Pricing Strategy Takeaways

May 24, 2023

For our latest IVP CFO Collective, Ajay Vashee hosted a pricing workshop featuring
Simon Kucher & Partners’ Madhavan Ramanujam and Eddie Hartman. Attendees
also gleaned practical insight from former Netflix CFO David Wells, HashiCorp CEO
Dave McJannet, Jasper President Shane Orlick and Jasper Head of Finance Amy
Sunderman.

“In an inflationary environment, if you’re not raising prices,

you’re losing.” – Eddie Hartman

Avoid these pricing pitfalls

Feature Shock: putting too many or the wrong features in a one-size-fits-all product
● Symptoms: over-engineering, difficulty selling, frequent price cuts
● Tell-tale statements:
- “We can also add this”
- “Customers don’t know what they want, so we’ll decide”

Minivation: creating the right product for the right market but underpricing it
● Symptoms: a lack of ambition, lowballing targets, fast sales cycles
● Tell-tale statements:
- “I don’t want to sign up for a big number”
- “We can always raise prices later”

Hidden Gem: building a blockbuster product but not properly bringing it to market
● Symptoms: lack of customer recognition, a play-it-safe development mindset
● Tell-tale statements:
- “Not in the main tent”
- “It’s not in our DNA”

The Undead: products that should’ve been killed because they answer questions nobody asked
or provide the wrong answer to the right questions
● Symptoms: a lack of objectivity, yes-maybe-no culture, pet projects, low demand, sales
struggles, negative press
● Tell-tale statements:
- “I’d never buy this myself, but…”
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 - “I just know this will work”
- “We’re pot committed”
- “We’ve already come this far”
- “If we asked customers what they wanted, they’d say ‘faster horses’”

“There’s always a hidden gem, and if you don’t go looking for it

you’re not going to find it.” – Madhavan Ramanujam

Take these pricing steps

The answer to knowing vs. hoping to monetize: The 9 steps framework for
monetizing innovations

Measure willingness to pay (WTP) and let it be your guide

● Customers don’t pay for value – they pay for perception of value.
● Before designing a product, determine if your customers value your innovation and are
willing to pay for it. Position these conversations as “value talks” instead of “pricing
discussions.”

Create actionable segmentation

● There’s no “average customer” (one size fits none)
● Begin with willingness to pay (WTP) data
● Create fewer segments, not more
● Don’t try to serve every segment
● Describe segments in detail

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Fencing maximizes revenue
● How you charge is more important than what you charge. Create fences that influence
how your customers choose what to buy. Make sure you have a less expensive
alternative that attractively frames a more lucrative product or service.

● There is zero correlation between discounting and customer acquisition. Instead, reward
customers for bringing you more storefronts, lines of business or whatever might deepen
your footprint.

Heed these pricing truths

“Pricing is not only a finance exercise. The entire company needs

to be represented to operationalize it, otherwise it won’t be
successful.” – Amy Sunderman

Farming (NRR) is just as important as hunting (ARR)

● The price of hunting for $1 of ARR has outpaced inflation, partly because we’re getting
better at farming as it’s gotten more important. But if you stop hunting, you’ll have no one
to farm.

The cost of hunting has outpaced inflation

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Three North Star metrics: acquiring, monetizing and retaining
● The tension between acquiring and monetization is driven by perception of value, which
should be your North Star. The tension between acquisition and retention defines your
market share. Balance between monetization and retention is your net retention. Use
these three KPIs in concert because you need all three to steer growth.

Pricing isn’t a singular decision but a series of strategic choices

● Each step must be executed properly. Along with data driven conviction, pricing for
monetization requires careful timing and thoughtful customer communication.

“Ultimately, pricing can be a leap. Someone has to have

conviction and be willing to stake their reputation to say,
‘This is the right decision, this is what I think we should do
and this is the basis for that decision.’” – David Wells

For a copy of the

Simon-Kucher presentation,
email cfo-collective@ivp.com

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