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8 Pricing Research Techniques

Many great research tools are available for conducting pricing research:

  1. Willingness to Pay – Consider simply asking respondents “How much would you be willing to pay for this?” when first researching pricing for a new product or service category. This technique is most useful as an input to subsequent, more elaborate pricing research.
  2. Van Westendorp PSM – When first mapping out consumer perspectives on price ranges for a product or service, this four-question battery created by Peter Van Westendorp can be used to identify prices that are considered too cheap, cheap, expensive and too expensive.
  3. Newton, Miller and Smith’s Extension to Van Westendorp PSM – This two-question battery follows up the Van Westendorp questions by asking about purchase likelihood at the prices the respondent has identified as “cheap” and “expensive”, allowing you to construct a purchase likelihood curve from the results.
  4. Monadic Price Testing – Once you understand the market’s perspective on appropriate different price points, you can test those price points against one another. Present only one price point to each respondent, then compare purchase intent across the different response cells.
  5. Sequential Monadic Testing – If you don’t have enough sample to use monadic price testing, consider asking respondents their purchase likelihood at 7-8 different price points. Less reliable than monadic testing, but less expensive as well.
  6. Value Maps – When considering the competitive pricing environment, graphing perceived quality against perceived cost can be used to identify which brands are likely to gain, maintain or lose market share.
  7. Conjoint Analysis – If you are testing different product or service configurations, as well as price, consider using a conjoint study instead. Beware though – pricing can confound conjoint studies, as the price listed is often used by respondents as a proxy for quality. Conjoint is not appropriate for all categories. However, such studies are great for producing market simulators that include brand references and can be used to model competitive pricing changes.
  8. Elasticity Models – Real-world purchase data from suppliers such as Nielsen and IRI can be used as inputs into elaborate pricing models designed to account for rises in commodity prices, category elasticity, item elasticity, different retail channels and more.

Any technique that provides purchase likelihood can be used to estimate a revenue index curve, highlighting the price that maximizes overall revenue for a product.

In real life, psychological effects on pricing that can confound pricing research include being overly influenced by displayed prices, overvaluing free items, overvaluing discounts, overvaluing possessions and general innumeracy. Remember that each method provides models that can help when making strategic pricing decisions, but real-world attitudes towards prices are far more complex than our research reveals.

 

For more, see these posts by Michaela Mora of Relevant Insights:
  • Getting the Price Right Takes More Than Guesswork
  • Comparing Willingness To Pay Measurements To Real Purchase
  • Price Research Review
Topics: Market Research

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