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Madhavan Ramanujam is a senior partner at Simon-Kucher, where he works with tier-one tech companies like Uber, Asana, and LinkedIn to help them develop their pricing and monetization strategies. He\u2019s also the author of the most widely read book on pricing strategy, Monetizing Innovation. In today\u2019s podcast, we talk about all the elements that go into your pricing strategy. Madhavan gives real-life examples of having conversations about \u201cwillingness to pay,\u201d how segmentation should impact your pricing, and when to start thinking about pricing. He also shares tips on how behavioral pricing impacts your thinking, how to restructure your pricing during a downturn, and much more.

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Find the full transcript here: https://www.lennysnewsletter.com/p/the-art-and-science-of-pricing-madhavan

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Thank you to our wonderful sponsors for making this episode possible:

\u2022 Lemon.io\u2014a marketplace of vetted software developers. Get your match within 48h: https://lemon.io/lenny

\u2022 Mixpanel\u2014product analytics that everyone can trust, use, and afford: https://mixpanel.com/startups

\u2022 Miro\u2014a collaborative visual platform where your best work comes to life: https://miro.com/lenny

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Where to find Madhavan Ramanujam:

\u2022 Twitter: https://twitter.com/madhavansf

\u2022 LinkedIn: https://www.linkedin.com/in/madhavan-ramanujam-1533063/

\u2022 Website: https://www.simon-kucher.com/en-us/leadership

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Where to find Lenny:

\u2022 Newsletter: https://www.lennysnewsletter.com

\u2022 Twitter: https://twitter.com/lennysan

\u2022 LinkedIn: https://www.linkedin.com/in/lennyrachitsky/

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Referenced:

\u2022 Monetizing Innovation: https://www.amazon.com/Monetizing-Innovation-Companies-Design-Product/dp/1119240867

\u2022 It\u2019s Price Before Product. Period: https://review.firstround.com/its-price-before-product-period

\u2022 Rahul Vohra on NFX podcast: https://www.youtube.com/watch?v=JCiMqVC6Dok

\u2022 Leaders, Killers, and Fillers framework: https://kevinacohn.medium.com/leaders-fillers-and-killers-creating-bundles-that-work-7f4c7329cf53

\u2022 Predictably Irrational: https://www.amazon.com/Predictably-Irrational-Revised-Expanded-Decisions/dp/0061353248

\u2022 Preorder Unlocking Growth: https://www.amazon.com/Maximize-Profits-Prices-Products-Services/dp/1119633060

\u2022 Confessions of the Pricing Man: https://www.amazon.com/Confessions-Pricing-Man-Affects-Everything/dp/B08TZPRKVY

\u2022 Simon-Kucher books: https://www.simon-kucher.com/en-us/resources/books

\u2022 Mastering SaaS pricing (Kyle Poyar): https://www.saas-knowledge-base.com/docs/mastering-saas-pricing-from-mvp-to-ipo

\u2022 6 Must-Reads on Pricing a Product: https://review.firstround.com/our-6-must-reads-on-pricing-a-product

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In this episode, we cover:

(03:24) Madhavan\u2019s background

(06:29) How Madhavan got into pricing and monetization

(08:02 ) Why he wrote Monetizing Innovation

(09:43) Why pricing is a cross-functional discipline, but ultimately a function of product

(11:27) What \u201cwillingness to pay\u201d is, and why founders need to have conversations about it early and often

(15:23) How Porsche built their SUV around customer feedback and willingness to pay

(18:46) How testing helped a marketplace company avoid building something customers don\u2019t value

(23:50) Several methods to use to learn willingness to pay

(33:38) When and how the willingness-to-pay conversations happen

(37:08) How many customers you should be talking to

(38:13) When to revisit pricing

(39:20) Segmentation strategies

(42:42) Why you need to act differently to your segments that have different needs

(44:33) When to think about segmentation

(47:49) Examples of segmentation done well

(52:24) The importance of dynamic segmentation

(53:19) The three pricing strategies: maximizing, penetrating, and skimming

(55:49) How to use bundling and packaging to unlock segmentation

(59:50) Why how you charge is more important than how much

(1:03:30) Subscription vs. usage\xa0

(1:07:40) Pricing options and structures

(1:10:22) How to run tests to see which pricing model works best

(1:12:06) Focusing on benefits vs. features

(1:16:13) What behavioral pricing is and why it\u2019s important

(1:20:54) Tactics for behavioral pricing

(1:26:33) Determining pricing thresholds\xa0

(1:28:23) Tips for pricing in a depressed market

(1:32:50) Madhavan\u2019s new book

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