Madhavan Ramanujam: evaluation

Transcript context

…Which you shared just now reminded me of another really interesting framework in your book, around pricing strategy. And you talk a lot about just how important it is, one to just write down your strategy and why you think this is the right strategy. But specifically, you have these concepts of either you want to be maximizing, you want to be penetrating or you want to be skimming. And I thought this would be a good time to chat a little bit about that. Can you just talk about what these three strategies are? Sure. When we talk about pricing strategies, we hear many buzzwords, and it's irrelevant. So when we take a step back and look at it, there's literally only three types of pricing strategies. And if you know this, then you can follow one of these and [inaudible 00:53:57] to success products. The first one is skimming strategy, which is your Apple iPhone. They launch at a particular price and the next generation is probably at a higher price, but the previous generation actually goes down, so they launch at a higher price and then they start lowering the price. So they're skimming the market. And connotation of these products is also, it's a premium product. Price is a signal of quality, et cetera, et cetera. If you take penetration that's probably made famous by Amazon. And Amazon, they're probably operating at much thinner margins, but they're playing the volume game. Much more harder game to play because you need to have all of your costs in order, supply chain, everything else, and you're fine tuning towards the volume game. Often, I see entrepreneurs who say, "Let's just price load to gain growth." That's a fallacy. If you don't have a business model that actually supports this compared to Amazon, then you probably shouldn't be in a penetration strategy. And even in a company like Amazon and AWS has a very different strategy compared to the e-commerce marketplace. So within even business units, you can actually have different pricing strategies. And the third one is just maximization, which is you're neither on these two extremes but a bit in between, and you're saying, "Okay, what can I maximize in the next couple of years?" In my opinion at least Microsoft will probably belong in that category. And if I look at Apple, Microsoft, Amazon, companies that reached trillion valuations in our lifetime, probably the only three in some way, shape or form, they have dramatically different pricing strategies. The point is not about picking, just picking one, but it's about executing the one that you actually pick. And that's also what we write about in the book, how to pick one and not just pick one, but how to build your products around this executed live and breathe your business model strategy, which leads to your pricing strategy. Amazing. I just want to say I love how deep we're getting into all these topics. This is amazing.…

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