Price Research: Is Cheap still Sexy?
Not just since the “cheap-is-sexy” wave it counts to set prices and pricing strategies for new and established products, offers and services that are both marketable and profitable.
For a long time science regarded the consumer as the “homo oeconomicus” who forms his or her price acceptance with full awareness of expected and real product performance.
ESTABLISHED PRICE TEST METHODS
Established price tests are based on the assumption of a mostly rational consumer:
- Scaled purchase intention with and without preset price
- Scaled price acceptance
- Testing of accepted highest and lowest price point
- Measurement of price elasticity according to Gabor-Granger
- Price Sensitivity Measurement (PSM) according to van Westendorp
All the above methods are relatively simple and are frequently integrated into concept and product tests. They offer – regularly in the context of existing benchmarks – at least a clue for price thresholds and acceptance of different product variants. But one has to be aware of the fact that these results have nothing to do with the real market because they are based on purely rational evaluations in a test scenario. Such a scenario usually does not include all competitor products, does not happen at the point of sale and assumes 100% awareness of price and product performance.
And not least since Kahneman we know that this assumption has proven wrong in many cases. Many traditional price testing methods, if taken alone, fall short and can deliver misleading results.
Other but more complex ways and methods of price research consider prices rather indirectly, i.e. in the context of brand, competition and marketing-mix elements. These implicit, conjoint-based approaches are:
- BPTO, Brand-Price-Trade-Off:
The respondent makes a “purchase decision” based on several brands / products that are shown together with prices. Immediately after each decision the price is changed and the respondent is asked to choose once more. This process is repeated several times. Naturally, the BPTO method focusses strongly on the price but gives – ceteris paribus – also information on price elasticity and the constellation of user shares in different pricing scenarios. With sufficient sample size a segmentation is possible as well. However, the BPTO only regards the price in combination with brand / product and does not measure the influence of varying product features or packages designs on the price.
- CBC, Choice-Based Conjoint and other Conjoint Methods:
Conjoint-based methods take into consideration the influence on price of different product variants, packaging designs and other marketing mix elements in order to maximize marketability and profit. This analysis can include different market scenarios as well.
When using a conjoint approach it is essential to take into account “customer psychology”, i.e. to pay attention to the fact that consumer segments have different perception of price and purchase behavior. These differences need to be considered when setting market entry prices or when changing prices of established products.
ADVANCED PRICE TEST METHODS AT MWRESEARCHThe team at MWResearch has developed a set of validated questions that identifies and takes into account different “price types” during analysis in the respective business sector. Generally, this segmentation is applicable for all approaches and methods that “test” prices.
This segmentation is an indispensable “plus” for all researches that focus on finding the right price, i.e. PSM and Conjoint. Consequently, we call these methods