Book Review: Monetizing Innovation: How smart companies design the product around the price, by Ramanujam and Tacke

I am always skeptical of books written by consultants. They are often long-form brochures packed with platitudes to score more consulting gigs and speaking engagements.

In that light, I am pleasantly surprised by “Monetizing Innovation: How smart companies design the product around the price.” The authors, Madhavan Ramanujam and Georg Tacke, are not paid consultants – at least not anymore. They are a board member and the CEO respectively at Simon-Kucher – a consulting firm specializing in pricing strategies.

In all, I found the book to be practical, well written, and well-reasoned. It is a must read for product marketing and product management teams. It is also great for execs focused on monetization.

The main point of the book is that before you start product development, you need to start your “Willingness-To-Pay” conversations with customers. As you develop the product, continue the WTP analysis with greater specificity until you determine your final price. This is true for both software and physical products.

Doing so in a methodical way will help you identify the benefits your customers will and will not pay for. Failing to do so leaves you hoping, not knowing if your product will be successful.

Product monetization failures abound. According to a Simon-Kucher study, 72% of new products failed, “to meet their revenue and profit goals – or failed entirely.”

The authors go into great detail on numerous case studies but trace each failure back to four root causes.

  1. Feature Shocks– Packing in too much and getting too little in return.
  2. Minivations– Your product does not reach full market or price potential.
  3. Hidden Gems– You have a winner in your midst but no one is promoting it.
  4. The Undeads– You created something people do not want, and certainly do not want to buy.

So how do people avoid the fate of failure? This is where the book is most useful. It provides “9 surprising rules for successful monetization.” In reality, these are 9 steps in a process. The authors do a great job connecting the steps and building on what you learn.

The book dedicates substantial time to how to judge WTP. This is an important part of the book. It also addresses customer segmentation, bundling features, and picking the right monetization model. The sections on pricing strategy and avoiding “knee-jerk repricing,” are particularly helpful.

Positive Points:

Chapter 4: Have the “Willingness-to-Pay” Talk Early: This chapter outlines multiple methods to judge WTP. It is a lynchpin to the book, and definitely informative.

Leader, Fillers, and Killers Framework: The book buckets features into three categories: Leaders (features people will pay for), Fillers (nice-to-haves), and Killers (features that can kill a sale). It also outlines how to determine which features fall into which bucket.

Success Stories:  Chapter 13 highlights six monetization success stories from different companies. The detail in them is great. They also help answer a lingering question the book otherwise missed: when should you have more general and more specific WTP conversations. These stories are a highlight of the book.

CEO Questions: Each chapter concludes with questions CEOs should ask their teams. The point is to keep the teams on track. They are good questions and everyone asked them.

Critiques:

Poor monetization is the source of all failures – The authors trace all product failures back to monetization practices. That is too simplistic. It is true that most product failures stem from a poor product-market fit. You would uncover a poor fit when you have WTP conversations. But, that does not address why a poor product-market exists, nor what to do about it. Lean startup methods would be more insightful on this front.

Best for existing businesses: The target audience for this book is existing businesses. That makes sense. Startups cannot afford Simon-Kucher consulting fees. That said, startups will find some useful nuggets on WTP, packaging, and pricing strategy. Startups that follow a lean startup methodology will find a lot of this book to be redundant.

Some of the WTP tactics are not settled best practices: The book endorses a number of methods to judge WTP. Van Westendorp price sensitivity questions and conjoint analysis are two of them. There is a lot of academic research that documents the limitations of direct and indirect WTP survey methods. I wish the authors had addressed those. That said, the differences between real life and academia are stark. The book errors on the side of being applicable which is the best route. It would have been good to address the limitations though.

Monetizing Innovation, by Madhavan Ramanujam and Georg Tacke, is available in brick and mortar bookstores. Your local library is a good option too! If you are averse to both of those options, below are some links: (I receive no money when you click on the links)

Bonus: Madhavan Ramanujam did an interview on the Subscribe Podcast. If you are in a B2B software company, you will find it interesting.

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