Madhavan Ramanujam

You can not prioritize a product roadmap without having the willingness-to-pay conversation.

Entrepreneurs and companies need to look into the willingness to pay much earlier, so they can understand if they are on the right track. If you have a price conversation with a potential customer, knowing if they’re willing to pay or not (and why) helps you build a better product. Why would you postpone this?

How you charge (business model) is the most important question, not how much you charge.

Framework to think about packaging and bundling:

• Leaders: the leading product (e.g., Big Mac)
• Fillers: something that customers might not have bought if it wasn’t in a bundle (e.g., french fries or coke)
• Killers: products that can kill the bundle for everyone (e.g., adding coffee to a menu) and decrease the bundle's value, yet can be great candidates to have as add-ons.

You need to be able to productize to segments. If you’re trying to build a product and then trying to position it to segments, you’ve already lost the battle. Example: the water we drink can be free at the fountain, $2 at a gas station, $5 in the hotel minibar, and $8 for liquid death.

Pricing is a cross-functional discipline but should sit on the product side because you must design the product based on the value and what users are willing to pay for.

Pause and think about revisiting your pricing every 6 months. Between 12 and 18 months is probably a good time to revisit pricing. There are also some pivot points when it makes particular sense to change pricing: new plan, new feature, etc.

Instead of reducing prices (e.g., during a recession), think about non-pricing alternates:

• Give more product for a period of time at the same price they’re paying
• Change contract terms (e.g., longer contract)
• Change payment terms (e.g., 15 days -> 30 days)
• Change business model (e.g., change to usage-based)

Most people think of segmentation as a demographic or persona exercise, but they get it horribly wrong. Segmentation needs to be based on what customers need, what they value, and what they’re willing to pay for.

Willingness-to-pay methods are different for various products and stages of a company.

• If you’re very early stage (e.g., just an idea), ask, “would you pay for it?”.
• If they say yes, ask why (they will articulate the value they understood)
• If they say no, ask why
• If you’re at the series A or seed stage, the purchase-probability questions can be a quick and dirty way to get an answer and point of view.
• If you’re late stage and need to be more precise, use methods like the trade-offs exercises.

Showing a suite of products as a puzzle to be completed instead of a list of products will increase the number of people buying more products. This “panini effect” can work for both B2C and B2B. Example: Starbucks bingo card

It’s not just about product-market fit. It’s about achieving a product-market-pricing fit. Willingness to pay is a proxy for “do people actually value your product?”

When evaluating willingness to pay, you need to pitch benefits and what people get from the product. If you’re pitching features, you’re not talking value. If you’re not talking value, no one will get it.

You should ask about willingness to pay relatively. Example: comparing with the value another product brings, like “if Salesforce was indexed at 100 in pricing, where do you think we should be?”.