Pricing research Pricing research

Pricing research guide

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Price is a maker or breaker of brand products and services. Charging prices is conditional upon what the customer thinks about the product and whether or not do they see it as being worth the price it has been tagged with. Finding the optimal price range which stands midway between customer affordability and acceptance as well as revenue margins of the company is key to successful product launches and the marketing strategies.

This is where pricing research steps in

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What is pricing research?

Pricing research Pricing research

Pricing research is the study used to gain market knowledge for deciding optimum prices for any new product or modifications in the pricing of an existing product. 

Without thorough research, companies might be able to fix prices based on their whims but risk losing market share and generating huge product failures.

That is why companies have huge budgets lined up to spend upon pricing and general market research. The very essence of pricing research is to assist the brand in making informed business decisions that make the resources invested in collecting information, worth it.

Provided that you have a clear picture of your target audience, you can accurately select research participants to gain precise knowledge so as to understand what exactly do the customers think and answers the big question : Given a certain value offering with specific features, what would an appropriate price for the company to charge?

This will keep companies at bay from drowning in losses due to high cost and lower returns as well as gain customer acceptance by charging enough to include brand products within the customer’s consideration set.

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Why conduct pricing research?

Pricing research is a prudential business approach adopted by any brand that looks at long term success. Here’s why :

Minimize risk

Brands invest hugely in terms of money, time and effort into making sure that everything goes perfect when it comes to brand positioning. Prices comprises an important of the same and making that their investment generates enough ROI is important. Pricing research increases the chances of achieving this targeted ROI by considering the customer’s perspective. 

It gains ready market acceptance from a certain set of customers by using the information they provide as input for pricing their products correctly. This aligns their product with the current market dynamics and makes sure that along with addressing the right need and want, brands do not overcharge or undercharge their products.

Peek inside customer psychology

Pricing research weighs in the relative importance that the customers have for the price as a part of the whole package. Some customers may feel that the features that a particular product comes with makes high pricing acceptable. Others might be more concerned what they giving from their pockets rather than what the brand is giving to them. Either way, brand knowledge about the customer and their approach towards the brand enhances.

Pricing research Pricing research
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Understanding customer limits

Your current customer base may be acceptive of increased prices or may choose to switch to another brand. This not only assesses brand loyalty but also provides an approximation of the cap on prices. This cap represents the price ceiling or the upper limit where the product price peaks without affecting demand levels. 

Further, if the company observes a decline at current price levels, it can narrow down their study to indicate a range of price that reduces the price levels without having to compromise much revenue. This indicates a price floor or a lower limit which is feasible for both the company and acceptable for the customers.

Competitive analysis

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Industries are filled with companies enjoying separate market shares. It has become important to keep a check on competitive strategies to be prepared for uncertainties and strive towards market share leadership by outperforming existing and prospective rivals. 

In this pursuit, respondents in a pricing research can be asked to comment on competitor’s product packages and their prices. Certain customer segments which switch brands based on additional benefits or better prices can be studied using pricing research and can help brands in maintaining a strong competitive footing.

Customer experience

Techniques for Pricing research

Van Westerndorp’s Price sensitivity model

This type of technique is more customer centric in the sense that it asks the customers their price points instead of asking the to opinionate on pre-decided range of prices. A simple four question model , Van Westerdorp sets the levels within which the price can be considered. The four questions that are to asked from every respondent are :

  • What level of pricing would make you question the quality of the product?
  • At what price would the product be a good bargain?
  • What price would make the product expensive, but still considerable?
  • What would be the price at which the product becomes too expensive to buy?

The results collected as a result of these questions is then represented graphically to obtain the correct range of prices. This method is fairly accurate to establish the optimal price range by getting insights into how the customer ranks the product quality in terms of price given a fixed set of features.

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Gabor Granger Price model

This method is used to get a hold of the free hand the company has in terms of charging the highest possible prices without losing customers. The company has a list of pre-structured prices which is deemed fit from the company’s perspective and considers the multiple price levels for different customer segments. The idea is to standardize the product prices taking each customer’s response to different price levels into consideration. 

Every respondent is shown a price that stands mid-way between the premium and lower level prices. Based on their initial response the prices subsequently keep increasing or decreasing.

For customers who are initially repulsive, the company shows them prices below the initial price until they feel that it is a bargain. While for customers who are acceptive of initial prices, prices shown go on increasing to the point where it becomes too expensive for consideration.

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Conjoint analysis

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This is a comprehensive study meant to evaluate the customer’s product preferences based on much more than just price. The respondent is displayed multiple product packages, each being assigned certain level of attributes and subjected to differential pricing. The selection of the customer after gaining a full fledged knowledge of the available product packages helps in understanding how each customers views the products and the relative importance they assign to the features.

This understanding helps in designing accurate product packages that are are an appropriate choice in terms of price and satisfying specific needs.

This is the reason why conjoint analysis is the most preferred pricing research methodology as it is less price centric and provides a holistic picture of customer preferences.

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Hindol Basu 
GM, Voxco Intelligence

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