Madhavan Ramanujam: recommendation

Transcript context

…Okay, so let's actually talk about how to have these conversations. I imagine that's what a lot of people are wondering right now. It's like, yes, I'm convinced I will have these conversations, but then the classic issue with customers, you ask them what they all do and you can't trust their stories of what they'll actually do. So what advice do you have for folks when they have these conversations? What questions should they ask? What words should they use? I know you have a few frameworks that you suggest, you can talk about that. Yeah, we can go deep into this and you can pull me back or ask me to go deeper, whatever. It doesn't matter. So I've written an entire chapter in the book, chapter four, it's called How to Have the Willingness to Pay Conversation. If there's one chapter, just read that. It's quite detailed and goes into how to actually do this. But look, if you go and ask someone, how much should I charge for this product? You're actually going to get garbage back. That's your job. No one is supposed to tell you how much to charge, and that's the worst way to have the conversation. There are some really interesting and nuanced ways of having the conversation where you still tease out what people are willing to pay for without directly confronting someone as to what you should be charging. So let me go into a few methods and I can pause to see if you have any questions. So the first one is, what we say is frame. The first one is, what we say is, "Frame the question in a more relative manner", because, and sometimes I say tongue in cheek, that, "People are absolutely meaningless, relatively super smart." What I mean by that is, if you go and ask someone, "How much should I charge?" You'll get a meaningless answer. But if you actually ask it in a relative way, people actually give responses that are meaningful. So for instance, if you're a B2B SaaS company, and you're trying to see if your product actually has willingness to pay, one way to have that conversation is to say, "Okay. Hey, do your customers, do you use products like Salesforce in your install base?" "Yeah, I do use." "Okay, Salesforce was indexed at 100 in value. Where do you think we are in terms of the value that we bring to your, let's say, day to day business operations?" That people can answer all day long. They might say, "80", they might say, "120", depending on whether you're more or less compared to, let's say, what a Salesforce can do, which is an established [inaudible 00:25:56]. And then if you say, "Okay, if Salesforce was indexed at a 100 in pricing, where do you think we should be?" That also people can say, okay, if they say 110, what they're saying is, you can be more premium than that and we would still pay for it. At least you've gotten some information that is meaningful at a very basic level. So this is some relative ways of asking these questions are the most basic ways of actually doing it. Then we have questions where there's some methods where we actually want to understand, are there some psychological thresholds or budgets when it comes to willingness to pay? So the way to do this is let's take your product that you're going to launch, pitch the value to your customers, have that exact sales and marketing conversation that you'd have after you launch the product, but before. And then you ask them, "What do you think is an acceptable price for this innovation?" Look, everyone would like to low ball, they'll negotiate with themselves. ter you launch the product, but before. And then you ask them, "What do you think is an acceptable price for this innovation?" Look, everyone would like to low ball, they'll negotiate with themselves. Let them give an answer, clock it, then ask them, "What do you think is an expensive price?" And then follow that with, "What do you think is a prohibitively expensive price?" And across thousands of projects that we have done, what we have come to realize is, acceptable price is the price where people not only love the product, but they also love the price. If you're in true growth mode, maybe you can put it there as a no-brainer price, no friction, et cetera. The expensive price tends to be the price that is value priced, as in, they don't love you, they don't hate you, they would pay you, but that's a neutral reaction. Prohibitively expensive tends to be the price that they'll laugh you out the room. And if you do this at scale, what you'll start seeing is that there are some cliffs in these demand curves, where suddenly, when you cross from let's say 99 to 101, 20 or 30% might say, "It is expensive," or, "Hey, it's prohibitively expensive." And that's what we look for to see if there are some psychological thresholds that if you actually cross, you have a perception of being expensive. So hiding behind some of these psychological thresholds become important. Rahul Vohra from Superhuman actually read the book, and he talked about this in an a16z podcast. He actually used this method to come up with his $30 price point for the Superhuman app. And I think that's a quick and dirty way to actually get to, what is a willingness to pay, and what's a psychological threshold? So I think that's a interesting method that you can do Monday morning. But the key here is to not just ask the question, "What would you pay?" But have that sales and marketing conversation. Tell people where they actually might get the benefits. Basically, exactly everything you would do after launching the product to create awareness and showcase the benefits, do it, and then ask these questions, so that you're priming them to the value that your product gets and you're not just having a random conversation. There are other techniques that go more and more, let's say, rigorous. For instance, purchase probability questions. So if you ask someone, "Okay, would you buy this product?" That's a meaningless question. At least if you ground them on a scale and say, "On a scale of one to five, would you buy it?" One is, "I'm not at all interested", five is, "Most likely I would buy it," or, "I would buy it for certain." And four is, "Most likely", for instance, and three is, "I'm neutral." What we are actually seeing is, even if people say, "Five", they are probably only 30 to 50% sure about whether they would buy, so you can start, and if they say, "Four", it's 10 to 20%. If they say, "Three and below", they're never going to buy it. So if you do this at scale, you can start coming up with, let's say a demand curve. And then say, "Where is the price optimal?" et cetera. So you can understand purchase probabilities.…

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