Exploring Pricing Research Methodologies
Pricing studies aim to determine just how much customers are willing to pay for a product or service. It’s the middle ground you are ultimately after. Not too high, as customers don’t want to feel overcharged, but not too low, as you must cover the costs of the business and make a nice profit, too. Product quality is an important factor at this point, as you don’t want customers questioning the quality of your product if the price is too cheap.
Pricing research can help increase revenues and profit margin, as well as determine a pricing model that can rise and fall as needed over time. Qualtrics, in its blog, “How to run a pricing study in market research,” also points to additional benefits such as how to understand the market’s willingness to purchase; capture the highest return on your product investment; preserve the value of your brand; and make strategic decisions on how to change pricing over time. Pricing research is crucial, and this is not the time to use guesswork. There is a clear return on investment to pricing research, which leads hopefully to profits.
Qualtrics points to several leading pricing research methodologies that can be used, including:
- Van Westendrop Price Sensitivity Meter: This price sensitivity meter is a type of direct pricing research that constructs a range of acceptable prices for a given product.
- Gabor-Granger Technique: This type of direct pricing asks respondents if they would purchase a product or service at a specific price. Researchers then change the price and ask respondents again if they would purchase the product or service. For example, researchers might ask respondents to respond to likelihood-of-purchase questions given the price would increase by an extra $5, $10, $15, $20, and so forth. This technique uses the results to determine demand at certain expected price points, which can then be used to determine an optimal price point within the market.
- Conjoint Analysis: This is often considered the most reliable way to determine pricing. Through discrete-choice modeling, a specific type of conjoint analysis, researchers can determine the influence that both price and product features have on customers’ willingness to pay. Discrete choice modeling gives respondents a choice of two to five product configurations and then asks them to choose one of the configurations to help researchers determine packaging and pricing models.
- Cost-Plus Pricing: Cost-plus pricing means working out your price according to how much it cost you to produce the product, and then adding a markup, which is usually a percentage of the cost. It’s considered a very basic way to price products by some, but it does have a useful function in setting a floor for your pricing, under which you’d be making an outright loss.
- BPTO (Brand price trade off): This helps you understand how your brand value factors into the price you can charge. It’s a statistical technique in market research that helps you understand how your brand equity influences the price you can charge. It effectively puts a dollar value on your brand.
- Monadic Price Testing: Monadic pricing research works by splitting your testing participant into different groups and showing them all the same concept or product, but with different prices. These responses can then be analyzed as a whole to see which prices were most acceptable.
Uncovering the Customer Experience
In relation to price, All Things Insights looked further at the shopper journey in, “Putting Customer Journey Mapping into Perspective.” Customer journey mapping is a critical task in today’s insights environment. We know that discovering who your target audience is should be key to market research, marketing, and product development missions. This may entail creating customer personas so that you can research your customers in an in-depth way, finding out their shopping and purchasing preferences, so that the company can enhance the customer experience. Customer journey mapping is important for finding out more about the company’s customer base, their brand and price determinations, and their shopping experiences.
Looking forward to TMRE 2024? The conference, which will be held October 8 to 10, will feature the case study, “Reimagining Pricing Research: AI Agents and System 2 Thinking,” presented by Suhasini Sanyal, Senior Research Manager at Microsoft, Kirstin Hamlyn, Senior Research Manager at Microsoft, and Mike Deinlein, VP, Corporate Innovation at Burke. Most pricing methodologies seek to uncover System 1 thinking (those automatic, gut-level responses) to prices, as we assume they mirror the instantaneous decision-making of most consumers in today’s market. Yet, for business to business (B2B) and highly involved consumer purchases, we know that decisions are far more methodical, thoughtful, and effortful. Given this reality, Burke and Microsoft partnered to build a custom Generative AI Pricing Chatbot to activate System 2 decisioning, which has allowed Microsoft to derive more trustworthy demand curves for their B2B environment. Register for TMRE 2024 here.
Create a Winning Price Strategy
Pricing research can generate significant returns for market insights by helping businesses. By capturing the right price point, and understanding customer willingness to pay and price sensitivity, businesses can avoid underpricing (leaving money on the table) and overpricing (losing sales). This leads to increased revenue and profitability.
Pricing research can also reveal customer perceptions of value and inform product development strategies. Understanding what features are most valued allows businesses to focus on developing products that resonate with the market and command a premium price. By aligning pricing with customer value perceptions, marketing and sales efforts become more effective. Targeting messaging and promotions to highlight the value proposition at the right price point can lead to higher conversion rates and customer satisfaction.
In addition, pricing research provides valuable data to inform strategic decisions about product launches, competitor analysis, market expansion, and brand positioning. Data-driven pricing strategies can give businesses a competitive edge and support long-term growth.
In essence, pricing research acts as a bridge between customer perceptions and business objectives. By using insights from pricing research, businesses can develop pricing strategies that are not only profitable but also aligned with customer expectations, leading to a win-win situation.
Video courtesy of Sawtooth Software
Contributor
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Matthew Kramer is the Digital Editor for All Things Insights & All Things Innovation. He has over 20 years of experience working in publishing and media companies, on a variety of business-to-business publications, websites and trade shows.
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