Alessandro Monti is a pricing enthusiast and expert on all topics related to monetization, conversion, upselling, digital pricing, price management, and business and pricing history.
In this episode, Alessandro highlights the importance of adopting a monetization-led growth approach for your business and emphasizes the need to start implementing this strategy early on in your business.
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Why you have to check out today’s podcast:
- Learn to redefine growth in the sense of making it profitable and sustainable
- Discover the importance of a monetization-driven growth strategy for the long-term success and sustainability of your business
- Find the ideal pricing metric for your business to attain optimal product-pricing-market fit and achieve success
“Choosing the appropriate price metric seems to be probably one of these game-changing moments for your businesses.”
– Alessandro Monti
Topics Covered:
01:32 – What brought him to pricing and what made him choose SKP
02:43 – Why he believes in supply and demand
06:01 – Delving into the concept of “growth at any cost” and shifting our focus away from it
08:31 – Defining digital industry and turning away from this ‘growth at any cost’ mentality
09:36 – Redefining growth
12:25 – Challenging the tools and techniques to get to this ultimate growth
14:49 – Deciding between freemium and free trial [and starting monetization-led growth early on in the business]
20:25 – Extracting value to monetize a product and what is true business success
23:03 – Alessandro’s best pricing advice that impacts anyone’s business
24:05 – Finding the best pricing metric to use
Key Takeaways:
“Let’s redefine growth in the sense of let’s make profitable business.” – Alessandro Monti
“We don’t need the ‘free’ just for the sake of having free because there is value in having free users. But besides that, I think you need to seek the conversion and the monetization as early as possible.” – Alessandro Monti
“It’s growth understood as profitability using all of our modern monetization techniques and there’s room for alternative content.” – Alessandro Monti
People / Resources Mentioned:
- Taylor Swift: https://www.taylorswift.com/
Connect with Alessandro Monti:
- LinkedIn: https://www.linkedin.com/in/profmonti/
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Alessandro Monti
Choosing the appropriate price metric seems to be probably one of these game-changing moments for your businesses.
[Intro]
Mark Stiving
Today’s podcast is sponsored by Jennings Executive Search. I had a great conversation with John Jennings about the skills needed in different pricing roles. He and I think a lot alike. If you’re looking for a new pricing role, or if you’re trying to hire just the right pricing person, I strongly suggest you reach out to Jennings Executive Search. They specialize in placing pricing people. Say that three times fast.
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the profitable relationship between them. I’m Mark Stiving. Our guest today is Alessandro Monti. And here are three things you want to know about Alessandro before we start. He is a professor and now Dean at CBS International Business School in Germany. A long, long time ago, he was a consultant for SKP for five years. And believe it or not, he shook Bill Clinton’s hand at a G7 in 1998. Welcome, Alessandro.
Alessandro Monti
Hi, Mark. Good to be back.
Mark Stiving
Good to have you back. So remind us, how did you get into pricing?
Alessandro Monti
Yeah. The story basically goes that the first job after graduating brought me to SKP, and basically, once you start at such a powerhouse regarding pricing consultancy you kind of never lose the interest and the passion on the topic. And since then, I went all in with pricing. So yeah, that’s in a nutshell, the story of how I touched base with pricing.
Mark Stiving
How did you choose SKP coming out of school though?
Alessandro Monti
SKP was kind of a logical choice in a sense that I have a master’s degree in economics, so it’s a lot of microeconomics. So I learned all these pricing aspects from the economic side, supply and demand, market monopolies, et cetera, et cetera. And I was very fascinated that there was something like a pricing consultancy. So something that they knew from a theoretical perspective was then used in real life projects, and that really was the game changer back then.
Mark Stiving
Nice. And I just have to ask, now that you have lived in the real world for a long time, do you believe in supply and demand?
Alessandro Monti
I do.
Mark Stiving
Do you?
Alessandro Monti
For many products, for many services, and for many market situations, I think supply and demand is still what drives markets and what then, creates… price clears markets, and then price makes sure that we bring supply and demand in the equilibrium. So yes, it is, we now know of, advanced technologies that simulate, anticipate this, but at the end of the day, it’s supply and demand. So yes, definitely.
Mark Stiving
Okay. Just because I feel like, and I want to argue about this, man.
Alessandro Monti
Yeah, of course. Sure. Let’s do this.
Mark Stiving
So it feels to me like supply and demand makes all the sense in the world for an industry, but it feels like it makes almost no sense for a business. And so if we think about concepts of game theory and implicit collusion, and I’m not going to lower my price because I know you’re going to lower your price and it’s not going to change market share, and all it does is hurt industry profits, then we tend to hold prices at points that are above where they would be if all we cared about was market clearing prices.
Alessandro Monti
You have a point. You definitely have a point. So yes, for industries, segments, larger parts of markets, I would agree, definitely supply and demand. What then happens from the individual perspective. So on a business level and a corporate level, this then may deviate but what the consolidated action of everybody within the industry of all the businesses within the industry then probably leads to these mechanisms that we know as supply and demand. So I would agree with you. We have to look specifically at what we are talking about, markets, industries, maybe digitalists, then different, and then non-digital, and then offline and online. But what, we tend to see, and this is what really caught my interest. Taylor Swift, by the way, concerts, tickets, supply and demand. And I read an article that basically said, hey Taylor Swift needs basically to increase the supply, of her performances, of her concerts to meet that demand, because otherwise, how things are right now, we will have these incredibly high prices and people complaining and then ending up buying these tickets anyway. So yeah, it’s fascinating. So it really depends, as always in life. It depends on, , what perspective we’re taking in and what type of market and business. Yes.
Mark Stiving
I think that makes sense. And I think the highlight of this whole podcast is going to be, you’re fascinated with Taylor Swift.
Alessandro Monti
Yeah. Let’s talk about that later. Probably it’s a business case. Let me put it this way. No, it has stirred some controversy. So this is what I get at least from the US concerts.
Mark Stiving
Absolutely true. It’s absolutely true. She is such a phenomenon. She is her own supply and she’s her own industry, right? Yeah, there is no doubt. Yeah. Alright, so when I asked you what you wanted to talk about today, you had brought up this concept of growth at any costs, and how do we move away from that? What are you thinking?
Alessandro Monti
Yeah, this all stems from my observation, that where we are going right now since maybe it’s 2021. So the last two years probably. So the observation is basically where we’re going is a state of consolidation, tough macroeconomic conditions for everybody. Money is not cheap. And, this affects businesses across markets and then countries and on the whole world. And while teaching these kinds of topics, I came across the fact how a whole industry, the digital industry, has been thinking about business and growth. Maybe it is something that does not reflect our current tough macro economic condition. So out of this basic observation, I thought that we, as pricing enthusiasts, but everybody else that has a genuine interest in a profitable and sustainable growth is probably looking for an alternative, probably is looking for other options on how to grow with business, on how to progress with his endeavor and her endeavor. So out of this observation, I thought, well, let’s bring this down into something new or an alternative concept. And that’s what’s really driving my interests currently. Definitely.
Mark Stiving
So before you go further, first define the digital industry for me. What are you thinking?
Alessandro Monti
So I’m thinking about all companies that have a digital product slash service, but have a digital asset that they want to sell to other interested market participants. So a digital product that of course we know,has no marginal cost involved in that, that is easy to scale, that has the ability to be distributed at no cost. There’s no rivalry in using this digital product because, for example, it is embedded in a cloud. So everybody has access, it can be shared. So this is the digital industry. So you have a digital product with all these characteristics and implications.
Mark Stiving
Yeah. So just to make sure everybody’s on the same page, you’re talking about essentially software and data?
Alessandro Monti
Correct.
Mark Stiving
Okay, got it. So now let’s hear how we are going to get away from this growth at any cost mentality?
Alessandro Monti
Yeah, I mean, I’m proposing a different narrative. I’m proposing that, let’s focus back on how we think about growth. Back then, I mean, since the 2007, 2008 years. And money became cheap. You were a startup, you were a digital startup, you had an idea and people were throwing money at you. And, there was no alternative in investing because interest rates were low, stock markets were doing fantastic. And yeah, I mean, here’s my money. You have an idea and grow in customers, grow in users, and make sure that you scale quick, fast and, we will not answer, we will not ask any questions, just do it. This led to, I think many, many businesses were funded… very mediocre businesses, to be honest. So that was…
Mark Stiving
What you’re describing reminds me of pre 2008 when we would always hear about, we’re funding eyeballs, right? How many eyeballs can you get? And it had nothing to do with money or monetization.
Alessandro Monti
Exactly. But I think this is kind of the pattern that I saw in this year as well, because that’s the key to scale. So the ultimate goal was, hey, let’s grow. But growing in what? In numbers, in volume, in market share, in users and, all these, let’s say usage-related metrics. And for that time it was okay and everybody was happy. And you had your free offer. You had the signups, you were big enough, no questions. And that was it. Until things got a little bit rough in the last two years. And many players in the market were caught off guard because they did not earn any money and we’re not earning money for many years. And what do you do? You tend to rely then back on what you learned back in business school, cost management. So fire the people, layoffs, downsize, yeah. And it will be okay, but I think there is an alternative.
The alternative being let’s redefine growth in the sense of let’s make profitable business. So let’s grow, make sure that we have the numbers, the signups, but seek profitability. Make sure that you grow your business and you grow your profit step by step. So don’t overdo it, have this as the ultimate goal and everything else is then aligned towards this goal. And at the end of the day, we know these previous, let’s say growth motions as the PLG motions, the product-led growth. We have sales-led, we have product-led sales but none of these have growth as in profitability. And I think this in our current times is paramount. So that’s why I’m proposing a different approach. It’s the monetization-led growth.
Mark Stiving
So I find it interesting that you see it that way. As I’ve been studying the subscription business model, one of the metrics that they use all the time is LTV over CAC. So lifetime value divided by the customer acquisition costs. Now the assumption is, we’ve got pretty close to zero marginal costs. And, but that metric is, if you think about it hard enough, it’s really saying, how much do I want to grow versus how much profit do I want to make, right? Because if I throw it all in CAC, if I throw all my profit in CAC, I end up with LTV over CAC equal to one, essentially, right? But if I throw all of my revenue into profit, so I don’t invest back into the customer acquisition cost, then we’re saying it’s all profit. And so, they’re actually using that metric to balance growth versus profitability.
Alessandro Monti
So that is true. We have seen similar KPIs. So, the rule of 40 kind of tries to balance this off as well. And I’m not challenging these metrics. I’m more or less challenging the motion, the whole set of tools and techniques to get to this ultimate goal of growth. And before that, those growth motions only had, as you just said here and there, a little bit of KPIs that indicated, okay, is this a profitable business or not? But the fact that we now need to embed this thinking in all parts of your business, in all parts of your startup, I think now this is paramount more than ever. And, I think there’s room for alternative concepts that will guide you now towards profitability.
And if I may, let me give you an example. The PLG world, which I admire and respect. I mean, we have awesome thought leaders and creators, but one of the main pillars is the free. You need to bring in the product for free, eliminating the famous friction. So make it as easy as possible for the customer to onboard, to sign up. And basically they’re saying, hey, what, just use the product. Feel free to upgrade whenever you want. We got you covered in a way. But this has led probably to many operators, many market players actually then neglecting, okay, so what’s then what’s after the free? And this is not part of a monetization-led growth.
I’m saying we don’t need the free, just for the sake of having free, there is the reason for having free, because there is value in having free users. You have network effects, you’re profiting from them. But besides that, I think you need to seek conversion and monetization as early as possible. So free trial is okay, let them have 14 to 30 days, and then the product is awesome, the pricing is okay, it reflects the value, people convert and you start earning money. So that’s the fundamental difference. The free has misled many in the false beliefs, I think.
Mark Stiving
Yeah. So when you say free, you’re talking about the freemium model versus the free trial model and so people are using freemium. If they don’t have a good upgrade path, they have no monetization path, right? They have no profitability there.
Alessandro Monti
Exactly. So, the freemium is good as always when there is value in having free users. So all the games, non-paying gamers and paying gamers, because you don’t have the community and all this, I’m fine with that, but a B2B productivity SaaS probably the network effects are not as evident. So you are seeking what, you need the money, you need the funds, you need to finance all the operations. And the free users, they’re not paying, but they’re costing you all the support, all the tickets that these users are running. I mean, that’s costly. If you don’t have the infrastructure right away, that’s problematic. So that’s why I think the free trial may be the better option in some cases, because, yes, I test, the product is awesome, so I have all the value drivers there in place, and then with the help of sound and smart monetization techniques, I then convert into a paying customer. And, that’s the point.
Mark Stiving
Yeah, I think that makes sense. And I liked one of the things you said a lot, and I wonder if that is the driving decision. So if I were trying to decide between freemium and a free trial, it almost feels like network effects are the thing that makes the difference between that decision.
Alessandro Monti
I would agree. So when do we have value in having free users? So yes, they increase your network effects. They bring in data. For example, I’m looking at all the AI-based models, ChatGPT. Of course, they need the free version because they need enough inquiries to learn, to adapt to, listen and then read, and then the data. So that’s why they also need the free users. Yes. So whenever we have the data aspect, the virality aspect, the network effects, free is fine. And I’m not arguing this, but in all other instances, I think we need to be really careful in just opening the funnel on top and bringing everybody in for free. And then what? And then many stop there. And I think we are ready for alternatives.
Mark Stiving
Yeah, I would absolutely agree that you can’t offer a free product without a strategy to get to monetization without a strategy to make money on it.
Alessandro Monti
Yeah, exactly. And that’s, that’s kind of the thought here in the monetization-led growth aspect, it starts right from the start. The product-market fit, the very famous product-market fit, and all the classic, let’s say, narratives, there is hardly any space for pricing monetization. They are looking at products at the UX, UI. It needs to be the market, total addressable market, the TAM and all that. I have had trouble discovering monetization aspects right there from the product-market fit, which is, I think, a mistake. We need to include this right from the start. Otherwise, in my view, I don’t have a product-market fit. So it starts from there and goes up to what, upselling techniques into the real bundling techniques into price levels, into price enforcement, this rebates, promos, et cetera, et cetera. So it’s an alternative.
Mark Stiving
Yeah. I had Kyle Poyar on the podcast once, and he said the following words, and I’ve stolen them from him but I just gave him credit. And that was instead of product-market fit, it really needs to be product-market-price fit.
Alessandro Monti
Where do I have to sign?
Mark Stiving
Yeah.
Alessandro Monti
Yeah. But what we have taught, and I’m probably not accepting, we have taught generations of young business leaders, we have taught them, hey, you need that product-market fit and pricing monetization. So all aspects of how can we earn money with this? We never taught these people. And I think it’s about time.
Mark Stiving
Yeah. I agree completely, so in a lot of ways, you could blame this on the investors in the venture capital community because they’re saying, hey, here’s what we want to measure. Here’s how we’re going to invest in companies. And I think as the investors become more savvy or they lose too many deals or lose too many, lose too much money in the companies that don’t succeed, they’ll start to say, well, what are the types of companies that do succeed? And it’s the ones that actually have that monetization strategy figured out
Alessandro Monti
Yeah, definitely. So yeah, part of the blame goes to the financial, say community that has been under lots of problems lately, but this again reflects our current , very, very tough and critical times. But, yeah, at a certain point, you came up with an idea. It was viral, it was a great product. It fits the narrative. The latest trend, the whole web three and crypto trend, which now nobody’s actually talking about. But if you were riding on this wave and you had a, what, some first ideas on this, not even something feasible to show, hey, you had appointments with BCS and that’s, I think something that we need to reverse. So back to basics, back to earning good money and, delivering value, extract to counter that.
Mark Stiving
Yeah, it’ll be interesting to watch how this falls out. One of the things I find is that most companies don’t even understand what value means. And so how is it that they’re going to monetize a product if they don’t know what their customers value?
Alessandro Monti
So this is actually a philosophical question. We have seen, actually lots of views and takes on value and how to extract this. My point is rather simple. I always bring up the case where you have, on the one side of the equation, the value, it’s like a value bag. You fill it in with all types of drivers, of assets, of features, can be the brand, can be the habit, can be the design, customer support, the service, whatever it is. Actually, sometimes even the smallest things can be of value to customers. So you fill in this value bag. And on the other side of the equation, you need the customer sacrifice. I’m calling it the customer sacrifice, customers that value the other side of the equation, they’re willing to pay to get to this value.
So companies actually have to solve both sides of the equation. So what is it that we need to bring into the equation? What is it that we bring to the table? What are the main value drivers, the main features, what are nice to have, things and add-ons. And then the other side, is this more the methodological side? Yeah. So what about willingness to pay? We know of methods, of course we know them and it’s not easy. So it’s something that you need to walk the extra mile, but then you will see the payoff in the long term.
Mark Stiving
Yeah. And I think a lot of those ways that we measure willingness to pay, those are aggregated and they’re not truly understanding what’s driving the value. Because in truth, there’s a hundred different segments that we’re serving and a hundred different people. Think something different is valuable to them. And if we truly understood it, we’d be segmenting better, smarter, creating better product portfolios. So I’m with you.
Alessandro Monti
Yeah, true. I think that that’s the key to success, especially now, again, I cannot stress it out. I see so many founders struggling, so many businesses, so many established businesses struggling. I mean, it’s now again, back to basics. So what is success? Success is, hey, I have something of value and I’m earning money with this. So yeah, that’s why I’m thinking about this. So turn of approach, so it’s growth understood as profitability using all of our modern monetization techniques and there’s room for alternative content.
Mark Stiving
Yeah. Excellent. Alessandro, we’re going to have to start to wrap this up, but let me ask the final question. What’s your one piece of pricing advice that you would give our listeners that you think could have a big impact on their business?
Alessandro Monti
Oh, wow. I think that probably now more than ever, choosing the appropriate price metric seems to be probably one of these game-changing moments for your businesses, especially as I see a lot of transitioning towards usage-based pricing and getting the metric there and like touchdown, like homerun style. I think this is now the key to success, to get the right price metric that reflects the value that you’re offering. So get the metric right. If you want something, the one and only thing right now, and I would say it’s the metric, get the metric, right?
Mark Stiving
Yeah, that’s absolutely true. Especially true in digital businesses, but even in some more traditional physical or service-oriented businesses, the pricing metric, we’ve been creative and seen some pretty interesting pricing metrics coming in. So what would you advise companies about how to get the pricing metric right?
Alessandro Monti
And, interesting that you’re asking this, I had a couple of weeks ago on this project that tried to nail down this metric, let’s say question. And the key there was to try to find out how usage is happening among customers? So how is it used? What are the features that are used the most and what drives then usage? So it was a company that more or less is a platform, a job portal and brings and matches. We had this supply and demand, so, job offerings and people looking for a job. And, the metric was the match between employers and then people seeking jobs. And then the company said, okay, so then let’s center around the match metric.
So offering different bundles and packages, saying, oh, we have only five possibilities to match per month. Then you go like, more, we have 15 until you go like, enterprise, we have unlimited matching, et cetera, et cetera. But that’s actually the key. The job seeker looks for a job. I have a job I’m looking for, talented people. The match is actually the result that brings both sides to the table. And they started with, yeah, job postings. The more postings you have, et cetera. But it was the match. It was the match from the start. So to answer your question, have a look at how it is actually used, your product and your service. What is it that people really are looking into? And this is then probably a nice proxy then for the real metric.
Mark Stiving
Yeah, I think that’s a fabulous answer. And I coach every software company I deal with, especially if you’re SaaS-based, or I’m sorry, especially if you’re a cloud-based software company. And that is, are you measuring usage, right? You’ve got to monitor the usage of each individual feature, because that has so much insight into your pricing and packaging decisions. So yeah. Fabulous. Alessandro, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Alessandro Monti
Yeah, they can look me up on LinkedIn. That’s probably the best way to get in touch and, yeah, happy to connect.
Mark Stiving
All right. And to our listeners, thank you for your time today. If you enjoyed this, would you please leave us a rating and a review? You can get the instructions by going to ratethispodcast.com/impactpricing. And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me mark@impact pricing.com. Now, go make an impact!
Mark Stiving
Thanks again to Jennings Executive Search for sponsoring our podcast. If you’re looking to hire someone in pricing, I suggest you contact someone who knows pricing people contact Jennings Executive Search.
