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Pricing Research

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01

What is Pricing Research?

Pricing research is a method of research that measures and evaluates the impact of changes in price of a product on its demand. It is used by organizations to help determine an optimal price for new products, in order to maximise revenue and market share. This type of research is quantitative in nature.

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02

Techniques used within Pricing Research

Pricing techniques help organizations determine what price their target audience is willing to pay for their product. There are four key techniques used within pricing research, and they are:

  • Van Westendorp Price Sensitivity Meter (PSM)
  • Gabor-Granger Technique 
  • Conjoint Analysis 
  • Brand-Price Trade-Off (BPTO)

 

  •  Van Westendorp Price Sensitivity Meter (PSM)

This price sensitivity meter was developed by a Dutch economist named Peter Van Westendorp. The Van Westendorp Price Sensitivity Meter constructs a range of acceptable price points for a given product, determining the expected price range at which consumers will be willing to purchase it. This range is constructed by having customers evaluate a product and then respond to the following four questions:

    • Too Expensive: “At what price would you begin to think this product is too expensive to consider?”
    • Expensive: “At what price would you begin to think this product is expensive but worth considering?”
    • Cheap: “At what price would you begin to think this product is a bargain?”
    • Too Cheap:“At what price would you begin to think the product is so inexpensive that you would question its quality?”

Once responses are collected, the cumulative frequency of the different answers are charted in order to determine a series of acceptable price points. These price points will range from a lower threshold to an upper threshold, and will also include the optimal price point. 

PSM is used to understand customers’ pricing expectations, rather than their willingness to pay or their likelihood to buy. It is used to identify how much respondents would expect a product to cost.

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  •  Gabor-Granger Technique 

The Gabor-Granger technique involves testing four to five different price points by asking respondents their likelihood to purchase the product at each one of these points. 

Respondents indicate their likelihood to purchase at these predefined price points, and this data is used to determine an optimal price point for the product within the market. In contrast to the Van Westendorp Price Sensitivity Meter, where respondents invent prices in response to the questions, the Gabor-Granger technique asks respondents to evaluate predetermined price points that have already been vetted by the company. It identifies the optimal price range for a product, considering it in isolation. 

 

  • Conjoint Analysis 

Conjoint Analysis, also known as discrete choice analysis, is a pricing research technique that is considered to be the most reliable way to determine the price of a product. It uses a form of conjoint analysis, known as discrete-choice modelling, using which researchers can determine the influence of price, as well as product features, on a customers’ willingness to purchase the product. 

In this technique, respondents are given a choice of two to five product profiles, each with different configurations. Respondents are asked to choose one of these profiles. The data collected from respondents allows researchers to create pricing and packaging models that are most likely to appeal to customers.

Discrete choice analysis provides meaningful insights on the complexity of pricing and product preferences. The main drawback of this technique, however, is that it requires specialized expertise to execute, and tends to be more expensive to conduct than other pricing research techniques.

  •  Brand-Price Trade-Off (BPTO)

BTPO, or Brand-Price Trade-Off, is a statistical tool that is used to identify the effect of price on different areas such as profitability, revenue, market volume, and brand awareness. It is a choice-based pricing technique that depicts consumers’ differing preferences for brands based on their pricing. 

Survey respondents are shown a range of branded products, each with a price associated with it. The range usually consists of 3 to 5 products. Consumers are then asked which “offer” would be most appealing to them in a hypothetical buying scenario. 

BPTO is useful in situations where you want to understand the relationship between a brand and its prices. 

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03

FAQs on Pricing Research

There are four key pricing research techniques, and they are: 

  • Van Westendorp Price Sensitivity Meter (PSM)
  • Gabor-Granger Technique 
  • Conjoint Analysis 
  • Brand-Price Trade-Off (BPTO)

The key benefits of conducting pricing research are:

  • It can predict consumers’ responses to price changes
  • It helps understand the psychological effects of changes in price

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