and goes into how to actually do this. But look, I mean, if you go and ask someone, you know, how much should I charge for this product, you're actually going to get garbage back. That's your job, right? I mean, no one is supposed to tell you how much to charge. And that's the worst way to have the conversation. There are some really interesting and nuanced ways of having the conversation where you still tease out what people are willing to pay for without directly confronting someone as to what you should be charging. So let me go into like a few methods and I can pass to see if you have any questions. So the first one is what we say is frame the question in a more relative manner because and sometimes I say tongue in cheek that people are absolutely meaningless relatively super smart. What I mean by that is if you go and ask someone how much should I charge you'll get”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Either productized to a price point and the willingness to pay, or at least use willingness to pay as an access to prioritize what you're building. Either way, you will get it right”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“And what companies do is they will build it, they will throw it out, and they'll say there's an MVP, give it for free. And then they are trying to chase their tails building 80% of stuff that is driving 20% of value. So you've already lost the battle. Builder, you need to prioritize your RD roadmap based on willingness to pay conversations exactly like what the two SEDE marketplace did, exactly like what Porsche did. And this is the crux of everything that we are talking about.”
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 prioritize what you are building based on what customers need, what they value, and what they're willing to pay for. And you can actually do this test and say, what should you be building? The funny thing that I've actually always seen, always across these hundreds of companies that I've worked, 20% of what you build drives 80% of the willingness to pay. It's a classic Purito, right? And if you don't know this, you're probably over-indexing on one or the other. It's much better to find out what is this 20% so that you can focus on it, nail it, and focus on all of the usability around it and make an awesome product as opposed to not knowing what drives the willingness to pay and just trying to put everything out there, right? And at the worst form, often what happens, Lenny, is this 20% is the easiest thing to build.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“On products. There was another group of customers who said, Do you like it? Yeah, I like it. Would you pay for it? Hell no. And then there was another group which even said, I don't even want anyone in my Facebook circle to know that I'm buying this product because there was some, like, let's say premiumness associated with this and everything else. They could not find a single set of customers or a segment of customers who said, I love this feature. I would pay for it. If they hadn't done this exercise, they would have built the entire product around this and it would have been a disaster. But because they actually did this, they could prioritize what they were building. Literally, I mean, for your product folks, the number one lesson, and I hope this is the biggest takeaway for your audience, you cannot prioritize a product roadmap without having a willingness to pay conversation. I mean, if you're just prioritizing based on what you think or what you feel or technical resources, you're getting it wrong. Literally,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Product around this. To give you an example, one of the features that they were building was called, or the number one feature that the internal team thought was awesome. They called it highlight connections from Facebook. And everyone in the company thought that people would pay for this. It's an awesome feature. They need it. They love it. And the thesis was something like this. If as a buyer, if I'm buying the product from the same seller and someone in my Facebook connection has already bought that product from the seller, there's credible information in lieu of reviews and everything else. And, you know, people would find it acceptable and pay for this. When they went and tested this and pitched the idea, they got all kinds of reactions. So there was one customer group I remember which said, so yeah, so you're telling me I can't pour through hundreds of reviews and make my own determination that that's like unacceptable, that spoils the fun out of actually doing research.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“All the product, folks, product managers, et cetera. They went off site, generated thousands of post-it notes, design thinking, yada yada, everything, right? And then they said, okay, we can't take all of these so many ideas to the CEO. Let's prioritize it somehow. And they prioritized it to like 40 ideas and they took it to the CEO and said, this is what we want to build. And the CEO asked a simple question, how do you truly know you would monetize? It's the same question that VC asked me. like you know back in the day and they simply didn't know they were just guessing so what happened next was they took you know wireframes blueprints they took uh you know product concepts and they started testing this with their customers and prospects so you know stuff that they actually thought was exciting often was like way down in the list of priorities right and if they didn't do these kind of tests they would have probably built”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“The product around customer feedback around willingness to pay. The outcome of the process could also couldn't have been more different than the traditional approach of spray and prey. This was when they launched this SUV, it was called Cayenne, which we all know now. It accounts for more than half of Porsche's profit. And literally one of the best roaring successes in automotive history, right? I mean, this is just an automotive example. But if I switch gears to like more of a tech example or a software example for your audience, right? I mean, there was this company which think of this as a two-sided marketplace, and I'll just keep it a bit abstract, but I'll tell you the details, right? I mean, two-sided marketplace. Think of this as they were already monetizing on the sell side. And the CEO said, okay, let's go and build a product for the buy side. And that people will buy. So the buy side monetization product strategy. So in classic,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“That actually went into the car, or the benefit that people had was battle tested with customers. And no amount of convincing from product or engineering was enough. It had to be battle tested with customers. Things like, for instance, a big cup holder was inside because people loved it, needed an SUV, would pay for it. Things like six feet manual transmission. People didn't need an SUVs out of the window, right? They literally used to bring cars in what is called as car clinics and they would test for this and they would put people through prototypes before anything is even productized, anything is in the factory floor where people would actually even drive around the porch and say, okay, did they like it? Would they pay for it, et cetera? And then they would fine-tune everything that goes on, right? So the innovation process is very different from the classic spray and prey, build something, slap on a price, throw it out. It was really designing.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“They fail. There are only four paleotypes, and I've written about that in the book, so I can leave that for readers to actually go and see it. But all of those failure types happen because the conversation was just too late and pricing was an afterthought. Companies that did it well, maybe one or two examples that I can probably take just to motivate the concept, right? I mean, we talk about in the first chapter a tale of two cars and about how Porsche actually did this. The example is something like this, right? I mean, Porsche was really looking for launching a new innovation. They came up with an idea. You know, they said, okay, should we launch an SUV? And even before a blueprint was drawn, they basically went and checked with the market. Is there a neat furnace UV? Would people value it from Porsche? Are they willing to pay for it? And to their surprise, they actually found that. And then what they did next was more fascinating. Every single feature.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Here's the thing there is nothing like way too early for this conversation. I mean, I even tell people who are early C stage or just thinking about an idea, I would say, hey, go check some if someone would actually pay for this idea. And there's some high level ways to actually check for this. And of course, this is not about nailing the pricing strategy from get go three years before a product is launched, etc. It's about understanding whether there is a willingness to pay. and then repeating this exercise as you go along so that you can refine And when you're ready to launch the product you have a much more refined view on what is the willingness to pay. And of course, then you're launching the product with a lot more enthusiasm because you know this is actually going to have a product market pricing fit. So it's about iterating and learning and sort of refining. So there's never too early. Too late I think is most of the companies. This is why we wrote monetizing innovation like I told you. 72% of innovations fail. And we also categorize them into why.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“We are talking about testing and learning, pricing and willingness to pay. Why wouldn't you do that? And why would you postpone that till the very end?”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. And the folk said first round summarizes in four words. I thought they wrote a blog article on this and they called it price before product period. So I think that probably is sucks in. But really, it's really that, right? Because frankly, Lenny, as an entrepreneur, a company, you actually don't have a choice whether you'll have a pricing conversation with your customer. The only thing in your control is when you will have it. I mean, you can build the most awesome innovation you think is awesome. obsess over the engineering, the product everything else, and then slap on a price throw it in the market and hope to monetize or have this conversation much earlier, pitch the same sales and marketing kind of pitches. And then design around this information. And you actually know that you will. So you're maximizing your chances for success. It's simply testing and learning. Everyone in your probably listener-based knows tests and learning.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“If I have the same sales and marketing conversation that I would have with a customer six months before launch of the product, pitch the whole value and then ask them a simple question, would you pay for this innovation? And if someone says no, chances are you can put all the perfume you want in the next six months, they're going to say the same thing. And if they do say no, the most important question to ask is why and you start hearing all kinds of information that you can use to design your product and maybe even pivot your product strategy accordingly. So it is literally the litmus test of whether people like your product.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Seeing many people quickly gravitate to like dollar figures. That's just a price point that's a dollar figure. But when we think about price, we think about it as a measure. Like, you know, liter is a measure of volume. Price is a measure of value. And when you think of it this way, it really stands for do people actually want your product and would they actually buy it? And that is the whole willingness to pay conversation. And entrepreneurs and companies need to do this much earlier so that they can understand, are they on the right track? I mean, think of it this way.”
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 I think look, most of your listeners are most product folks, they probably understand language like product market fit, especially made famous from lean startup and other kind of literature, which is awesome. I think the issue is it's not just about product market fit. It is about achieving a product market pricing fit. For instance, if someone comes and asks me, do you like the headset that you're using for this podcast? I would say I like it. Do you like it at $200? The whole conversation is different. So if you didn't put pricing as part of your product market fit validation, you're often hearing what you want to hear. It is truly about understanding whether customers are willing to pay for your innovation and willingness to pay is a proxy for do people actually value your product and how badly do they actually want the product. This even comes back to like understanding what pricing really is. When we talk about pricing,”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source
“Function because you need to be able to design the product around this kind of information, around what customers need, what their value and what they're willing to pay for, in short, around the product. If you look at monetizing innovation, the subtitle of the book is how smart companies design their products around the price. So if you take that viewpoint, then pricing needs to sit in the product function or the founder product and sort of report on to this. This is my strong hell belief, one that probably won't change now.”
2022-12-08 · Lenny's Podcast · The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher) · IDENTIFIED FROM THE TRANSCRIPT · source