Madhavan Ramanujam (Managing Partner of Simon-Kucher & Partners) on pricing strategies for growth

Yeah. Hi everyone. For those that don't know me, my name is Dave and I'm operating partner here at Airtree. I primarily work with our growth and later stage businesses trying to help them on on their scaling journey and potentially a path to an exit. I can't see everyone's faces on Zoom, it's just that the panelists here today, but hopefully some of my portfolio on the call and busily taking notes and looking to apply some of today's lessons, that'd be a good outcome as well. On that note, I'm excited to welcome not just the Airtree portfolio, but everyone as part of the broader ecosystem. Today's Going Global session. We're thrilled to be joined by Madhavan, managing partner at Simon Kutcher and Partners, who's based in Silicon Valley. Madhavan's also brought along a bunch of his Aussie based colleagues as well and I'll let Madhavan introduce those guys in a sec. But the team at Simon Kutcher and Partners, you know our pricing specialists, Maravan himself has kind of helped more than 250 monetization projects ranging from startups to Fortune 500 companies like GitHub, Asana, Stripe, Uber and many many more. He's also the author, and I think you probably see it throughout this presentation as well, of a book called Monetizing Innovation, which is well worth a read if you want to remove some of the guesswork out of pricing and packaging and probably importantly helping make sure that the products that you do release, whether it be new markets or existing markets, kind of hit their mark from the get go. Before I hand over just some housekeeping to get through. Thanks to everyone who's already submitted some Q and A. We've got plenty of awesome questions there that we'll get a chance to hopefully go through some of those with the team at the back end of the presentation. We've kind of got 20, 30 minutes to go through those, so hopefully plenty of time for those that didn't get a chance to kind of pre submit questions. All good, just use the chat today and we'll try and kind of field those at the back end as well. Okay, without further delay, I'll hand over to Madhavan and the team to go for it.

Perfect. Thanks so much Dave. Really thank you for the opportunity. Hi everyone, I'm Madhavan and I think they've already introduced me. But just for the benefit of the audience, I'm also joined by Chris, Mitch and Josh, three of my partner colleagues on the ground in Sydney. And between them they Also work with, you know, tech companies, B2B, B2C and financial services companies. So I think they can be good, you know, team to actually follow up with any market specific questions and concerns. They can be reached@sydneyimon-kutcher.com I think that's an email that probably goes out to all three of them. Enough marketing. Let's get into actual meat of what we are here for. So today we will discuss some excerpts from the book Monetizing Innovation and I can walk you through some of my experiences on innovation. Know working with various companies and you know, what are some insights on packaging, pricing and any topic pretty much related to profitable growth and also happy to take questions. So about half an hour of presentation and we will save about 20 minutes or so, you know, for Q and A. Now given who we are at Simon Kutcher and Partners regard as the world's largest, you know, pricing strategy consulting firm. We've done over, you know, 30,000 projects in the space. But what we typically do is every other year we also do a global study trying to understand what is the state of the union on pricing. And when we did this the last time around, we had about 2,000 companies take part over 60 countries. More than majority of the people who actually took this study were actually Senior Management or CEOs or CXOs. And we asked them some simple questions around trying to understand what the state of the union is on pricing. So the first thing we asked was are you in some sort of price pressure or do you face price compression? Is your market competitive? Does pricing keep you up at night? Essentially 80% actually said they were in some sort of price pressure. And we asked them, are you in a price war? 60% actually said they are in a price war. We asked them who started it. 90% said the others started it. That's a bit classic. It's always the other person who starts the price war. But jokes aside, we also asked them some very specific questions on how do you get out of this price compression if that's where you are. And no matter how we actually looked at the data based on industry verticals, geographies, region, however you look at it, by far the number one selected option was that they would monetize their next innovations and that's how they will get back to like, you know, kind of glory days. And we are, we followed that with a, you know, more simple question saying okay, to what extent were your innovations in the past three years, you know, successful? As in did they work? Did they meet revenue or Profit targets, or did you simply make money in a profitable way on those innovations? What we find is stunningly, 72% of innovations fail to monetize. That's 72%. Right? And it's not just us saying this. If you look at Howard Business Review, they would say, you know, 8 in 10 startups are bound to fail. If you look at Product Management association, they would say something like, you know, 67% of products don't meet the light at the end of the tunnel. But here's the thing. I didn't come here to scare you with big numbers. I came here to tell you the good news. The good news is they only actually fail in four ways. Monetizing innovation, failure type happen only in four different ways. And if you recognize these four failure types, then you can build the fifth category, which I call breakthrough success. So let's look at the four failure types for monetizing innovation or innovation failures. When it comes to monetization, the first failure category is what we call as a feature shock. So these are products where they're simply just, you know, too much going on. It has too much excess stuff. And because there's a lot, maybe it's also overpriced. At the end of the day, this product does not resonate with any particular segment. It just feels like an excess for everyone. In Silicon Valley, when I, you know, walk into many offices, pretty common, I would hear phrases like, we are building a one size fits all. And I usually correct them saying, a one size fits none. I mean, you're just throwing in the kitchen sink and hoping for the best. The right way to undo a feature shock would be to, like, you know, practice some restraint and actually make versions of the product for different customer segments. And we will get into what that actually means to build breakthrough products. But in an effort, if an entrepreneur is just, you know, putting everything into one product and then throwing it out in the market, most likely you're building a feature shock. And if you hear things like in the hallway, let's just add this in. Our customers don't know what they want. Let's put this in the product. And you keep adding features, then you're building a feature shock. And this also happens in some of the most successful companies of our times. If you actually look at Amazon, probably one of the most successful companies of our times. If you look at the Fire phone, though, it was probably there was a whole bunch of features that MarketWatch actually documented that no one wanted. And this phone launched at $179 in six months it was selling at 99 cents. That's not a typo. And another three months, they wrote off the entire business. I mean, there were features like, for instance, there were four cameras that could track your eyeball moments so that you didn't need geeky glasses to get 3D perspective. Sounds cool. Would you pay for it? Hell no. I mean, so there was no willingness to pay at the end of the day for many of the stuff that was actually in there. And there's just a whole bunch of features that is packed in and creates a feature shock. That's the first, you know, monetizing innovation failure type. The second one, it's probably more common in tech companies that have a product market fit is what we call as a minivation. So minivation are products where it's an absolutely right product for the right market, but the entrepreneur or the company simply did not have the courage to charge the right price. And by definition, under monetized. Give you an example here. I mean, in the Silicon Valley. Here in Silicon Valley, there's a semiconductor company that actually makes these, you know, parts for consumer electronics companies. And there's. There's this concept called Moore's Law in semiconductors, which basically there's an expectation that, you know, the price would actually keep decreasing after every generation because the form factor is shrinking. But they came up with a groundbreaking chip. It was truly revolutionary. And they sat around in a conference room and said, we need to undo Moore's Law because we have something great in our hands. And the previous version was 65 cents. So they said, let's price this one as 85 cents per pot. You know, the product actually flew off the shelf, sold in the millions and billions of units. The secret in the room was everyone knew that they could have probably done better, but they went. And when they did that, what they did is after the two years after the product was in market, they commissioned the study to actually postmortem their own pricing on that particular part. And see what did they do was what they could have done. And to their surprise, what they found out from these consumer electronic companies is that those companies could charge a $50 premium from people like you and I simply because this part was in those consumer electronics. And if you look at the 85 cents that was charged for unlocking economic value to the next player in the value chain for $50, that was simply not fair. They could have asked for more. And some of the key accounts even joked and said, you could have gone all the way to $5. We wouldn't have blinked an eyelid, we would have still bought it from you because we could make $50, right? But if you look at the amount of money that was actually left on the table, if they could have gone from 85 cents to $5, it's actually a staggering number. That's an example of a mini vacation where even though the product was the right product for the right market, and there was a product market fit, there was not a product market pricing fit, as in the willingness to pay was not understood. And by definition the entrepreneur, the company under monetized their services. That's called a minivasion. The third failure type is what we call as a hidden gem. So these are products that simply go against your DNA or your grain. And you don't want to bring this to the market because you feel kind of uncomfortable productizing this or it might actually cannibalize existing business. And because of this uncomfortableness, these products just remain hidden. An example of a company that could not harness the hidden gem was Kodak. I don't know how many of you know, but they had the IP for digital photographs back in 1973. They never productized it. They were worried about cannibalizing their existing print business. The rest is just history. But if you actually look at companies like in the US for instance, like autotrader.com or cars.com, these are two sided marketplaces that actually put consumers in touch with dealerships for buying cars, used cars. But they were actually started by the Atlanta daily newspaper and the Chicago, you know, daily newspaper. When they realized that, you know, these print ads that they used to have to like contact dealerships and newspapers was actually going to go away with the inflection of Internet. And they created these two sided marketplaces and transferred all of that, you know, business into these entities. That was an example of harnessing a hidden gem. Today, both these companies are multi billion dollar companies. I mean if you don't go looking for it, you won't find it. What we have found time and again is hidden gems happen when there is an inflection point. So like a software company trying to do hardware, a hardware company trying to do software, traditional company trying to incorporate digital online company trying to go offline, offline online. Anytime there's an inflection point, there's usually a hidden gem. And at this moment in time, we are living through another inflection with AI, which is an obvious inflection point for, you know, most product categories. And if you don't go looking for hidden gems they're probably going to remain, you know, remain there. The last monetizing innovation failure type, probably my favorite, you know, I call it the Undead. I mean, these are products like in classic science movie fiction fashion, you should have never launched because they come back to haunt you. And they come in two varieties. They're either the wrong answer to the right question or they're an answer to a question no one cares about. Either way, productizing it was simply a waste of time, maybe an attempted innovation at best. But these products simply did not have a market that needed the product, valued the product, or fundamentally were willing to pay for the product. And hence it was just a failed experiment that comes back to haunt you. These, I mean, in Silicon Valley probably it's riddled with products that are probably can be easily classified as undead. But it even happens in some of the best companies of our times. Again, I mean, if you look at Google, for instance, you know, when they released the Google Glass, this was back in 2020 16, you know, it was dead on arrival in two months. Maybe the paparazzi wore it. Thousand five hundred dollars for the glass. In two months it was gone. Right? We actually wrote in Monetizing Innovation that a better strategy would have been to focus the glass initiative on B2B segments. So like, for instance, if I had my, you know, hands free when I was actually doing a surgery as a doctor or as a technician doing repair jobs, maybe there's a willingness to pay for that and you can productize for those use cases. And over a period of few generations, you can then bring a consumer product at the right price point. That would have actually made a lot of sense. I don't know if I think rumor has it that Google read Monetizing Innovation, and we heard that they've pivoted the initiative to like, more of a B2B pitch. So maybe that's something that we will see in the coming years. But the fundamental concept here is that if you build products without an understanding of whether there is a market and will they pay for the product, chances are you're probably making an undead, right? So I think that's. Those are the four, you know, monetizing innovation failure categories. Again, just to recap, Feature Shock, Minivation, Hidden Gems, and Undead. So so far we have looked at 72% of innovations fail. They fail in four ways. The natural question you might actually ask is, okay, if 72% of innovations or companies are failing to monetize their innovation, what do these other 28% of companies do? Like, what are some Success criteria. And we actually looked at this every possible way. I mean, cuts based on different regions, vertical sectors, size of companies, startups to fortune, hundreds, whatever you want to call it. And there were only two success criteria that came out loud and clear every single time we looked at it as in companies that were building breakthrough innovation, that were monetizable, that were profitable. It all came down to two success criteria. So let's look at what those success criterias are. You know, the first success criteria is what I call as price before product. I mean, price comes before product in the English dictionary. For most companies it stops right there. What does price before product really mean? It actually means having a conversation with your customers to understand if they need the product, do they value it and are they willing to pay for it. Before you actually productize and bring things to the market. I mean, as an entrepreneur or company, you actually simply don't have a choice whether you'll have a pricing conversation with your customers. The only thing that is in your control is when you will have it. The traditional way of doing innovations typically is, you know, let's build a product, try to perfect it, make some iterations, have more product designs, more product stuff, and then slap on a price, throw it in the market, and then you're hoping for the best. You don't know what is going to happen. You just put a price that you thought was right for the product that you built, put it in the market and you're hoping and you're trying to have a pricing conversation with your customers at that point, which is purely based on hope. What we are saying is bring those conversations much earlier, like a six months, a year, probably even two years before launching the product. You know, try to have the same sales and marketing conversation, like put prototypes in front of them, put wireframes, you know, put concepts like, or even, you know, early versions of the product, let people struggle with it and then, and have the same sales and marketing conversation, trying to make them educated on what the product does and then have the willingness to pay conversation. I mean, you ask people even straight up, would you pay for this? And if the answer is no, the most important question to ask is why? And then you start hearing all of these things to actually design your product around what customers need, what do they value, what are they willing to pay for, what are the jobs to be done, etc. I mean, if you are going to be unsuccessful, like trying to understand, like if there's no willingness to pay, you know, when you have the same sales and marketing conversation, with prototypes, etc. When you develop the product, invest the time, you're going to be left with the same outcome. So this is, this process removes that entire, you know, guesswork out of innovation and you actually know that you're building something that people like, they need the value and they're willing to pay for. In chapter one in the book, we actually wrote an example of Tale of Two Cars. And this exact methodology was also followed by like Porsche when they designed a blockbuster car in the history of automotive called Cayenne, an suv. And the way it was designed is they used to bring cars to, you know, what is called as a car clinic, where it's just a prototype car, bare bones, but they will actually make people drive around the car and then have the willingness to pay questions. So things like, for instance, a six speed manual transmission was out of the window because no one wanted an suv. Things like a big cup holder. At least the audience in the US wanted it because that's convenient and it needs to be an suv. Probably goes against the aesthetics of many of the engineers. But it's still in the car because people needed it, people valued it and they were willing to pay for it. So the entire car was designed around this kind of information. In short, around the price. And you know, it's one of the most successful automotive case studies. Hundreds and thousands of units sold and accounts for more than 50% of Porsche's profit. It's not just Porsche, but it's also SaaS companies, tech companies, any of these companies that actually understand whether there is a willingness to pay for the product. You know, before embarking too deep. I mean, many of the companies I work with here in the Valley, they would actually put together a, you know, a prototype and have beta customers and they will actually try to lock it down as a, you know, pay for a actual trial. And if a salesperson cannot convince someone to actually, you know, be ready for a paid trial, they won't develop the products because it, it's, it's, it's just not going to make sense at that point. Right. So it's having these conversations much earlier and trying to understand, I mean many, many companies that I also talk to say that we do some research around product market fit or like, you know, their metro, startup, etc. All of those things are good. But if you don't put pricing as part of those conversations, you often hear what you want to hear. For instance, if someone comes and asks me, do you like this headset? I might say, I like it. So you'll say there's a product market fit, but do you like it? At $1,000, the whole conversation is different. So if you don't put pricing as part of your product market fit validation, you're often hearing what you want to hear. So having that discipline of testing and learning whether there is willingness to pay is at the as you build the products is at the heart of developing innovations that are, that have monetization potentials and that are breakthrough innovations. In chapter four in the book, if there's one chapter you will read, read chapter four. We have documented all the ways on how you can have this willingness to pay conversation. And it's super tangible for startups and companies where there's a, you know, list of questions, techniques, how to actually go do this. And it's like your Monday morning actions. You could literally start having conversations with your customers on do they need your products, do they value it, Is there a willingness to pay? If not, how do you pivot? Etc as opposed to like persisting and hop. So that's one chapter that I encourage all the readers to read. So that's the first success criteria, price before product. The second success criteria is C level involvement. I mean, we kind of intuitively knew this, that if there is C level people involved in the topic of monetizing innovation, those companies have dramatically better odds at succeeding. But it was good to put some empirics behind this. What we actually saw was that companies where C level was involved in monetizing innovation and drove this topic, they were 35% better than other companies in all sorts of KPIs. And when we talk about C level involvement, I'm not talking about rolling up your sleeves and setting up the prices for the day. It actually means setting up the right culture for monetizing innovation, having the right goals for profitable growth, and also having the right resources and asking the right questions in meetings to actually ensure that you know, you're putting all of these principles in motion. In the book Monetizing Innovation again, every chapter ends with questions that a CEO or a founder should ask in meetings and how to actually build that culture and how to have a sustainable view at building an organization that can be successful at monetization. So Those were the two success criteria. So 72% of innovations fail to monetize monetizing innovation Failure types happen only in four ways. There are two success criterias and I told you that the fifth category is going to be breakthrough success. And what we were able to do is we came up with a nine step framework to actually build breakthrough success products. So the framework actually starts with having that early willingness to pay conversation to all the way down to maintaining your pricing integrity after you've launched your product. In the book Monetizing Innovation, we actually have a chapter dedicated for each of these steps today. I think for this particular session, I can motivate three to four topic areas just to give you some flavor for, you know, the different topics and what you need to do. The first step is having the willingness to pay conversation we already talked about in the price price before product construct. So I'll focus on the next step, which is segmentation. Segmentation is at the crux of actually being able to monetize and having a profitable growth business. You know, when, when we, when we talked about feature shock, we said that one size fits none. I mean, even though you might think one size fits all, one size fits none. I mean, we, we work with companies in every industry vertical possible. We are yet to find a situation where, you know, your customer needs are homogeneous, they're heterogeneous, whether you like to accept it or not. But the mistake that many entrepreneurs and companies make is build a product for the average customer. But the average customer never exists. I mean, take a simple example, like water, which many people would say is like a kind of commodity. You know, if you put it in a fountain, it is free. You put it in a bottle in the US it's $2. You put gas in it is $2.50. Throw it in the minibar, it's $5. Liquid death, which is water, which is branded, is now $10 in the US in a can. All of this is the same bloody water. It's just packaged and productized and priced differently because people have different needs and different, you know, I might be price conscious. I'll run down to the fountain, I want to carry it around, or I like gas in my, you know, water because of taste, or I'm lazy and I want the convenience of a mini bar. Or I might actually believe in the branding of something like Liquid Death and say that I'm willing to pay 10 bucks for the water because that brand resonates with me. At the end of the day, it's the same water. If water can be productized, packaged, priced differently to hit different segments, then I can bet you that your products can be too, right? So anytime you have a product, the key here is to understand how to productize to different segments. And segments are defined as clusters of customers who have similar needs and similar willingness to pay for whatever you're building, as in, how can I find pockets of these customers and say, how to build products for those? How can I build a product for the one who wants to carry the water around? How can I build a product for the one who actually wants it in the minibar, et cetera. If you just build a product and try to position it to different segments, you've lost the battle already. The key is to productize to different segments as opposed to trying to position your product to different segments. So the way to unlock segmentation is through packaging and bundling, as in build to different segments. The classic example I use is the iPhone. I mean, if you look at the iPhone, there's a phone from, you know, 299 all the way to like 1499. They have literally not priced their iPhones. They're productized to different price points, like depending on your wallet size, there's a phone that actually fits based on the needs. I mean, I remember walking into, you know, the store when they released X. I was not in that segment, but I wanted to check it out. But I was actually attracted to a phone which was around the 7 99, did not have the retina display 8s, I believe at that time. And I bought that phone because I belong to that segment. I knew exactly what was going on, but I knew what was, you know, I belonged to that segment. If, if Apple had sat around in a conference room and said, you know, let's forget segmentation, everything else, let's just launch an iPhone at $99 because we want growth, they wouldn't be the most profitable company in the planet. The reason they are the way they are is because they're able to productize to different segments based on different willingness to pay and maximize that across the entire market. So you unlock segments through packaging and bundling. This is the same thing with also SaaS companies. Here's an example of a SaaS company called Eventbrite that used to have one product for their event organizers. It is a SaaS product for event organizers. What they did is they worked with us and we were able to make that same product into three versions because we actually saw that there were three segments at the end of the day that they were actually servicing. And we could then come up with the right set of features, the right pricing for each of those segments so that you productizing for different needs and different willingness to pay. And the results were actually quite, quite dramatic. Moving from one size to actually building products by segments. So when you unlock segmentation through packaging, there's A whole plethora of options on how you can actually approach packaging. I mean, I'm not going to go through the entire details of this slide, but you should know that, you know, when you think about how flexible is the packaging, how simple or complex is the packaging now, how differentiated can you actually get? There's a whole range of options between an all you can eat packaging strategy all the way to like a price bundling. So don't just rush into something like a good, better, best and say that's the best packaging strategy. There's a menu of options. You know, 70% of companies in this chart are our clients and we have actually located them in different buckets based on their strategies, their goals and what they should be doing for their products and services. In the book Monetizing Innovation, we do write about different packaging options. How should you go about it? What is the framework and when each of these could actually make some sense. So that's a step in the framework that is critical understanding segments and unlocking them through packaging. The second step in the framework that I would like to talk about is the pricing model or the revenue model or the business model. How you want to call it. Tongue in cheek. I often say that how you charge is way more important than how much you charge. To take an example, you know, Michelin actually produced these tires. And you know, tires are probably one of the most price sensitive markets. I mean, think about this. You walk into a store, all the tires look the same. If they're priced differently, you don't know how to actually pay and what are you actually paying for? And they came up with this tire that was supposed to last 20% longer. If they went and asked the market for a 20% premium, there's no way they would get it. And if they don't ask for it, they will cannibalize their business because the tires will last 20% longer. And that actually even cannibalizes their existing business. Tough challenge to be in. What they did is, and these were tires for truckers to like move goods from point A to point B. What they did is they said, you know what, let's actually innovate here on a pricing model and the how you charge. And they said that we will sell the tire on a per kilometer or per mile basis. And this was a big hit in the market. The truckers loved it. Not just because they could do pay as you go on tires, but they could even invoice their end customer saying I did 800 miles and this is the tire cost. So they loved it and people adopted it and more people came into the system. The tires lasted 20% longer and Michelin recoup that and much more. Right. I mean, this was much before sas, for instance, was talking about usage based pricing. It was already innovated in tires. Right. So the how you charge is way more important than how much you charge. And that's the same story for many companies. If I look in, you know, in Silicon Valley or in tech in general, I mean, Uber dynamic pricing is the key innovation actually in monetizing innovation. We write a chapter on Uber where we argue that the innovation, true innovation, is not the app and how the, you know, the cab arrives and everything else, but it's the actual pricing model that enables Uber to meet a customer service level and improve customer experience with a monetization model. And I'll ask you to read that if you're curious on how that actually happens. Metro mile pricing based on the mile AWS based on a pay as you go or a, you know, commit basis. Google, LinkedIn, Airbnb, all of these companies have actually innovated, you know, pricing models in their space. So this is a very critical step in the framework. The how you charge is way more important than how much. We talk about various different pricing models, how to go about selecting those in the book. But there's a very important step, probably a third step that I would talk about is, you know, unless you speak it, no one is going to get it. As a product person or a founder or, you know, company, what you build is features. You build features. What customers get is benefits. Often what we see is the product has feature based communication. You're not speaking the benefits or the value. And if you don't speak the benefits or the value, no one gets it. This is an example from a company called SmugMug, which is a great innovative company in the Valley. And they used to have four plans. And as you can see, it's all the plans and all the features that were actually listed. What they did was they changed the plans to just talk more benefits rather than features. For instance, the ability to sell photos online is a benefit. Behind that there could be five or ten different features. Just changing the communication to benefit orientation as opposed to feature orientation, double digits, improvements in revenue, no changes in products. So unless you can speak value, no one will get it to speak value. You need to focus on benefits and not the features that you actually build. I mean, another example that I really love on value communication is from Porsche. If you take the take on the electric vehicle. The CEO actually said exactly this. He said it's not the most affordable electric vehicle you can buy. But that was never Porsche's goal. Its goal was to build an electric vehicle that was first and foremost a Porsche to their segment. The statement resonates like crazy, right? I mean it wreaks value. So how do you speak? Value is key to like what price can you actually charge? So unless you speak it, no one gets it. Since we have probably few minutes, I will more. I'll probably talk about another extra bonus step. Your customers will behave irrationally whether you like it or not. I mean, a lot of us are grounded on rational economic theory, et cetera. But Dan's book on predictably irrational is a great one. At the end of the day, people who you interact with will also behave irrationally either in B2B or even in B2C. So this was an example from a SaaS company where they had three products. And I remember asking the CEO, why do you have three products? He said, I learned that good, better, best was a great strategy in business school. But if you actually look at what is going on, they were giving the farm away. In the entry level product, 60% of people preferred the basic at 49 and then the other product was 79 and 149. What they actually found out was the market was pretty much inelastic between 79 to 99. At 99 there's a huge psychological threshold. So if you cross to like hundred, suddenly people will say their product is expensive, but at 99 they're kind of okay. So that's an inelastic zone. And we talk about how to find these kind of thresholds in the book too. So once they found out that going all the way up to 99 is possible behaviorally because 79 and 99, there's not much difference in, you know, reactions in volume. Similarly the 149 to 199. And then they also built this other product at 299 that was simply a decoy product because it would make the $99 product look attractive. I mean, of course, God bless the 2% that always won the best thing that you actually put out. But when you look at what happened just simply based on this decoy effect and price thresholds, the mix shift actually changed in such a way that now standard went from 30 to 41%. There was an improvement in ARPU of like 36% and MRR of 29% day after day just based on changing the optics on how you're going to market as opposed to actual changes in product. So, like the irrational and the behavioral things are really important. We talk about a lot of them in the book and I would encourage you to probably take a look at that. There's some really cool examples. Maybe wrap up thought and then we can open for questions. I mean, it's important to understand first of all, when you think about pricing, what does price even stand for? I mean, when we talk about pricing, most people gravitate to a dollar figure. That's just a price point. The way we think about pricing is pricing is a measure like liter is a measure of volume. Price is a measure of value. When you think of it that way, as price literally stands for do people value your product? Do they like it? Would they pay for it? So in a way, price and value are same sides or different sides of the same coin. The easiest way to remember this is in Latin. There's only one word for both price and value called pretium. I think they've probably figured this out long back so that price and value are exactly the same and different sides of the same coin. So to understand what pricing is, you need to be able to articulate what value you bring to the table and then based on that, what is the willingness to pay for that value exchange, which is called price. So maybe last wrap up thought. I mean, if there's anything you'll remember in this presentation, remember four numbers. 72,429, 72% of innovations fail. They fail in four different ways. There are two success criteria and a nine step integrated framework. For those of you who can't remember four numbers, just remember 72. 4 times 2 times 9 is also 72. Did not make it up that way. Just happened to be. So I will probably pause here, Dave, and probably take any questions and I also invite maybe my partner colleagues if needed to answer any of the questions.

Awesome. Thanks, Mahadan. There's a bunch of questions that obviously have come through, so I've kind of quickly whipped through those. One of the first ones, and I know this is in the book as well, and I think you touched on it as well, but kind of the practical steps of determining willingness to pay, there's a couple here around how much value to play do you place in research groups for something that's kind of more practical, you know, like fake door tests, those sort of things?

Yeah, so absolutely. I mean there's a whole like bunch of tests that you can actually ran, you can run to understand, you know, willingness to pay. The most important thing is Actually to do it. Many of the companies that I walk into, the number one, you know, let's say pitfall is they are actually not having the willingness to pay conversations. I mean, I would get a call saying, hey, we need a pricing strategy. I'm like, when do you need it? Or we needed it yesterday. How long have you been working on the product? Two years. Have you done any studies? No. So like just blows my mind, right? So I think even having that conversation is important. And so depending on the type of the product and the maturity of the product, different methods would actually make sense like a painted door test or an actual credit card test. Or any of these things are great when you just want to have a good quick reaction as to whether, you know, people would sign up. And if it's an, you know, a product that is actually selling online, you could do those. You could also do, you know, qualitative discussions with your customers either through one on one discussions or focus groups. We have talked about a number of questions that you can ask in the, you know, in the book. And depending even simple things like, you know, how you ask the question matters. Like for instance, if you're a SaaS company, you know, you just go and ask, what price should I charge for the software? You'll get garbage back. That's your job. That's not your customer's job to figure out your pricing. But if you ask the same question in a relative manner, you get very, very proper responses. Like for instance, you'd say, hey, I know you have Salesforce. If Salesforce is indexed at 100 in value, where do you think we would be in terms of adding value to your sales teams? That question people can answer all day long. If they say 80, you can say, okay, should my pricing also be like, you know, 80 if Salesforce was 100? Yeah. I mean you already kind of know where it is. And if that works, you can use the same logic when you're selling the product anyways. Right? So I think these are things that you can actually understand. I kind of feel in an absolute magnitude basis people don't make any sense. Relatively they're super smart. So I think like how you ask these kind of questions also matter. We have talked about that. There's also quantitative methods, price tests, AB tests, et cetera. So the one thing that I would probably say is we have not found like a single method that always works in every situation. If that was the case, life would be really easy. Maybe you didn't even need consultants to actually exist. To some extent, the Trick here is to understand when to use what and also to use a multi method approach when you're going and validating. I mean because there are certain techniques that can sort of unlock insights on psychological thresholds, certain for like purchase probabilities, certain for like feature preferences, certain for propensity to buying, et cetera. So I think understanding that and if you have a very practical, practical tangible products, I would now just to tie that question back, I would err more on the side of like testing live if you can.

Great. It's actually a good segue. One of the questions that came up was it always is it always best to follow your competitors pricing models when entering a new market?

Absolutely not. Because I think the think about it, the competitor is sitting on the other conference room saying should I follow these guys? I mean, and then it's just a race to the bottom at some point. I mean the statistic that I use 60% are in a price war. 90% said the other started it that speed it's statistically impossible. Right? I mean so the idea is not to follow but more to understand what are the true like what are the pricing models that make sense for the market in terms of like the product that you're building and is there an opportunity to change the conversation based on having a different pricing model and is that to your advantage? The classic example that I use is for instance, you know, Blockbuster used to charge by the movie different fines, whatever that was their business model. Netflix entered and said okay, we are going to do a subscription model which is a whole different ball game compared to Blockbuster. The rest is history. The reason that actually worked is people understood that model, it was simpler and they could actually relate to it. In the book we actually talk about different pricing models on how to choose one. And one of the tests that we usually do with our clients customers is what we call as like, you know, like a break even test. Like even if there is breakeven across different, you know, pricing models, people would usually prefer one. I mean if they're rational, they'll say I'm indifferent across all of those options. I've yet to see a indifferent actually win in these kind of studies. So picking the right model is key. Chances are your competitor is probably, you know, at the right model but doing the due diligence to understand what is the right model for the market. And then how do you is that an opportunity to differentiate would be the steps that I would take rather than blindly copying something that a competitor might be doing even if they're a Hardcore incumbent. I mean, there's a lot of disruption that you can cause by changing your pricing model.

Awesome. Gotcha. Change your tact a little bit. What are some of the biggest differences that you see when pricing a B2C versus B2B or even a B2E product? I guess a correlate to that is kind of what if you price your product falls into more than one of those categories?

Yeah, no problem. Let's probably take first B2C and B2B and then we can, you know, talk about overlaps and categories, etc. So typically, I mean, the, the approach that we talk about in monetizing innovation applies to both B2C and B2B. Whether it be, you know, having the early willingness to pay conversations or even the behavioral, you know, psychology stuff that we actually, you know, use to understand, you know, what is the irrational side of the human brain and how can we actually phrase this all of those things like sort of translate. But there are certain key differences when it comes to like, you know, approaching pricing for like B2C or B2B. In B2C, typically it is about, you know, coming up with a price point that you know, is kind of already set. You're probably not in a, you know, like, you don't need to like prepare too much for negotiations. It is a set price, like things that you're selling online or it's an app or, you know, a consumer good, etc. Like coming up with that price. And the precision actually then matters because that's because you're now clearing the market with different price points, like an iPhone. I mean, the precision on pricing actually matters in B2B, you know, you can set all the pricing you want, but it's a human having a human conversation. So how do you actually put structure in that proceedings? How do you negotiate when it comes to pricing? How do you put price in the context of the value that you're delivering? All of these things become key. So for instance, I'll give you a simple hack for anyone who's listening. If you're a SaaS company and you're having only one product that a salesperson is actually going and selling, I can guarantee you that it's suboptimal because think of what's happening. He or she would put the product in front of the customers. The first thing that would be like, how much does this cost? And immediately the conversation will go down to price and then it's a price discounting from there on. But the hack is to have versions of the Product like a good, better, best. Even if you don't have product differentiation, make services differentiation, put support levels, you know, put manage services stuff, put like, you know, analytics stuff that you can actually do after the fact, whatever. Or if you have product differentiation, all power to you. So if you lead with a good, better, best framing in a sales conversation, you can easily steer the conversation around value. For instance, if someone says, yeah, you know, if you take 100, 200 and 300k product, someone says yeah, my budget is 100. Yeah, I have the good product for you. But no, no, no, I actually like the benefit of the feature and the better product. Oh yeah, that's available in our premium edition for 200. But you're now going to talk about that benefit and why that actually matters, what other companies have done. So no matter what you do because you have different options on the table, a savvy negotiator can always bring the conversation back to value. So these kind of things would actually be very important from a pricing standpoint in B2B. Not just the ability to set it, but the ability to execute and get full value from every deal specific situation. If you're in a combination business then you need to have for instance companies that have enterprise SaaS which is more B2B driven, but they also have a self serve which is probably not B2C but maybe B2SMB. There are some companies even with B2C that go into SMB Enterprise. It's basically a combination of the insights that I talked about.

Awesome. Maybe staying on the enterprise end of the spectrum. What if the users of the product aren't necessarily the buyers or the ultimate decision makers and so don't experience I guess the pain points that your users do.

It's a great question. So when we actually do validation for enterprise accounts for our clients, what we do is we make sure that we are doing this the, let's say validation across different customer Personas. People who are influencers, people who are users, people who set the budget or approve the budget and then you want to understand, you know, different, you know, different viewpoints so that you can then come up with the right packaging, pricing strategy and then use the right value articulation to like educate the users and also like make them sort of, you know, your champion to like unlock budgets with the decision makers. And depending on the product that you're actually depending on the time frame of when you are selling, certain Personas become very important. Like for instance if you are it's an initial sale, typically the purchaser or decision maker is key. And that feedback is very important. If it is a renewal conversation, most likely the most important feedback is from the user or the one who actually derives value because you can actually use that information for justifying your renewal pricing or even increasing or upsell or cross sell. So different Personas might actually make sense, whether it's an initial sale versus a renewal. But having the conversation with multiple Persona is key. Not everything is relevant in a discussion for each of these Persona. I mean there's a lot of literature that we have put out saying okay, you know when to actually like what types of questions might make sense for different Personas too. And if it's a budget owner having those questions around, you know, whether they understand that there is value created, what is the roi, what are the, how is, how are budgets set? How can you unlock those budgets? Those kind of questions are key. And if it's a user, then it's a lot about usage awareness, feature benefits, value, do they get it? And what kind of case can they actually make to the management on their willingness to pay for the product based on their understanding of value realization. So at the end of the day, this needs to be done in a multi, let's say Persona setting in an enterprise. It can't be just talk to one and then come up with an answer.

Gotcha. No, good advice. Maybe staying on, maybe on the enterprise or slightly around that pricing, what's the best strategy for pricing on. On annual only products. And then I guess related to that, any kind of insights on monthly versus annual versus multi year kind of price.

So absolutely, maybe let's take the second one first. By definition, I've found time and again, and we've also done this many times at Simon Kutcher, that offering a choice in term length is to your advantage. Like I mean having a monthly or an annual price because you always find that people have different preferences and if you don't have those options, you might actually miss out on certain markets. Like if they don't want to do an annual commitment, for instance, there are just those kind of people and then you would miss out on them or people who actually want the annual commitment in exchange for the discount. If you don't have that and you only have a monthly, you would miss out on that, right? The key is to have a minimum number of term links and have the customer self select into what actually makes sense for themselves. And the aspect of having monthly and annual also gives you tremendous advantage from a, let's say psychology perspective to showcase pricing. So like for instance, if you actually say you know the price is $10 per month and you know on an annual basis that adds up to 120. What you could do is you can say Your price is $10 per month or via V It is $8 per month if you buy it annually. So you can actually take your annual price and showcase it as a monthly price at a low and you could even lead your pricing with Saying starts at $8 per month if you take an annual commit Otherwise it's a $10 per month. So you can actually use these kind of behavioral things which also makes people say okay, I get a cheaper price on a monthly basis if I take an annual contract. And if you're giving a discount, get something back. And that getting something back is the annual contract. So not just leading with one term link, but offering a choice and then using that systematically to drive selection across customers, you know, would be key. What was the first part of the question again? Sorry Dave.

Yeah, sorry, I rambled. But I guess then maybe it's more specific around well how do you sort of set the price differential between the monthly net. Well, I guess what factors do you take into account like churn versus you know, effectively time value of money, those sort of things.

All of those. All of those. And typically our benchmark. I probably shortcut to the answer. We have seen that 10 to 20% discount on an annual term length compared to monthly is right about the optimal for most SaaS and enterprise companies. If you're being 30% you're too generous. 30% above if less than 10% that's not a discount to move any needle. So 10 to 20% is pretty much on the sweet spot.

Awesome.

Exemption. If you look into some of the consumer services like fitness apps and so on, they're the industry went very much into discount selling and there's sometimes 50, 60% of the annual. I think that's probably an exception from the 10 to 20%. Yeah, I think absolutely. I was giving more my benchmark based on enterprise SaaS companies, but totally yes, makes sense. Dave, any perfect.

There's a question more to run to. I know I've got a few more minutes left. What's the. This is kind of changes or optimizations over time so kind of not at launch but what's the best way to position or pivot from maybe price per user or sorry per user pricing to maybe bundled or platform based pricing?

Yeah, so that's a great question. So the like first of all, I mean let's take just the user based Pricing as a construct. As it stands, I think the one thing that you need to determine is, is that future proof for your business. Many businesses, especially with the introduction of AI are actually going to get hurt in like the next few years if let's say the number of seats shrink in a company. Your user based model is also going to be a model that shrinks your revenue over a period of time. So make sure you do the diligence to understand whether anything in AI is actually augmenting someone to make them a bit of a superhuman to do effective tasks. Or is this fundamentally something that is going to replace human workforce and then you need to actually buffer in. If you're in the second category for sure, you need to think about moving away from user based pricing in a strategic manner. Which means if 20 or 30% of seats shrink, you need to at least have some kind of usage component that can recoup that 20 or 30 over a period of time to move from something like a user based license to a platform fee, etc. That typically depends on your product maturity. And how are you building, let's say a category of products that have multiple things and is a platform necessary for bringing all of the products under one roof. And I think that is, that's probably the, the product complexity will dictate whether you have a platform or not. Many times I see companies that have just one product and call it a platform. That's not a platform. I mean that's just a single product sku that you're selling. But if it's a multi product thing that sits on a platform, truly there is a, you know, let's say seamless integration across all these products and you can say platform. The thing with platform too is there are two ways to approach the platform. One is to actually say you have a platform V for just doing that's the cost of business. Let's say a 5K platform fee. Most often those things are there just to negotiate off. I mean basically in a deal negotiation a salesperson would say, you know, I can't touch the user price, I'll just do guess what, even the buyer knows this trick. So there is really no use in these things. I mean other than creating some drama and optics and some negotiation chips. The better way to actually think about a platform or a platform piece to like pre bundle it with a certain amount of usage or a certain amount of product. So the platform already comes loaded with let's say 25 users and that's the platform fee. After that the model kicks in in terms of a per user or a per usage kind of fee. Right. So then it actually becomes a more, more differentiated pricing model when you actually grow.

Awesome. Two more questions and the last one hopefully will be a good one to leave the audience with. But obviously in the current macro situation, you know, a lot of, a lot of businesses are thinking about pricing as a, as a lever, so pushing those up on a kind of annual basis. What are some of the things to think through before you go ahead and do that? And I guess what are some of the kind of recommendations about or challenges around implementing those pricing changes?

Yeah, so a couple of things. The first thing is don't just go just raise your prices randomly and then hope for the best. It has to be targeted often, you know, segmented in terms of how you approach a price increase program. Like for instance customers who let's say are up for renewals and they use your products in a certain way or different modules might have a different price increase appetite compared to, you know, someone who has probably never used your product or only uses a product one time. So I think having a more segmented approach at price increases is key. Second thing is don't think of price increase as simply a increasing price exercise, but also like a cross sell upsell. Can you actually sell more value to actually command the higher price? Can you shift the pricing model to actually charging more? Like many companies, we've actually done packaging price model changes to just price increase frankly. I mean in some way, shape or form, but it's masked as a, you know, hey, you have two or three more products you can choose or there's a different price model and you know this is going to be on usage. Okay. Then if you use a lot, okay. Over a period of time, you're probably going to pay more, it might start smaller, but if you take the lifetime value, you actually increase the price. So I think think about smarter ways of also price increasing code and code. And we have found packaging and pricing models at some sure short ways of thinking about these things too.

Awesome. Good tips. Last question. Because we're basically a time but kind of looking back on the Last sort of 612 months. But more important, I guess looking ahead, what are some of the kind of emerging trends or actions you're seeing kind of the best companies implement?

Absolutely. I think in 2023 there was a trend that was actually picking up quite a lot more faster than I thought possible. But I think it was driven primarily based on the macro conditions, especially in SaaS or tech or enterprise companies. I think the holy grail pricing model is to actually say price truly on value, like the economic value that you actually create. Not based on usage, not based on seeds, et cetera, but truly on the economic value. For instance, you know, if you unlock x million of value for your customers, then I should be able to take 10% or 20% of that value. Right. Outcome based pricing is what we call it like truly putting the model in such a way that it is geared towards outcome. Given the pressure in the market for spending lesser, a lot of buyers actually became more savvy to ask can you put a skin in the game? Can you do an outcome based pricing? If you actually a product does what it's supposed to do, we would actually pay you. So that's not everyone, but in general like a 10% of buyers and that was growing fast and these are very savvy buyers. And the counterintuitive thing is while there might be 5 or 10% of buyers who actually love the outcome based pricing model, a majority of them would actually think that if you put an outcome and a fixed model at the same time in front of someone, they would actually say okay, this person has confidence in that pricing. That's why they're doing an outcome based option too. And they'll still self select themselves in the fixed, but their conviction on your pricing will be way more stronger. So like thinking about a trend on outcome based, especially for the AI inflection that we are actually seeing is a trend that I see would continue. That's the advanced trend but something that I do believe will happen. The user per simple, per seat, per user model, the way we know it is going to be probably dead in three to five years. It has to be a combination of user usage and a hybrid model and in the advanced ones, outcome based models, that's the trend I'm seeing.

Awesome, great insights. It'll be super interesting to watch them be. Well, we're definitely at time and we've gone probably a couple of minutes over but like that was, you know, from a personal perspective that was super enjoyable and based on all the comments and kind of feedback offline as well, I'm sure everyone's got a bunch out of this just to remind people what's the best way to contact you guys for.

Kind of more info and so absolutely. So you can always find me on you know, LinkedIn or any of these social media platforms. You can add me the other way to reach my partner colleagues in Sydney. If you have an immediate question or a follow up question specific to your markets@sydneyimon-kucher.com that's Sidney. You know how to spell that? At Simon S I m o N-K-U-C-H-E r.com that should go to all three of them and one of them would be at least prompt to respond to you.

Awesome. I think some of those are in the chat already. All right, awesome. Thanks for everyone online for, for joining. Look forward to kind of seeing you guys again at future events and hopefully took a lot out of that. But as I said, you know, contact the guys online if you want to reach out. And by all means, contact Brian myself as well for further info. See you next time.