Madhavan Ramanujam - How to Price Products

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like The Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (2:01)
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**Patrick O'Shaughnessy** (2:22)
My guest today is Madhavan Ramanujam. Madhavan quite literally wrote the book on how to price products. It's called Monetizing Innovations and his concepts have been used by companies across the world like Porsche, Uber, LinkedIn and Superhuman.
Our conversation is a master class on pricing. We discuss common mistakes when pricing products, why you need to focus on benefits rather than features and how to pick the right monetization model. Please enjoy my conversation with Madhavan Ramanujam.
So Madhavan, I've loved reading your book years ago and then again in preparation for our conversation today for one major reason. And we'll talk a lot about that reason in a few minutes here and we'll go all over the place and all the things you've studied in business. But the one thing that you sort of blew my mind on with your book is the importance of pricing, which is something that so many entrepreneurs out there struggle with and the order in which pricing should come in a product conversation. I think almost everyone puts it at the end. Let's have an idea, let's talk to customers, let's design something, let's build something and then let's figure out what to charge for it. I'd love you to provide your alternative perspective on that order of operations and why you arrived at a radically different way of building products.

**Madhavan Ramanujam** (3:34)
I think probably framing the problem at hand. For many years, I was working as a pricing consultant, especially in Silicon Valley, and I really witnessed how everyone was so obsessed on creating amazing new innovations, but hardly paid attention to how to monetize successfully or do we even have a willingness to pay in the market. Now, we used to even get calls saying, hey, I've built a new product, we've been working on it for the last two years and we need a price.
And by the way, we needed it last week. And you couple all these reactions with the failure rate that you actually see in innovation, it's remarkably high. And when I took a step back and I kind of looked at it, I think the classic phrase that comes to mind is that these companies were, I would say, simply spraying and praying and hoping that they can monetize and they can build products that people will eventually buy.
But the core issue here is they were hoping because they truly didn't know. They built a product, slapped on a price and threw it in the market and hoped for the best. I mean, this had to change. And this is why I wrote Monetizing Innovation, what we call a winning approach is to think about pricing early and to really test for whether there's a product market pricing fit before you go too far in the journey. And the reason for this is inverting that mindset is critical because when you're building something as an entrepreneur, as a company, you actually don't have a choice whether you have a pricing conversation with a customer. The only thing in your control is when you will have it. And we are advocating having that much earlier so that you can design the product around what customers need, what they value, and what they're willing to pay for. In a sense, know that you will monetize as opposed to hope that you would.