How Ismail Madni Develops Pricing for Products
October 22, 2024
Ismail Madni — a pricing expert who has worked with everyone from Okta to InVision and Coda — first studied engineering.
“After I received my master’s in engineering, I got a job with a government contractor. I took a pricing course to help improve how we priced proposals for clients. From there, I was hooked.”
Even though Ismail works mainly for marketing leaders, he often turns to his engineer’s analytical skills for his pricing projects.
Value-based Pricing
Explains Ismail, “Analysis of data is the foundation of value-based pricing. You have to research your customers, understand what they need, what their jobs are, what they value, and how much they're willing to pay for that value. Without us conducting that research, we're just guessing.”
“Without us conducting that research, we’re just guessing"
Ismail says that, before maturing as an organization, some startups only spend a few minutes on their initial product’s pricing, with the “loudest voice in the room” delivering the gut-instinct stab at what the product should cost.
Other organizations make the mistake of only prioritizing the finance department’s costs. Ismail says a finance executive might remark, “Hey, you know, it costs us a million dollars to provide this service. So we need to set our price where we capture $1,200,000 back from our users.”
“The problem with that is your users don't care what your costs are,” says Ismail. “Your customers may actually be willing to pay significantly more than just giving you a 20 percent margin, or they may not be willing to pay that much. And maybe you should reconsider your costs.”
And, finally, there’s the old game of just trying to differentiate from competitor’s pricing, explains Ismail. “‘Competitor over there is pricing at $9 per user. Wait, that competitor over there is pricing at $15 per user. We should come in at $12. We're gonna be the Goldilocks. We'll be right in the middle of our competitors.’”
“At that point, you might as well just ask your competitors what you should do as a business,” says Ismail. “Because you're just setting your pricing based on what your competitors are doing.”
A better way to price
Ismail has seen "a better way to price" that every company can learn from. He says the key is to employ both quantitative and qualitative research approaches to ground the pricing decisions in customer data.
“On the quantitative side,” says Ismail, “we create these surveys with 500 or 1000 responses and essentially conduct trade-off analysis. For example, with MaxDiff surveys, a customer is forced to make trade-offs about what you value the most and what you value the least. Conjoint analysis helps you understand the value respondents assigned to particular features or benefits of your product.”
According to Ismail, qualitative research involves interviewing a smaller sample of respondents than surveys can accommodate to delve deeper into the context surrounding the answers.
Explains Ismail, “In these customer interviews, you will actually talk to a customer or a prospect, and get to know them, ask them questions about who they are, and what their day-to-day is like. What are their jobs to be done? What are the problems they need to solve? What actually helps them solve that and what they value?”
Ismail likes these personal customer-interview questions because they help “humanize the rest of the pricing research.”
“If you're just going based on the quant research, there may be something you're missing that you don't see behind the numbers,” says Ismail. “If you just go on the qualitative data, you might not have enough of a sample. You might not quite understand the big, huge trends that are occurring. So it's really important to have both of those elements when conducting pricing research.”
Voice of the Customer
“The power of hearing someone's voice versus having a written quote”
It takes minutes to send a survey to 1,000 people but it can take five hours to interview even a handful of customers. Ismail has figured out a few user research tools including Grain to make interviewing customers and reporting those findings out more efficient and impactful.
“I think one of the things that has always been a challenge with pricing interviews is to actually use the voice of the respondent when sharing it out with your team,” says Ismail. “One of the powerful things that I was able to do with Grain was share video clips of folks saying, ‘yeah, you know, I'm willing to pay for that, or that price sounds good.’ Just the power of hearing someone's voice versus having a written quote on the screen really has an impact with stakeholders in their decision-making.”
Before Grain, Ismail would try to share an entire Zoom recording that “no one would look at.” Now Ismail can quickly Slack a product manager a brief video highlight of a customer reacting to pricing proposals. “The chief product officer responds, ‘Oh my gosh, this is great.’ Or I send it to someone in design, with a note such as ‘Hey, you know, look at what they think of our pricing page.’ Just hearing a customer’s voice and seeing how the customer reacts to things that you're showing them is very powerful.”
In addition to sharing a steady stream of customer quotes in Slack, Ismail packages up all of the most important parts of customer feedback in spreadsheets and Notion documents.
“I feel like a spreadsheet or a document like Notion is the easiest way to list out one, the interviews you did and, two, the answers to the questions you asked,” says Ismail.
Product Pricing Questions
Some of Ismail’s typical pricing questions:
- Who is the customer?
- What is their employer like (industry, size, etc.)
- What is their role?
- What tool do they use (yours or a competitors’)?
- What are their jobs to be done? (That's a critical pricing question to help set segmentation.)
- What are the problems they need to solve?
- What are their value drivers? What do you see here that actually drives value and what are you willing to pay for it?
- Is the pricing fair?
- Is the pricing easy to understand and clear?
- Do they have purchasing authority and how are tools purchased at their employer?
In case you're looking for more questions to better understand your customers, here you go.
Ismail's templates for packaging up pricing feedback for clients’ product teams and leadership. Click on a template and make a copy for your own projects.
- Notion template for pricing interviews.
“It's not a very complex thing,” explains Ismail, “but being able to organize the customer feedback in a way that has the video clip of every type of pricing question you're going to ask just makes it very powerful to share it out suddenly to a decision-maker or a stakeholder. Someone is able to see the conclusions you came up with and where that came from. It allows any stakeholder to quickly and easily see that, one, there's real evidence for your conclusions and, two, there’s a real customer voice that aligns with what you're recommending.”