It isn't easy for marketers to determine the best price point to protect profit margin but still gain market share. There are obvious risks involved when pricing new products or services, or changing the prices of existing ones. If priced too high, demand for the product could drop sharply or never materialize, but if priced too low, it could signal a lack of quality.
Pricing decision involves analysis of historical data, competitive benchmarking, and research among buyers to understand price elasticity (the sensitivity of demand to price). When put together, it allows for informed decision-making.
infoAnalytica offers several approaches to pricing research to cater to your specific needs.
Conjoint Analysis is a technique that allows one to understand how people make trade-offs between prices and various product features and services. By understanding how people make decisions and what they value in a product or service, one can work out the optimum level of features and services that balance value to the customer against cost to the company.
Price Sensitivity Meter (van Westendorp)
Introduced in the 1970s by a Dutch economist, Peter van Westendorp, the Price Sensitivity Meter (PSM) is often used by infoAnalytica. This involves asking respondents four key questions.
- Too expensive: At what price would you consider the product to be so expensive that you would not consider buying it?
- Too cheap: At what price would you consider the product to be priced so low that you would feel the quality couldn't be very good?
- Expensive: At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?
- Cheap: At what price would you consider the product to be a bargain-a great buy for the money?
The cumulative frequencies are plotted, and the four key intersections are then interpreted.
Customers are asked if they would buy a product at a particular price. The respondents are exposed to the price in a randomized manner and are again asked if they would buy or not. The technique helps understand the price elasticity for the product by working out what levels of demand would be expected at each price point.
Some of the questions infoAnalytica's pricing research can answer:
- How price sensitive is the market?
- What price point maximizes revenue?