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Pricing research is a type of research that aims to measure and evaluate the effect of changes in price on the demand of a product. It is used by companies to maximise their revenue and market share by helping establish an optimal price for new products and/or services. It is a quantitative form of research as it involves the evaluation of values such as price and aggregate demand.
Pricing research can be conducted in many ways. Within this article, we will focus on four prominent techniques that are used by organizations to conduct pricing research, and understand how they are conducted:
Pricing analysts often use a form of conjoint analysis to help determine the influence of price, as well as product features, on a customers’ willingness to purchase the product at different price points. This type of conjoint analysis is known as discrete-choice modelling, and it follows the assumption that people choose the option of maximal utility when shown a discrete set of options. This method of pricing research is considered to be one of the most reliable ways to determine the price of a product so as to optimize demand.
Discrete choice analysis provides respondents with a choice of between two to five product profiles, each with different configurations. Respondents will then be asked to choose one of these profiles. The data collected from these responses will allow researchers to create pricing and packaging models that are likely to have the highest appeal when launched in the market.
This method of pricing research allows researchers to extract useful insights into the complexity of pricing and product preferences. The main drawback of discrete choice analysis, however, is that it is expensive to conduct and requires specialised expertise to execute.
The Van Westendorp price sensitivity meter is a type of pricing research that constructs a range of “acceptable price points” by asking respondents for feedback on the following four questions:
Responses to these questions are used to find out the following ranges:
This price sensitivity meter was created by a Dutch economist called Peter Van Westendorp. It is used to get an idea of customers’ pricing expectations rather than their willingness to pay or likelihood to buy. It is used to identify how much respondents would expect a product to cost.
Monadic price testing shows respondents a specific price point and then asks them to state their intent to purchase the product or service at that cost. This method of pricing research is used to measure price sensitivity.
A drawback of this method, however, is that it requires a large number of responses before reliable insights can be extracted.
The sequential monadic design of pricing research is similar to monadic price testing in the sense that price points are evaluated individually by respondents. However, each respondent is asked to evaluate multiple price points individually.
Pricing research allows organizations to make informed decisions relating to pricing strategies and can be used by organizations to identify the optimal price at which their revenue and market share will be maximised.
There are many benefits of pricing research, including:
The four most prominent pricing research techniques are: