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Monetizing Innovation: How Smart Companies Design the Product Around the Price
Surprising rules for successful monetization Innovation is the most important driver of growth. Today, more than ever, companies need to innovate to survive. But successful innovation—measured in dollars and cents—is a very hard target to hit. Companies obsess over being creative and innovative and spend significant time and expense in designing and building products, yet struggle to monetize 72% of innovations fail to meet their financial targets—or fail entirely. Many companies have come to accept that a high failure rate, and the billions of dollars lost annually, is just the cost of doing business. Monetizing Innovations argues that this is tragic, wasteful, and wrong. Radically improving the odds that your innovation will succeed is just a matter of removing the guesswork. That happens when you put customer demand and willingness to pay in the driver seat—when you design the product around the price. It’s a new paradigm, and that opens the door to true game You can stop hoping to monetize, and start knowing that you will. The authors at Simon Kucher know what they’re talking about. As the world’s premier pricing and monetization consulting services company, with 800 professionals in 30 cities around the globe, they have helped clients ranging from massive pharmaceuticals to fast-growing startups find success. In Monetizing Innovation, they distil the lessons of thirty years and over 10,000 projects into a practical, nine-step approach. Whether you are a CEO, executive leadership, or part of the team responsible for innovation and new product development, this book is for you, with special sections and checklist-driven summaries to make monetizing innovation part of your company’s DNA. Illustrative case studies show how some of the world’s best innovative companies like LinkedIn, Uber, Porsche, Optimizely, Draeger, Swarovski and big pharmaceutical companies have used principles outlined in this book. A direct challenge to the status quo “spray and pray” style of innovation, Monetizing Innovation presents a practical approach that can be adopted by any organization, in any industry. Most monetizing innovation failure point home. Now more than ever, companies must rethink the practices that have lost countless billions of dollars. Monetizing Innovation presents a new way forward, and a clear Go from hope to certainty.
256 pages, Kindle Edition
First published April 18, 2016
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Displaying 1 - 30 of 81 reviews
February 8, 2017
Work related read. Most books should be articles, most articles should be blog posts, most blog posts should be tweets, most tweets should be retweets. This book should have been just a long-form essay. This essay (http://firstround.com/review/its-pric...) does fairly a good job. I would recommend pairing this essay with Steve Blank's Customer Development to get more value for this topic.
Want to read
May 25, 2021Recommended in https://overcast.fm/+Lzu2o63Xs/14:32
February 14, 2021
The title of the book (or just my perception) of that book suggests "Monetizing innovation" will be helpful once you build a new product or a new company. That's only partially true. That book will help you audit the current market offer as well. From how much it matches customers' needs to how clearly you present the benefits of your products and services.
From "Monetizing innovation" you will learn:
- how to validate whether your product idea is needed,
- how to check what parts of your product or service are valuable for your clients and which ones are nice-to-haves,
- how to check what price would be acceptable,
- how to do client's segmentation ("small companies" and "big companies" only sometimes is the right client's segmentation),
- basics of pricing models,
- reasons why products fail once they face the market,
- how to configure features and/or bundle products and services,
- how to sell not features but benefits of your products (if you sell hard to understand software like ERP then one chapter from that book is a must for you).
Based on examples like Porsche, Optimazely, Swarovski and other tech and non-tech companies.
If I wouldn't stick with my false perception of that book then I read it earlier. And it would be worth it.
The last 10-20% of the book was a little bit hard to read for me. Not like "difficult" but more like "I had to motivate myself to keep reading". But I cannot specify why. Maybe it was about repeating the same tips again and again.
From "Monetizing innovation" you will learn:
- how to validate whether your product idea is needed,
- how to check what parts of your product or service are valuable for your clients and which ones are nice-to-haves,
- how to check what price would be acceptable,
- how to do client's segmentation ("small companies" and "big companies" only sometimes is the right client's segmentation),
- basics of pricing models,
- reasons why products fail once they face the market,
- how to configure features and/or bundle products and services,
- how to sell not features but benefits of your products (if you sell hard to understand software like ERP then one chapter from that book is a must for you).
Based on examples like Porsche, Optimazely, Swarovski and other tech and non-tech companies.
If I wouldn't stick with my false perception of that book then I read it earlier. And it would be worth it.
The last 10-20% of the book was a little bit hard to read for me. Not like "difficult" but more like "I had to motivate myself to keep reading". But I cannot specify why. Maybe it was about repeating the same tips again and again.
December 6, 2018
pretty disappointing overall. starts off with authors spending way too much time establishing their credentials. and then they introduce their systems and rules for monetization, the cornerstone of which is flawed. they build their methodology around having willingness to pay conversations with prospective customers. asking someone what they would be willing to pay, and what they actually end up willing to pay are not equivalent, but that is never acknowledged. it would have strengthened their position had they acknowledged it, it’s not a fatal flaw, but it feels misrepresented. meanwhile the core thesis is sound, when companies think about monetization after building the product they are doing it wrong.
there are some good insights in here, and there are some good systems and methodologies put forth. but the above plus a few other issues, make this worse than it should have been.
their examples are way too tidy and simplistic. “company x made the following change to their pricing and now their profits are 3x that of their nearest competitor” simple as that, huh? no other contributing factors lead to that outcome? just undermines credibility, as does their tendency to stay in generalities, avoid practical specifics, and give advice much easier said than done. (ie, just make sure your forecast models account for price elasticity)
their content on how to think about product bundling is cool, they offer useful thoughts around product development, provide some interesting examples (and several duds), and some useful rules of thumb for making decisions on product feature and customer segmentation, but overall you’d get more value from reading the chapter summaries than the actual chapters.
obvious caveat, the amount you already know on the topic will have a lot to do with how much value you get out of the book.
there are some good insights in here, and there are some good systems and methodologies put forth. but the above plus a few other issues, make this worse than it should have been.
their examples are way too tidy and simplistic. “company x made the following change to their pricing and now their profits are 3x that of their nearest competitor” simple as that, huh? no other contributing factors lead to that outcome? just undermines credibility, as does their tendency to stay in generalities, avoid practical specifics, and give advice much easier said than done. (ie, just make sure your forecast models account for price elasticity)
their content on how to think about product bundling is cool, they offer useful thoughts around product development, provide some interesting examples (and several duds), and some useful rules of thumb for making decisions on product feature and customer segmentation, but overall you’d get more value from reading the chapter summaries than the actual chapters.
obvious caveat, the amount you already know on the topic will have a lot to do with how much value you get out of the book.
November 22, 2017
Great piece of read. It is well-written, easy-to-digest and actionable from day 1. In my opinion it should go along with: "Lean startup" and "Business Model Generation" as most basic start-up books. The book explains the concept of value-pricing alongside with interesting case studies of succesful companies, like: Michelin, Porsche, Boeing, Rolls Royce, Optimizely. Basic concept is to start building a product from the price and willingness-to-pay and then go with adding features. Oh and btw, that's how Porsche Cayenne - the most succesfull Porsche model in history- was made.
The author is a Partner in Simon Kucher & Partners, top pricing consulting firm, so he knows what he's doing.
It is good to read it as e-book as at the end of every chapter you have links to the sources. Also, every chapter has "questions for CEO", which should be addressed to understand pricing capabilities of your company.
The only disadvantage were some case studies, e.g. Uber, which were outdated. For instance, Uber eventually implemented tipping, which is mentioned in the book as not happening. But it's not that significant to deduct the star.
Strongly recommended, especially for people who don't know much about business models or try to price their new product.
The author is a Partner in Simon Kucher & Partners, top pricing consulting firm, so he knows what he's doing.
It is good to read it as e-book as at the end of every chapter you have links to the sources. Also, every chapter has "questions for CEO", which should be addressed to understand pricing capabilities of your company.
The only disadvantage were some case studies, e.g. Uber, which were outdated. For instance, Uber eventually implemented tipping, which is mentioned in the book as not happening. But it's not that significant to deduct the star.
Strongly recommended, especially for people who don't know much about business models or try to price their new product.
February 5, 2017
Some useful insights and case studies that make it a 4-star. But, not nearly as good as Secrets of the Pricing Man.
March 24, 2018
If you know the Lean Start tenets then this is the Pricing Strategy version.
Clear concise rules and steps.
Clear concise rules and steps.
February 7, 2021
3.5*
Some good insight on innovation failures, monetization models (+importance of setting the price in the early stages etc etc), also was nice to see the info on product configuration, market segmentation etc etc structured so nicely
At times the book felt a bit self-promoting and repetitive plus it occasionally ping-ponged with very trivial concepts. Not a bad book by any means, just felt it was more time consuming than it should have been (maybe not the case of a blog article, but cutting and summarizing it in half would have made some people on the run a bit more happy)
Some good insight on innovation failures, monetization models (+importance of setting the price in the early stages etc etc), also was nice to see the info on product configuration, market segmentation etc etc structured so nicely
At times the book felt a bit self-promoting and repetitive plus it occasionally ping-ponged with very trivial concepts. Not a bad book by any means, just felt it was more time consuming than it should have been (maybe not the case of a blog article, but cutting and summarizing it in half would have made some people on the run a bit more happy)
January 10, 2021
It’s been a while since I encountered such a pleasant design book surprise. Although this book doesn’t seem to be marketed for product designers it fully describes how to design think about pricing new innovation.
July 3, 2020
Nice book for people of non product development or marketing background.
October 30, 2021
Inconsistent, not to the point and unreadable. Reading the summaries is sufficient enough
January 22, 2022
Mostly applicable to large businesses and corporate enviroments. In areas previous sentence does not apply it's boring.
Probably the most oversold book i've read for a long time. If that's how consulting companies look at startups and innovation then i am not suprised that startups look at consulting companies the way they do.
Probably the most oversold book i've read for a long time. If that's how consulting companies look at startups and innovation then i am not suprised that startups look at consulting companies the way they do.
June 16, 2021
All the case studies, tactics, methodologies and theories in the book have one important commonality: They cultivate "outside-in" instead of "outside" thinking.
May 8, 2022
Good book to start, knowing than hoping on how the customers will be getting value from an innovation.
April 15, 2023
A worthwhile read for any founder or product executive to understand the importance of thinking through monetization up front for any new product. In particular, the book argues that products should first and foremost be designed around the price. That's a fairly bold claim, and one that seems different from many other books on product development! However, once you get into the details, it makes sense. And while I don't agree with every detail in this book—for example, the types of questions they recommend you ask your customers may leave you open to misleading answers (see The Mom Test and Continuous Discovery Habits)—the general ideas are very much worth considering.
Here are some of the key insights for me from this book:
Design products around price
The central point of the book is that products should be designed around price. Note that in this context, "price" is not just a single dollar figure (e.g., $500); that's a price point. What they are really talking about when they say "price" is to design the product around the perceived value of the product. Almost everything else—the type of product you can design, the service you can provide, the way you're perceived, the size of the company you could build, the profit you can generate, and so on—is derived from price.
"Price is more than just a dollar figure; it is an indication of what the customer wants—and how much they wan it. It is the single most critical factor in determining whether a product makes money, yet it is an afterthought, a last minute consideration made after a product is developed."
The traditional way to build products is to design, build, market, and finally price. This book recommends an alternative order: start with market and price, then design, and then build.
The 4 types of monetization failures
This book argues that monetization failures come in only 4 flavors:
1. Feature shock: cramming too many features into a product—sometimes even unwanted features—results in a product that doesn't resonate with customers and is overpriced. Typical symptoms include over-engineering, unclear value proposition, difficulty selling, and frequent price cuts.
2. Minivation: it's an innovation that is the right product for the right product, but it's priced too low, and doesn't achieve its full revenue potential. Typical symptoms include easy selling, but due to lack of ambition and low-ball targets, it doesn't go far.
3. Hidden gem: a potential blockbuster product that is never properly brought to market, generally because it falls outside of the core business. Typical symptoms include that your company is doing something outside of your comfort zone, everyone is playing it safe, and no one is responsible for getting the most out of this gem.
4. Undead: an innovation customers don't want, either because it's the wrong answer to the right question, or an answer to a question no one was asking. Typical symptoms include sales struggles, negative press, and a lack of objectivity (especially around pet projects for an exec).
Rules for avoiding monetization failures
Here are a few of the key rules for avoiding the 4 types of monetization failures from the previous section:
1. Have the "willingness to pay" talk early. It is essential to have the "willingness to pay" talk early in the product development process.
2. Segment on willingness to pay, not demographics. Your customers are not all the same, so one-size-fits-all solutions don't work, and you instead need to do segmentation. However, the traditional way of doing segmentation, along demographics, is not effective for most products. You should instead segment based on differences in customers' willingness to pay for your product.
3. Pick the right pricing model. It turns out that how you charge is often more often than how much you charge.
More on each of these below.
Willingness to pay (WTP)
One of the key ideas this book tries to get across is to have a "willingness to pay" (WTP) conversation with your customers as early in the process as possible. Key information you want to get from a WTP conversation:
1. Overall WTP. The right price range a customer would consider reasonable for your product—including whether they'd be willing to pay for it at all. You can then figure out if that price range would work for your company: e.g., can you deliver a product that would work at that price and still make a profit?
2. WTP for each feature. You also want to dig deeper and figure out the WTP for each individual feature. This helps you prioritize your roadmap, avoid feature shock, and figure out segmentation.
How to have the WTP conversation
1. Problem. The first step is to discuss pain points with the customer and to build a deep understanding what problems they are hitting.
2. Solution. If the problems the customer described align with what your product is intended to solve, then you can move on to the second step, where you talk about the solution you have in mind. Show your product, its features, and its benefits.
3. Value. Next, try to get an understanding from the customer on whether they value the features you are discussing. Note that you are NOT discussing price yet! This is purely about value: would they find this product useful? Do they find these features valuable? Would it potentially solve the problems they are facing? And after each of these questions, always ask "why," so you can build up your mental model of what the customer is looking for.
4. Price. Now, finally, you can talk about price. See the price questions in the next section.
Price questions
1. Direct questions. Examples:
- "What do you think could be an acceptable price?"
- "What do you think would be an expensive price?"
- "What do you think would be a prohibitively expensive price?"
- "Would you buy this product at $XYZ?"
2. Purchase probability questions. You show a product concept, explain its benefits, attach a price to it, and ask customers to rate it from 1-5, where 1 is "I'd never buy this product" and 5 is "I'd definitely buy this product." If you get a 3 or less, you lower the price, and repeat. Repeat a few times until you start to get 4s or 5s, which tells you you're in the right range, or if that never happens, it tells you there is something wrong with the product offering in general. Note: a 5 typically represents a ~50% probability the person would actually buy it; a 4 represents a 10-20% probability.
3. Most-least questions. Start with a list of features (e.g., 10 features). Pick a subset of those features (e.g., 6 of the 10 features), and ask customers to pick the feature they value most and the one they value least. Then show a different subset and ask the question again. Repeat this process 5-7 times, until all combinations are exhausted. This helps you identify the most valuable features (the "leaders") and the least valuable ones (the "killers"). This method takes advantage of the fact that people are better at comparative ranking than absolute valuation, and that they are better at identifying extremes (best/worst) than at figuring out the stuff in the middle.
4. Build-your-own questions. This method should only be done after you have a rough sense of WTP from other methods, such as the 3 methods above. The idea is to give your customers a list of features and ask them to assemble their "ideal product" from this list; the catch is that each time they pick a feature, the price goes up. You then see how many and which features customers add before they stop.
5. Purchase simulations. This method should only be done after you have a rough sense of WTP from other methods, such as the 3 methods above. You show a customer a product with a specific feature set and a price point and ask if they would buy it. You then change the feature set and price, and ask the same question. You repeat this 5-8 times, until all combinations are exhausted.
For all the methods above, after a customer has made some choices, always try to follow up with, "why?" Your goal is to tap into the mental models customers are using to make their choices.
Important note: Some of the methods above ask the customer to predict their future behavior, and there is considerable research showing that this can lead to very misleading answers. I agree with the book that understanding WTP is essential, but I worry some of the methods the book recommends aren't likely to be effective. See The Mom Test and Continuous Discovery Habits for alternatives techniques/questions.
Segmentation principles
1. Leaders, fillers, and killers.
- Leaders are the must-have features that get a customer to buy a product. These are usually the features with the highest WTP. You must include them and you design product offerings around them.
- Fillers are features of moderate importance, but they are nice-to-haves, and not enough by themselves to get someone to buy.
- Killers are features customers don't want at all: in fact, they are features that may kill the deal if the customer is forced to pay for them. These should be eliminated entirely from the product. You can usually identify a killer by looking for features that are (a) valued by less than 20% of customers and (b) not valued at all by more than 20% of customers
2. Good, better, and best (G/B/B).
- The most common bundling is to offer 3 options (e.g., bronze/silver/gold or pro, business, enterprise): a good option that has core features, a best option that has all the bells and whistles, and a better option somewhere in between.
- Ideally, < 30% of customers go for the good option, and > 70% opt for better or best, with > 10% going for best. Note that customers often avoid extremes, so going for the middle option is very common.
- G/B/B works because instead of a single option—a yes or no decision—you can now cater to customers that are optimizing for price (the good option), quality (the best option), or somewhere in between (the better option).
Segmentation traps
1. Avoid the "average" trap. Don't just look at averages; look at distribution too. For example, you may find that customers are willing to pay an "average" of $60 for your product, but if you dig into the distribution, you'll find out that everyone falls into one of two buckets: either they want to pay $20 or $100. So if you set the price to the average, $60, then you'd be leaving money on the table with each sale for the $100 customers, and you wouldn't be making any sales to customers in the $20 bucket.
2. Don't try to serve every segment. You are not obligated to serve every single possible customer. Every segment takes some investment, so it's only worth pursuing if you're confident the segment will deliver enough customers and money. So for each segment, you'll need to estimate not only its size, but also how much it'll cost you to build for, acquire, and, retain the customers in that segment, and at what prices, and then targeting only the segments that make sense for your business.
3. Don't give too much away in your entry-level product. If more than 50% of your customers are on your entry-level product, you have a problem where you are able to "land" but not "expand." The ideal breakdown is < 30% of customers go for the good option, and > 70% opt for better or best, with > 10% going for best. If you're not seeing this, then you should consider removing features from the good option.
Monetization model
Before you can settle on any sort of price points, you will need to pick a monetization model for your product. Here are five of the most common monetization models:
1. Subscription. A periodic and automatic payment for continued delivery of or access to a product. Example: Salesforce.
2. Dynamic pricing. The price fluctuates based on factors such as season, time of day, weather, and anything else that affects WTP, supply, or demand. Example: airline ticket prices.
3. Market-based pricing. The price of the product is determined through competition in an auction. Example: Google Ads.
4. Pay as you go. Pay per-unit pricing, ideally for a metric closely tied to product value and customer benefits. Example: GE charging per mile flown on its engines.
5. Freemium. The product has free tiers and paid tiers. You try to "land and expand," getting people in the door with free tiers, and then upselling them to paid tiers. Example: Dropbox.
Pricing strategy document
You should define a pricing strategy in a written document. This way, you are more likely to think through pricing holistically, based off a concrete strategy, rather than random guesswork. Moreover, you're less likely to make wild (and potentially harmful) pricing changes later if things aren't going as expected.
The pricing strategy document consists of 4 parts:
1. Goals. The goal you're aiming for has a profound impact on your pricing strategy, so it's critical to define it clearly, up front. Are you optimizing for maximum revenue? Market share? Total profit? Profit margin? Customer lifetime value? Something else? You can't maximize all of these at the same time, so you'll have to make trade-offs. Example: if you sell your product at $10, you might get 10,000 customers, with a 30% profit margin, whereas if you sell it at $15, you might get 8,000 customers, but at a 50% profit margin. So would you go for 20% more margin, at the cost of 20% fewer customers? Different execs (e.g., CEO, CMO, CTO, CRO, etc) are often optimizing for different goals, so it's critical to get everyone aligned. One exercise for doing this is to put all the possible goals in a list and give each exec 100 points to allocate amongst those goals. This forces everyone to make trade-offs: e.g., do I give 50 points to this goal or all 100 points? When you compare your answers, you may find shocking disparities. Talk them out and get everyone on the same page.
2. Pricing strategy type. There are three primary types of pricing strategy:
- 2a. Maximization, where you pick the maximum price that helps you achieve your goals. Most companies go with this option.
- 2b. Penetration, where you intentionally set price below the maximum in an attempt to rapidly gain market share and then systematically raise prices later. This works well if your product creates highly loyal customers; otherwise, they will flee when prices go up.
- 2c. Skimming, where you intentionally set a price above the maximum to cater to the early adopters and then systematically lower prices later. This works well when your technology is a significant breakthrough, or if you have production limitations early on.
3. Price-setting principles. Defining these principles up front helps you systematically figure out your initial pricing and to avoid changing pricing in a panic if things aren't going well:
- 3a. Monetization model. Which of the monetization models discussed above will you go with?
- 3b. Price differentiation. Will you differentiate your price? If so, based on what factors (e.g., channel, industry vertical, region)?
- 3c. Price floors. Is there a price below which you'll never go?
- 3d. Price endings. The most common endings are 0.00, 0.50, 0.99, and 0.95. Endings matter more in B2C; for B2B, whole numbers are usually better.
- 3e. Price increases. Will you increase price over time? If so, how much and at what frequency?
4. Reaction principles. Defining these principles up front helps you systematically modify your pricing after launch, based on what actually happens in the market. Reactions fall into two buckets. The first bucket is reaction to what customers do, and mostly consists of defining your promotional reactions up front: e.g., will you offer discounts or seek premium pricing or something else. The second bucket is reaction to what competitors do, and this involves anticipating what your competitors might do using war-gaming sessions. How likely are competitors to react? Will they react by changing price? Will we update our pricing to match theirs? And so on.
Communicating the value
After you've figured out your pricing strategy and built a product, you have to figure out how to communicate the value of that product to customers. There are two techniques to use here:
1. Benefits statement. Don't describe the features your product has; describe the benefits those features bring to your customers. These are usually tied to the specific pain points your customers are facing. You'll want different benefit statements for each segment. For example, Adobe's benefit statement for SMBs is "Get the entire collection of creative apps and business services, including easy license and management"; for enterprises, it's, "customized provisioning and deployment, plus enterprise-level support"; and for students, it's "save 60% on the entire collection of apps."
2. Value-selling. Create an easy way for customers to calculate/estimate the value of the benefits in the benefits statement. For example, if one of the key benefits of your product is that it saves time, you could offer a simple spreadsheet where the customer can see how much time they save per year, and based on some assumptions, how much money that's worth: "product XXX saves you $5M per year!" The value should be vastly higher than the price you've set.
Here are some of the key insights for me from this book:
Design products around price
The central point of the book is that products should be designed around price. Note that in this context, "price" is not just a single dollar figure (e.g., $500); that's a price point. What they are really talking about when they say "price" is to design the product around the perceived value of the product. Almost everything else—the type of product you can design, the service you can provide, the way you're perceived, the size of the company you could build, the profit you can generate, and so on—is derived from price.
"Price is more than just a dollar figure; it is an indication of what the customer wants—and how much they wan it. It is the single most critical factor in determining whether a product makes money, yet it is an afterthought, a last minute consideration made after a product is developed."
The traditional way to build products is to design, build, market, and finally price. This book recommends an alternative order: start with market and price, then design, and then build.
The 4 types of monetization failures
This book argues that monetization failures come in only 4 flavors:
1. Feature shock: cramming too many features into a product—sometimes even unwanted features—results in a product that doesn't resonate with customers and is overpriced. Typical symptoms include over-engineering, unclear value proposition, difficulty selling, and frequent price cuts.
2. Minivation: it's an innovation that is the right product for the right product, but it's priced too low, and doesn't achieve its full revenue potential. Typical symptoms include easy selling, but due to lack of ambition and low-ball targets, it doesn't go far.
3. Hidden gem: a potential blockbuster product that is never properly brought to market, generally because it falls outside of the core business. Typical symptoms include that your company is doing something outside of your comfort zone, everyone is playing it safe, and no one is responsible for getting the most out of this gem.
4. Undead: an innovation customers don't want, either because it's the wrong answer to the right question, or an answer to a question no one was asking. Typical symptoms include sales struggles, negative press, and a lack of objectivity (especially around pet projects for an exec).
Rules for avoiding monetization failures
Here are a few of the key rules for avoiding the 4 types of monetization failures from the previous section:
1. Have the "willingness to pay" talk early. It is essential to have the "willingness to pay" talk early in the product development process.
2. Segment on willingness to pay, not demographics. Your customers are not all the same, so one-size-fits-all solutions don't work, and you instead need to do segmentation. However, the traditional way of doing segmentation, along demographics, is not effective for most products. You should instead segment based on differences in customers' willingness to pay for your product.
3. Pick the right pricing model. It turns out that how you charge is often more often than how much you charge.
More on each of these below.
Willingness to pay (WTP)
One of the key ideas this book tries to get across is to have a "willingness to pay" (WTP) conversation with your customers as early in the process as possible. Key information you want to get from a WTP conversation:
1. Overall WTP. The right price range a customer would consider reasonable for your product—including whether they'd be willing to pay for it at all. You can then figure out if that price range would work for your company: e.g., can you deliver a product that would work at that price and still make a profit?
2. WTP for each feature. You also want to dig deeper and figure out the WTP for each individual feature. This helps you prioritize your roadmap, avoid feature shock, and figure out segmentation.
How to have the WTP conversation
1. Problem. The first step is to discuss pain points with the customer and to build a deep understanding what problems they are hitting.
2. Solution. If the problems the customer described align with what your product is intended to solve, then you can move on to the second step, where you talk about the solution you have in mind. Show your product, its features, and its benefits.
3. Value. Next, try to get an understanding from the customer on whether they value the features you are discussing. Note that you are NOT discussing price yet! This is purely about value: would they find this product useful? Do they find these features valuable? Would it potentially solve the problems they are facing? And after each of these questions, always ask "why," so you can build up your mental model of what the customer is looking for.
4. Price. Now, finally, you can talk about price. See the price questions in the next section.
Price questions
1. Direct questions. Examples:
- "What do you think could be an acceptable price?"
- "What do you think would be an expensive price?"
- "What do you think would be a prohibitively expensive price?"
- "Would you buy this product at $XYZ?"
2. Purchase probability questions. You show a product concept, explain its benefits, attach a price to it, and ask customers to rate it from 1-5, where 1 is "I'd never buy this product" and 5 is "I'd definitely buy this product." If you get a 3 or less, you lower the price, and repeat. Repeat a few times until you start to get 4s or 5s, which tells you you're in the right range, or if that never happens, it tells you there is something wrong with the product offering in general. Note: a 5 typically represents a ~50% probability the person would actually buy it; a 4 represents a 10-20% probability.
3. Most-least questions. Start with a list of features (e.g., 10 features). Pick a subset of those features (e.g., 6 of the 10 features), and ask customers to pick the feature they value most and the one they value least. Then show a different subset and ask the question again. Repeat this process 5-7 times, until all combinations are exhausted. This helps you identify the most valuable features (the "leaders") and the least valuable ones (the "killers"). This method takes advantage of the fact that people are better at comparative ranking than absolute valuation, and that they are better at identifying extremes (best/worst) than at figuring out the stuff in the middle.
4. Build-your-own questions. This method should only be done after you have a rough sense of WTP from other methods, such as the 3 methods above. The idea is to give your customers a list of features and ask them to assemble their "ideal product" from this list; the catch is that each time they pick a feature, the price goes up. You then see how many and which features customers add before they stop.
5. Purchase simulations. This method should only be done after you have a rough sense of WTP from other methods, such as the 3 methods above. You show a customer a product with a specific feature set and a price point and ask if they would buy it. You then change the feature set and price, and ask the same question. You repeat this 5-8 times, until all combinations are exhausted.
For all the methods above, after a customer has made some choices, always try to follow up with, "why?" Your goal is to tap into the mental models customers are using to make their choices.
Important note: Some of the methods above ask the customer to predict their future behavior, and there is considerable research showing that this can lead to very misleading answers. I agree with the book that understanding WTP is essential, but I worry some of the methods the book recommends aren't likely to be effective. See The Mom Test and Continuous Discovery Habits for alternatives techniques/questions.
Segmentation principles
1. Leaders, fillers, and killers.
- Leaders are the must-have features that get a customer to buy a product. These are usually the features with the highest WTP. You must include them and you design product offerings around them.
- Fillers are features of moderate importance, but they are nice-to-haves, and not enough by themselves to get someone to buy.
- Killers are features customers don't want at all: in fact, they are features that may kill the deal if the customer is forced to pay for them. These should be eliminated entirely from the product. You can usually identify a killer by looking for features that are (a) valued by less than 20% of customers and (b) not valued at all by more than 20% of customers
2. Good, better, and best (G/B/B).
- The most common bundling is to offer 3 options (e.g., bronze/silver/gold or pro, business, enterprise): a good option that has core features, a best option that has all the bells and whistles, and a better option somewhere in between.
- Ideally, < 30% of customers go for the good option, and > 70% opt for better or best, with > 10% going for best. Note that customers often avoid extremes, so going for the middle option is very common.
- G/B/B works because instead of a single option—a yes or no decision—you can now cater to customers that are optimizing for price (the good option), quality (the best option), or somewhere in between (the better option).
Segmentation traps
1. Avoid the "average" trap. Don't just look at averages; look at distribution too. For example, you may find that customers are willing to pay an "average" of $60 for your product, but if you dig into the distribution, you'll find out that everyone falls into one of two buckets: either they want to pay $20 or $100. So if you set the price to the average, $60, then you'd be leaving money on the table with each sale for the $100 customers, and you wouldn't be making any sales to customers in the $20 bucket.
2. Don't try to serve every segment. You are not obligated to serve every single possible customer. Every segment takes some investment, so it's only worth pursuing if you're confident the segment will deliver enough customers and money. So for each segment, you'll need to estimate not only its size, but also how much it'll cost you to build for, acquire, and, retain the customers in that segment, and at what prices, and then targeting only the segments that make sense for your business.
3. Don't give too much away in your entry-level product. If more than 50% of your customers are on your entry-level product, you have a problem where you are able to "land" but not "expand." The ideal breakdown is < 30% of customers go for the good option, and > 70% opt for better or best, with > 10% going for best. If you're not seeing this, then you should consider removing features from the good option.
Monetization model
Before you can settle on any sort of price points, you will need to pick a monetization model for your product. Here are five of the most common monetization models:
1. Subscription. A periodic and automatic payment for continued delivery of or access to a product. Example: Salesforce.
2. Dynamic pricing. The price fluctuates based on factors such as season, time of day, weather, and anything else that affects WTP, supply, or demand. Example: airline ticket prices.
3. Market-based pricing. The price of the product is determined through competition in an auction. Example: Google Ads.
4. Pay as you go. Pay per-unit pricing, ideally for a metric closely tied to product value and customer benefits. Example: GE charging per mile flown on its engines.
5. Freemium. The product has free tiers and paid tiers. You try to "land and expand," getting people in the door with free tiers, and then upselling them to paid tiers. Example: Dropbox.
Pricing strategy document
You should define a pricing strategy in a written document. This way, you are more likely to think through pricing holistically, based off a concrete strategy, rather than random guesswork. Moreover, you're less likely to make wild (and potentially harmful) pricing changes later if things aren't going as expected.
The pricing strategy document consists of 4 parts:
1. Goals. The goal you're aiming for has a profound impact on your pricing strategy, so it's critical to define it clearly, up front. Are you optimizing for maximum revenue? Market share? Total profit? Profit margin? Customer lifetime value? Something else? You can't maximize all of these at the same time, so you'll have to make trade-offs. Example: if you sell your product at $10, you might get 10,000 customers, with a 30% profit margin, whereas if you sell it at $15, you might get 8,000 customers, but at a 50% profit margin. So would you go for 20% more margin, at the cost of 20% fewer customers? Different execs (e.g., CEO, CMO, CTO, CRO, etc) are often optimizing for different goals, so it's critical to get everyone aligned. One exercise for doing this is to put all the possible goals in a list and give each exec 100 points to allocate amongst those goals. This forces everyone to make trade-offs: e.g., do I give 50 points to this goal or all 100 points? When you compare your answers, you may find shocking disparities. Talk them out and get everyone on the same page.
2. Pricing strategy type. There are three primary types of pricing strategy:
- 2a. Maximization, where you pick the maximum price that helps you achieve your goals. Most companies go with this option.
- 2b. Penetration, where you intentionally set price below the maximum in an attempt to rapidly gain market share and then systematically raise prices later. This works well if your product creates highly loyal customers; otherwise, they will flee when prices go up.
- 2c. Skimming, where you intentionally set a price above the maximum to cater to the early adopters and then systematically lower prices later. This works well when your technology is a significant breakthrough, or if you have production limitations early on.
3. Price-setting principles. Defining these principles up front helps you systematically figure out your initial pricing and to avoid changing pricing in a panic if things aren't going well:
- 3a. Monetization model. Which of the monetization models discussed above will you go with?
- 3b. Price differentiation. Will you differentiate your price? If so, based on what factors (e.g., channel, industry vertical, region)?
- 3c. Price floors. Is there a price below which you'll never go?
- 3d. Price endings. The most common endings are 0.00, 0.50, 0.99, and 0.95. Endings matter more in B2C; for B2B, whole numbers are usually better.
- 3e. Price increases. Will you increase price over time? If so, how much and at what frequency?
4. Reaction principles. Defining these principles up front helps you systematically modify your pricing after launch, based on what actually happens in the market. Reactions fall into two buckets. The first bucket is reaction to what customers do, and mostly consists of defining your promotional reactions up front: e.g., will you offer discounts or seek premium pricing or something else. The second bucket is reaction to what competitors do, and this involves anticipating what your competitors might do using war-gaming sessions. How likely are competitors to react? Will they react by changing price? Will we update our pricing to match theirs? And so on.
Communicating the value
After you've figured out your pricing strategy and built a product, you have to figure out how to communicate the value of that product to customers. There are two techniques to use here:
1. Benefits statement. Don't describe the features your product has; describe the benefits those features bring to your customers. These are usually tied to the specific pain points your customers are facing. You'll want different benefit statements for each segment. For example, Adobe's benefit statement for SMBs is "Get the entire collection of creative apps and business services, including easy license and management"; for enterprises, it's, "customized provisioning and deployment, plus enterprise-level support"; and for students, it's "save 60% on the entire collection of apps."
2. Value-selling. Create an easy way for customers to calculate/estimate the value of the benefits in the benefits statement. For example, if one of the key benefits of your product is that it saves time, you could offer a simple spreadsheet where the customer can see how much time they save per year, and based on some assumptions, how much money that's worth: "product XXX saves you $5M per year!" The value should be vastly higher than the price you've set.
June 7, 2016
I started reading Monetizing Innovation a few weeks back - just after it came out because I pre-ordered it on Amazon. I'm a pricing dork and a Madhavan fan-boy.
I had to stop reading and go get a pen about 1/3rd of the way down page 4 because I had to underline something. WTF? I haven't underlined anything since 1993. It happened two more times on page 4 and once on page 5. Page 8. Page 9. Page 10 and 11, 12 and 13. Then I read Chapter 1 again.
The underlining and rereading continued through Chapter 12. I was compelled to read everything again. Then the Sharks got into the Stanley Cup finals.
Being Canadian, watching hockey is a spiritual experience. So, I had to reread and finish the entire book in time to watch Game 1. Was I actually contemplating which activity I'd rather do? Yes. Yes I was.
Full confession - I don't have a short memory and feel generally OK about my hockey priorities. The fact is that Monetizing Innovation by Madhavan and Georg is by far the best pricing book I have read to date. They have found the right balance between theory and practical with clear paths - in my opinion - for near-immediate implementation. The book is filled with useful tips and tricks, pearls of wisdom as well as guidance on how to lead the broader organization change.
This is required reading for start-ups and large companies alike.
I had to stop reading and go get a pen about 1/3rd of the way down page 4 because I had to underline something. WTF? I haven't underlined anything since 1993. It happened two more times on page 4 and once on page 5. Page 8. Page 9. Page 10 and 11, 12 and 13. Then I read Chapter 1 again.
The underlining and rereading continued through Chapter 12. I was compelled to read everything again. Then the Sharks got into the Stanley Cup finals.
Being Canadian, watching hockey is a spiritual experience. So, I had to reread and finish the entire book in time to watch Game 1. Was I actually contemplating which activity I'd rather do? Yes. Yes I was.
Full confession - I don't have a short memory and feel generally OK about my hockey priorities. The fact is that Monetizing Innovation by Madhavan and Georg is by far the best pricing book I have read to date. They have found the right balance between theory and practical with clear paths - in my opinion - for near-immediate implementation. The book is filled with useful tips and tricks, pearls of wisdom as well as guidance on how to lead the broader organization change.
This is required reading for start-ups and large companies alike.
June 15, 2019
This book is made of four basic tenets i.e. the four ways in which a new product innovation fails at the market and nine different solutions that one can adopt to prevent it from failing at the market.
That pretty much sums up the book and the first chapter or the second is more or less quite sufficient to mark the book as read. Never the less, I completed the book for good measure. The writing style of the authors sucks, very very hard. Except one chapter with all the case studies about various companies that have effectively priced themselves in the market, and the first few chapters, none of the other chapters are really exciting i.e. it was more like reading a reference book or a text book and not like reading a business book. The author have not written this book with readability or readership in mind. I am not really sure if it is a good thing or a bad thing.
But, the basic core principle of the book is "Don't build anything without first asking your customers if they would like to pay for it." That is extremely stupid! If you ask me! Assuming that Customer is God might work well for established Industries but in an Industry that is innovating that most definitely is not going to work out. Thus the basic assumption of seeking customer permission or opinion while building new stuff, is absurd. Almost all the examples given in the book are related to established industries. Monetization and monetization models almost always come after the product is released. When Airbnb created their business model, they had no clue about how they were going to make money off it. The same is the case with Google, Google also had no clue about how they were going to make money with their search engine. Assuming that all of them have taken the permission of the end user to build new and innovative products is an absurd concept. Innovation should not be enslaved by business. Innovation must happen irrespective of whether anybody is going to pay for the product or not. That is why we have so many education institutions which purse innovations for the greater good of mankind. Sometimes for a concept to bear fruit, it might take hundreds of years, some of them take thousands.
The authors of these books or capitalists in general want to stand that the exact juncture where the 1000 year old research/idea is getting converted into a product and entering the market. That is where these people want to reside i.e. where value is realized as money. These people aren't really interested in innovation or dynamics of innovation or they don't pursue science for the sake of science. They are only interested in innovation that can be converted into money! i.e. discard all the innovation that does not make money for you. At that rate all private innovation and R&D should stop immediately except the 1% of innovation for which the users pay. The basic premise of the book is flawed.
But assuming that we are going to look at this from the vantage point of the authors, who are hard core about commercialization and building products that will become commercially viable in the market, their nine solutions would work, but only in technologies or industries with similar products existing. An entirely new product would have no audience, and assuming that audience would provide the right answer to a product that they have never used, is as absurd as asking a blind man to describe if he would pay for a color pencil and a canvas.
But the book also fails in many other areas, where the authors drop the same terms over and over and over and over again in their never ending lists, which being from the first chapter and only end in the last page of the last chapter. Each list made me cringe, because they have used so many abbreviations i.e. small words with huge meanings that I had to stop and re-read them again. I hate doing this, because it means that the concepts were encoded and that they were flying over my head. I.E. concepts within concepts within concepts, thus to understand a single sentence, I would have to jot it down on my rough notes, and figure out what they are saying. This reminded me of reading text books back in school, where the author had no respect for the reader, i.e. he would write in language that isn't reader friendly.
Though the intention of the authors to crate a framework to innovate only products and their features that would work out while ignoring the rest of the features is great, their solutions aren't so great, especially the one about using market research to find out what the users like and don't like. But there are some interesting solutions too, in the mix, like the one about behavioral economics, and another solution about competitor research, these are quite good. The author also had the sense to talk about Business Models (he called them cases) and mention that monetization models/revenue models are an integral part of the Business Models. The authors also had the sense to talk about pricing models separately.
One other interesting suggestion is to build a cross functional team of Sales, Marketing, Design, Finance and Product people to decide on feature sets or what goes into the product mix and what does not. This is also one of the best suggestions from the book, which is more relevant to the current context where stakeholder i.e. the CEO or CTO unanimously makes unilateral decisions about products and features under the guise of expertise or to attain maximum speed in the wrong direction. I have seen products fail due to the stubborn attitude of the CEO who is adamant about all the features that he wishes to have in the product and also comes to believe that end users would be happy to have all of them since he/she did!
I was disappointed that this isn't the solution that I am searching for but this is one way of looking at innovation, though it might not be the perfect way.
That pretty much sums up the book and the first chapter or the second is more or less quite sufficient to mark the book as read. Never the less, I completed the book for good measure. The writing style of the authors sucks, very very hard. Except one chapter with all the case studies about various companies that have effectively priced themselves in the market, and the first few chapters, none of the other chapters are really exciting i.e. it was more like reading a reference book or a text book and not like reading a business book. The author have not written this book with readability or readership in mind. I am not really sure if it is a good thing or a bad thing.
But, the basic core principle of the book is "Don't build anything without first asking your customers if they would like to pay for it." That is extremely stupid! If you ask me! Assuming that Customer is God might work well for established Industries but in an Industry that is innovating that most definitely is not going to work out. Thus the basic assumption of seeking customer permission or opinion while building new stuff, is absurd. Almost all the examples given in the book are related to established industries. Monetization and monetization models almost always come after the product is released. When Airbnb created their business model, they had no clue about how they were going to make money off it. The same is the case with Google, Google also had no clue about how they were going to make money with their search engine. Assuming that all of them have taken the permission of the end user to build new and innovative products is an absurd concept. Innovation should not be enslaved by business. Innovation must happen irrespective of whether anybody is going to pay for the product or not. That is why we have so many education institutions which purse innovations for the greater good of mankind. Sometimes for a concept to bear fruit, it might take hundreds of years, some of them take thousands.
The authors of these books or capitalists in general want to stand that the exact juncture where the 1000 year old research/idea is getting converted into a product and entering the market. That is where these people want to reside i.e. where value is realized as money. These people aren't really interested in innovation or dynamics of innovation or they don't pursue science for the sake of science. They are only interested in innovation that can be converted into money! i.e. discard all the innovation that does not make money for you. At that rate all private innovation and R&D should stop immediately except the 1% of innovation for which the users pay. The basic premise of the book is flawed.
But assuming that we are going to look at this from the vantage point of the authors, who are hard core about commercialization and building products that will become commercially viable in the market, their nine solutions would work, but only in technologies or industries with similar products existing. An entirely new product would have no audience, and assuming that audience would provide the right answer to a product that they have never used, is as absurd as asking a blind man to describe if he would pay for a color pencil and a canvas.
But the book also fails in many other areas, where the authors drop the same terms over and over and over and over again in their never ending lists, which being from the first chapter and only end in the last page of the last chapter. Each list made me cringe, because they have used so many abbreviations i.e. small words with huge meanings that I had to stop and re-read them again. I hate doing this, because it means that the concepts were encoded and that they were flying over my head. I.E. concepts within concepts within concepts, thus to understand a single sentence, I would have to jot it down on my rough notes, and figure out what they are saying. This reminded me of reading text books back in school, where the author had no respect for the reader, i.e. he would write in language that isn't reader friendly.
Though the intention of the authors to crate a framework to innovate only products and their features that would work out while ignoring the rest of the features is great, their solutions aren't so great, especially the one about using market research to find out what the users like and don't like. But there are some interesting solutions too, in the mix, like the one about behavioral economics, and another solution about competitor research, these are quite good. The author also had the sense to talk about Business Models (he called them cases) and mention that monetization models/revenue models are an integral part of the Business Models. The authors also had the sense to talk about pricing models separately.
One other interesting suggestion is to build a cross functional team of Sales, Marketing, Design, Finance and Product people to decide on feature sets or what goes into the product mix and what does not. This is also one of the best suggestions from the book, which is more relevant to the current context where stakeholder i.e. the CEO or CTO unanimously makes unilateral decisions about products and features under the guise of expertise or to attain maximum speed in the wrong direction. I have seen products fail due to the stubborn attitude of the CEO who is adamant about all the features that he wishes to have in the product and also comes to believe that end users would be happy to have all of them since he/she did!
I was disappointed that this isn't the solution that I am searching for but this is one way of looking at innovation, though it might not be the perfect way.
May 25, 2016
A great read about the importance of designing the product around his price and value for the customer. The book is very good and gives 9 rules for successful monetization. The only issue I had with the book is that it is very brief(it's on chapter 4) on how to actually have talks about pricing and a deep dive on techniques related to successful customer research and interviewing around pricing. But overall the book is a great reminder to executives to have the customer conversation around value and pricing before building the complete product.
November 1, 2019
A useful and largely actionable book on customer centered design and pricing, with lots of examples from the real world. This book is aimed at CEOs rather than team leads, but still provides value into thinking about price. Cheaper than business school.
January 25, 2017
It's a must read for any entrepreneur. Teaches how to build a viable business.
October 7, 2019
Tidy primer for the basics of monetization from SKP
June 19, 2021
Research and development (known colloquially as R&D) is an inevitability of capitalist markets. New innovations usually outpace yesterday’s technologies. However, many R&D products fail to transition from development to the marketplace. In this work, Ramanujam and Tacke suggest that many of the failures can be avoided by proper management of pricing prior to the start of the project. In truth, this work is an in-depth look at how to set the price of an innovation.
The authors set up several common pitfalls in deploying research as well as specific principles that lead to success. They ground their work in success stories of several companies across a variety of industries. They detail these use cases in the second half of this work. Each chapter also provides accessible summaries along with several “CEO Questions” to address C-suite accountability.
The central insight the authors seek to posit is to put pricing early in the development process. This requires some market research (especially customer feedback) and the involvement of distribution teams (like marketing and sales). Early pricing also requires teams to prioritize customer-driven requests – development from the “outside-in” instead of from the “inside-out.” Finally, this practice requires a bit of courage to say “no” to bad ideas.
The authors unfortunately do not address non-profit centers of innovation like research universities. They face many of the same problems to implement innovations, but have less infrastructure to derive revenue and profit. What’s more, their innovations are often more grounded in basic science than current practice. This makes pricing, in terms of both structure and a dollar figure, even more difficult due to a lack of information about potential markets. By examining this common use case, the authors could have made their theory more general while addressing a significant new audience.
For these reasons, the authors limit their potential audience to those within the business community, especially managers of research, researchers, and the C-suite. The size and age of the company does not matter: Large companies and lean innovators can both benefit, as can established companies and start ups. More generally, this book is for anyone dealing with pricing from R&D. Sustaining revenue and profit in tomorrow’s conditions requires thoughtful and deliberate work. This work will shine the light on the steps required to succeed.
The authors set up several common pitfalls in deploying research as well as specific principles that lead to success. They ground their work in success stories of several companies across a variety of industries. They detail these use cases in the second half of this work. Each chapter also provides accessible summaries along with several “CEO Questions” to address C-suite accountability.
The central insight the authors seek to posit is to put pricing early in the development process. This requires some market research (especially customer feedback) and the involvement of distribution teams (like marketing and sales). Early pricing also requires teams to prioritize customer-driven requests – development from the “outside-in” instead of from the “inside-out.” Finally, this practice requires a bit of courage to say “no” to bad ideas.
The authors unfortunately do not address non-profit centers of innovation like research universities. They face many of the same problems to implement innovations, but have less infrastructure to derive revenue and profit. What’s more, their innovations are often more grounded in basic science than current practice. This makes pricing, in terms of both structure and a dollar figure, even more difficult due to a lack of information about potential markets. By examining this common use case, the authors could have made their theory more general while addressing a significant new audience.
For these reasons, the authors limit their potential audience to those within the business community, especially managers of research, researchers, and the C-suite. The size and age of the company does not matter: Large companies and lean innovators can both benefit, as can established companies and start ups. More generally, this book is for anyone dealing with pricing from R&D. Sustaining revenue and profit in tomorrow’s conditions requires thoughtful and deliberate work. This work will shine the light on the steps required to succeed.
April 1, 2019
This book will give you a step-by-step methodology on how to go about collecting and analyzing data to create a flywheel of innovation.
Most people think that if you create/innovate with the goal of making money, then you are "selling out", if you do so you don't have "soul in the game". Yet, if you don't think about how to make money and if you don't factor in the cost/sustainability of your creations/innovations, then your probability of success will likely be close to zero.
The book has a great mix of science and art. It will go through the rigorous hypothesis-testing-like processes to gather and analyze data. And then will help you use the psychological-biases and "irrationality" of our decision-making processes to promote your innovations via marketing strategies that have high probabilities of success.
Recommended by: reading "Confessions of the Pricing Man", doing research on Simon-Kucher, and a conversation with one of their partners.
Flow: 4/5. If you don't like math it might sometimes feel too technical. If you love math/economics, you'll love it.
Actionability: 5/5. It is basically an elite how-to book.
Some of My Highlights:
"...the work of monetizing a new offering is often viewed as unsavory, dirty, and detrimental to true innovation."
"The problem was they never put themselves in a situation to make trade-offs across goals."
"It was a business case built on a foundation of real customer feedback rather than on internal assumptions and opinions."
"You need to start by articulating benefits -not features- and focus on the most important ones. You need to speak the customer's language, not your language."
"If you are still unsure about how to phrase your product's benefits, probe your customers about their pain points and how your product would solve them."
Most people think that if you create/innovate with the goal of making money, then you are "selling out", if you do so you don't have "soul in the game". Yet, if you don't think about how to make money and if you don't factor in the cost/sustainability of your creations/innovations, then your probability of success will likely be close to zero.
The book has a great mix of science and art. It will go through the rigorous hypothesis-testing-like processes to gather and analyze data. And then will help you use the psychological-biases and "irrationality" of our decision-making processes to promote your innovations via marketing strategies that have high probabilities of success.
Recommended by: reading "Confessions of the Pricing Man", doing research on Simon-Kucher, and a conversation with one of their partners.
Flow: 4/5. If you don't like math it might sometimes feel too technical. If you love math/economics, you'll love it.
Actionability: 5/5. It is basically an elite how-to book.
Some of My Highlights:
"...the work of monetizing a new offering is often viewed as unsavory, dirty, and detrimental to true innovation."
"The problem was they never put themselves in a situation to make trade-offs across goals."
"It was a business case built on a foundation of real customer feedback rather than on internal assumptions and opinions."
"You need to start by articulating benefits -not features- and focus on the most important ones. You need to speak the customer's language, not your language."
"If you are still unsure about how to phrase your product's benefits, probe your customers about their pain points and how your product would solve them."
November 29, 2020
Monetizing Innovation is a super boring title for an essential idea - namely, integrating product design with product monetization.
In this way, it's a good follow up to The Lean Startup - both books try to prevent companies and people from wasting time on things no one wants buy building customer discovery into the process. Ramanujam takes this a step further by providing a process for creating products that will accomplish a company's goals, whether they're revenue, profit, market penetration, or something else.
It seems obvious, but too often product teams are isolated from sales and business - design becomes the realm of artists whose process must be unencumbered by details of COGS and quotas. In reality, as Ramanujam makes clear, too often this leads to feature overload, loss of revenue, or products dead on arrival.
Ramanujam brings a wealth of experience from his consulting work leading Simon Kucher, and I appreciated how practical and to the point most of his instructions were. Unfortunately, the book is still fairly dry, and aimed primarily at large corporations with heavy existing infrastructure. I would have liked to see a consideration of a wider range of applications - from small startups to nonprofits - because I think the ideas here can apply broadly.
Overall, an eminently useful book. The dirty secret of pricing is that too often, companies just make it up. For something that directly affects whether a company makes money, pricing is far too unsexy. This book is not very sexy either, but very much worthwhile.
In this way, it's a good follow up to The Lean Startup - both books try to prevent companies and people from wasting time on things no one wants buy building customer discovery into the process. Ramanujam takes this a step further by providing a process for creating products that will accomplish a company's goals, whether they're revenue, profit, market penetration, or something else.
It seems obvious, but too often product teams are isolated from sales and business - design becomes the realm of artists whose process must be unencumbered by details of COGS and quotas. In reality, as Ramanujam makes clear, too often this leads to feature overload, loss of revenue, or products dead on arrival.
Ramanujam brings a wealth of experience from his consulting work leading Simon Kucher, and I appreciated how practical and to the point most of his instructions were. Unfortunately, the book is still fairly dry, and aimed primarily at large corporations with heavy existing infrastructure. I would have liked to see a consideration of a wider range of applications - from small startups to nonprofits - because I think the ideas here can apply broadly.
Overall, an eminently useful book. The dirty secret of pricing is that too often, companies just make it up. For something that directly affects whether a company makes money, pricing is far too unsexy. This book is not very sexy either, but very much worthwhile.
August 14, 2021
A very practical approach for a profit oriented process of managing investment of time and resources into research and development, product communication and new product sales.
A great focus is given to pricing and innovative pricing models (which probably were more innovative at the time the book was written but not any more), payment mechanisms that align your customer's risks with your own, and charging as much as possible for the value generated to customers.
I'm probably reading this book at the wrong time as I'm nowhere near private innovations at the moment, but it seems as a useful guide for anyone that is. One of my takeaways however is that the ideas in the book push towards profit generation instead of value generation, but that is a general reality of business management.
A great focus is given to pricing and innovative pricing models (which probably were more innovative at the time the book was written but not any more), payment mechanisms that align your customer's risks with your own, and charging as much as possible for the value generated to customers.
I'm probably reading this book at the wrong time as I'm nowhere near private innovations at the moment, but it seems as a useful guide for anyone that is. One of my takeaways however is that the ideas in the book push towards profit generation instead of value generation, but that is a general reality of business management.
March 5, 2023
Easy to read and follow, though sometimes too general and repetitive for my taste.
Main ideas stressed the importance of designing the product around its price, instead of setting the price (often based on a hunch) right before the launch. Case studies gave great illustrations to the theory and were the most valuable parts of the book for me.
New edition might be in order - company valuation as an indicator of monetization success probably isn’t relevant in 2023 (Uber); tier-based pricing is so common in saas industry today, that readers might see it as standard, rather than innovative pricing. Long-term case studies describing the pricing dynamics over the years would be an interesting follow-up.
Main ideas stressed the importance of designing the product around its price, instead of setting the price (often based on a hunch) right before the launch. Case studies gave great illustrations to the theory and were the most valuable parts of the book for me.
New edition might be in order - company valuation as an indicator of monetization success probably isn’t relevant in 2023 (Uber); tier-based pricing is so common in saas industry today, that readers might see it as standard, rather than innovative pricing. Long-term case studies describing the pricing dynamics over the years would be an interesting follow-up.
This entire review has been hidden because of spoilers.
January 15, 2021
The first few chapters are incredibly insightful, detailed, and practical. It really set me up with high expectations for the book as a whole, however the chapters became less focused and more vague as they went on. The case studies vary from myopic to insightful with no predictable pattern, but a recurring flaw in that there is no consideration of external, or even internal, variables that may have contributed to the success stories.
I am now convinced that the willingness to pay concept is a valuable one, however this feels like the authors had a great single concept, but needed to pad it out to fill a book. A classic case of a book that should have been an article.
I am now convinced that the willingness to pay concept is a valuable one, however this feels like the authors had a great single concept, but needed to pad it out to fill a book. A classic case of a book that should have been an article.
February 9, 2019
A must read
Whether you build physical products, digital product and/or services your business growth by generating revenue. In order to do that you need to “price” your products. Most of us have, as this book clearly point out in the beginning, always left pricing to the very end, and lets be honest, mostly to chance.
This book will flip your mental model of how you build and price products.
Whether you are a Product Manager, in Sales, Marketing or the CEO of a company, this book is a MUST READ!
Whether you build physical products, digital product and/or services your business growth by generating revenue. In order to do that you need to “price” your products. Most of us have, as this book clearly point out in the beginning, always left pricing to the very end, and lets be honest, mostly to chance.
This book will flip your mental model of how you build and price products.
Whether you are a Product Manager, in Sales, Marketing or the CEO of a company, this book is a MUST READ!
May 21, 2019
A very basic book. A combination of micro economics 101 and pricing basics. Too theoretical at times. The biggest question on WTP, to me at least, is not how to use it but how to assess it. Once you get it, the maths is trivial. There is also a practical trade off between getting insights from the customer vs educating. It’s not that easy that you just ask the customer “how much are you willing to pay for this?”. The books approach kind of works for old boring companies but this is not where innovation is. Limited value to young companies especially if they know micro basics
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June 25, 2021The book explains a theory that the reason the Kindle fire phone was a flop was because they built many things that people ‘like’ instead of just one or two things that people ‘love’.
Building lots of things that people like costs more money than what people are willing to pay.
In order to solve this problem, you’d have to start from scratch and get feedback from the customer on what they would love? What they would be willing to pay? And work backwards from the customer; as opposed to creating a products with lots of features and then wondering if there is a customer.
Building lots of things that people like costs more money than what people are willing to pay.
In order to solve this problem, you’d have to start from scratch and get feedback from the customer on what they would love? What they would be willing to pay? And work backwards from the customer; as opposed to creating a products with lots of features and then wondering if there is a customer.
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