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You, as a brand, can have the best product in the market and still not be preferred by customers due to inappropriate pricing. The price of your product should reflect its features, quality, and advantages. Anything that is over or below that can be disappointing for the brand and for its customers.
Overpricing can label your product as expensive and can limit your market share. Underpricing can make your customers question your product’s quality, as it may seem too good to be true.
So, how can you determine the right price for your product that will attract the right customers and boost ROI? – Pricing research.
In this blog, we’ll dive deep into how to conduct pricing research that helps you identify optimal prices.
Pricing research is an invaluable tool allowing brands to make sure that their product is optimally priced to suit the budget of their target market. Pricing research is a methodology that seeks to understand what the customers think of the brand’s products and services and what they would be willing to pay for it.
Obviously, this willingness to pay has to have a lower limit that helps brands cover their costs in addition to generating revenue. However, if market research suggests a price that is lower than this limit, then it is not feasible to go ahead with developing and marketing the product in the first place.
By conducting thorough and accurate pricing research, brands can make sure they charge enough to generate good returns on investment while making the product affordable and appealing to their target customers.
But the question is – how to decide the optimal price? But before we jump into how to conduct pricing research, let’s look at some of its types and techniques.
Based on the type of research methodology, there are two approaches that can be described as follows:
This approach involves providing the participants in the research with a description of the product, its features, advantages, and the problems it will solve for the customers.
Based on this description, in addition to their own buying experience, the participants quote a price that they would be willing to pay for the product so described.
The benefit of such an approach is the fact that it does not limit the respondent’s answers to a set of pre-defined and structured options. The open-ended nature of the questioning allows the respondent to express themselves freely by elaborating on the reasons for their choice.
Given that efforts are put in to avoid sampling bias by increasing sample size and choosing the right participants, this technique can help a great deal in narrowing down the price range.
A lot also depends on the description of the product that is provided. The researcher needs to be up to date regarding any data that can support the respondents in making their decision.
While the direct approach assumes the participant’s interest in buying the product, the indirect approach uses a combination of product description and price to ask if the participant will be interested in purchasing. This approach shifts the center of focus from price quoting to demand assessment.
The indirect approach helps the researcher understand the level of interest that a respondent has in the product, given its features and pricing. Further, it explains customer mindset about the type of features they look for and whether or not they have a need for the type of products that the brand is offering.
Now that we’ve understood the approaches to gathering market information on pricing, it is clear how both these approaches gather customer data.
Here are four techniques to find the right pricing structure for your products or services.
This type of pricing research is also known as direct pricing, as it tries to capture an optimal price based on the respondent’s willingness to buy at different price points.
The respondent is given a product and its description, along with different prices. Respondents are asked to answer- Would you buy this product at this particular price?
Price points are changed continuously, and respondent replies at each point are noted. Respondents may respond in a “yes, no, maybe” form or may rate their likelihood of purchasing at that price point. Price points can also be decided using uniform skips such as increasing or decreasing the price by $5, $10, $15, and so on, or randomizing the choices altogether.
Gabor Granger helps in deciding the upper and lower limits of individual research participants. It, however, does not consider the competitive brand pricing, which may be less than the ones estimated through this research, and so decides prices under the assumption of a monopoly market.
The Van Westendorp model focuses on developing a price range for products, unlike the Gabor-Granger technique, which focuses on specific price points. This model asks a series of questions that help determine the point of marginal cheapness, marginal expensiveness, and the optimal price point.
The questions are designed in such a manner that allows the researcher to test the price points that are too expensive and too cheap and, accordingly, develop a price range.
The four questions are as follows:
These four simple questions help the researcher in building a line graph to analyze and evaluate a price range.
Similar to Gabor-Granger, this technique also does not consider competitive pricing. Moreover, the optimal price point determined by this method isn’t exactly accurate, as it does not consider the costs involved. The surveyed individuals have to be selected carefully in order to ensure that they are a fit candidate to provide educated answers to the above questions.
This is an easy-to-understand pricing research technique mainly due to the usage of a direct correlation between brand and price. Here, the respondents are given a product with price points increasing constantly until the point where the respondent chooses not to purchase.
This method is not generally preferable for finding the ideal price mainly because of its biased responses. Respondents can easily keep track of price changes and can accordingly alter their answers to suit the researcher.
Pricing research requires the genuine and accurate point of view of its participants as a representative of the targeted customer segments.
Conjoint analysis is considered to be a more holistic, realistic, and reliable approach when it comes to determining the optimal price for any product. Apart from suggesting what price attracts the market and encourages buying, the conjoint analysis also helps discover the customer mindset and the importance they assign to different attributes of a product.
In the discrete choice variant of this method, researchers are given the freedom to experiment with different attributes and assign them to create product packages. These packages not only have a price tag attached to them, but they also come with certain product features that may catch the eye of a customer. These features vary from product to product. For smartphones, these attributes may be storage, RAM, processor, and so on, and for a clothing brand, it may be the fiber quality, color, and size.
After designing these product packages, research participants are asked to choose one and provide a reason for the same. The participant choice helps the researcher find areas that may make the customer consider the pricing appropriate. Apart from this, the product packages can also be designed to resemble competitor’s products, and this can help contrast between multiple price and product models.
It is important that the product packages tested during research are limited so that the respondent doesn’t get confused and overburdened. Overloading the participant with multiple choices can lead to inaccurate selection and make the process long and cumbersome.
Pricing research helps you understand customer preferences, price sensitivity, and competitive positioning to determine the best price for your products/services. Here are the steps to conducting pricing research with survey software.
Specify the objective of conducting pricing research. For example, do you want to know how much your target customers are willing to pay? Or how different prices affect purchase intent?
Determine the demographic or customer segment you want to survey. For example, identify factors like age, gender, income, location, lifestyle, etc.
A comprehensive software can equip you with the tools you need to design and distribute surveys, create survey panels, and collect and analyze data.
Create an interactive and well-structured survey questionnaire. Ensure that your questions align with the objective.
Before launching the survey, conduct a small soft launch with a few respondents to identify any issues with your survey.
Once necessary adjustments are made, share your survey via multiple channels for better reach. Ensure you have an appropriate sample size for representative data.
Leverage the survey software’s data analysis tool to automate statistical and qualitative analysis.
Create interactive reports to interpret that data about optimal pricing strategies. Use the insights to make informed decisions about your pricing strategies.
It’s essential to determine the right price to avoid underpricing and prompting customers to question the quality of your product or overpricing and making it out of reach for the target audience.
Here are some reasons why conducting pricing research is beneficial for businesses.
Pricing research helps you identify the price point where you can charge the highest price while still attracting a sufficient number of target customers. It thus helps maximize profitability.
With insights from the research, you can identify how target customers perceive the value of your products/services. This way, you can align your pricing with the perceived value.
An effective pricing strategy can lead to higher sales and revenue. Conducting pricing research can help you identify the correlation between demand and price change, allowing you to adjust the price range to optimize revenue.
The insight helps you understand how you price fare against the competitors. This enables you to adjust your strategy and position your offerings effectively within the market.
When running sales, discounts, or promotions, pricing research can assess the impact on profitability.
Regardless of the variety of techniques and methodologies that exist in the market, brands have to choose what suits them best. This requires considering the product development stage, attributes to be tested, existing competitors, and their offerings and costs involved.
Choosing the right method can help brands get an idea of what attracts the customers and how they can price their products correctly to cover costs and earn a surplus while maintaining and expanding their market share.
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 maximized.
There are many benefits of pricing research, including:
The four most prominent pricing research techniques are:
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