Episode 157: Aligning Pricing with Value in the Technology Space: Insights from Jean-Manuel Izaret of Boston Consulting Group

In this episode of the Product Thinking podcast, host Melissa Perri is joined by Jean-Manuel Izaret, Global Leader of Marketing, Sales, and Pricing Practice at Boston Consulting Group. Join them as they discuss strategic pricing and its importance in the technology industry. They explore different pricing models and strategies, including segmenting users and offering different pricing options based on the value received. They also touch upon the challenges of pricing AI models and the concept of fairness in pricing.

Jean-Manuel leads BCG’s Marketing, Sales & Pricing practice globally. His role is to partner with leading companies across industries to transform their commercial functions by leveraging cutting-edge digital and analytics capabilities. He has been with BCG for over 25 years and is passionate about new ideas and creative solutions driven by human ingenuity that can solve all problems, including global warming and world hunger.

Jean-Manuel started his career in Europe, and after participating in various cost-cutting efforts, he decided to move to San Francisco in 1999 and focus exclusively on driving growth and helping companies create jobs. He is a subject matter expert in customer analytics, pricing, and revenue management.

He is also a Fellow of the Bruce Henderson Institute, where he worked on pricing model transformation first in Biotech and then in all industries with low marginal costs (Software, AI, Data services, Media and Entertainment, etc.).

Jean-Manuel’s recent research topics include pricing fairness, price discrimination, and pricing of CO2 emissions. In his TED Talk, he shared a new pricing model he created for licensing drugs. With this model, we can increase access to expensive medical treatments while simultaneously reducing healthcare costs and encourage the development of new treatments.

You’ll hear them talk about:

07:56 - 09:11 - Traditionally, pricing has followed a cost-plus model, where you calculate the actual production cost, and then you add overheads, distribution cost, and margins. This model works for restaurants, construction businesses, and so on. You need to know your costs before calculating your price. However, in the software space, you don't have any marginal cost for the distribution of software. Most of the cost is in the development of the software. Once it's done, you have recovered the development cost and there isn’t any additional cost for a new customer. Most software companies have traditionally thought about price as a factor of value, but the value is not fixed as different market segments might derive different values.
15:32 - 16:39 - If you have a piece of software that is priced per user and summarizes what this user did in the past two days or weeks, that's your standard model of pricing per user. You are enhancing the value of the human doing the work. You could also be in a situation where you're going to help automate tasks so much that you're going to drive directly to outcomes. If you can then price per task or price per outcome, this is when the model is in the niche and the segments of replacing humans. A quick view of the history of technology throws up many examples where we replaced what people do, and then that helps people focus on more valuable tasks.
25:19 - 26:56 - A fundamental question product managers should ask even before the salespeople tell you what the customer wants is, “Do you have a really well-managed list of things you think are really important for a large number of customers?” And then you prioritize based on things everybody will want. Well, that's a no-brainer for sure. You're going to do that. You need to compare the request with the long-term view of what you need to build in your product roadmap. Having a clear view of what you want to build before you get input from the market is really important.
29:29 - 30:30 - You should hire people who are really good analytically, but also quite strategic. Sometimes you have people that are introverted, people that are really good with numbers, but don't really like talking to customers. You need people that go out and understand what the entire product management team is going to need, while also seeking inputs from the sales team and the customers. You need someone who can aggregate a lot of the inputs and make the synthesis of it in a really strategic way and then get to what the numbers should be. People in charge of pricing need to have the combined skill of being able to understand the market and to do the numbers.

Episode Resources:

Jean-Manuel Izaret on LinkedIn
Boston Consulting Group Website
Jean-Manuel Izaret’s Book Game Changer