The pricing of your products and services has a substantial impact on market perception, your go-to-market success rate, and, ultimately, top line revenue. Whether you’re launching a new product to market, or making a pricing change to an existing product, it’s essential to understand the potential impact that your pricing strategy will have on projected quantity and revenue, and how those findings fit into your overall business strategy.
When pricing a product, the perceived value of the product and its attributes to buyers, customer’s willingness to pay, and price elasticity can all be used to optimize your revenue. Not only do these insights inform your pricing strategy, but they also contribute to your product roadmap, go-to-market planning, segmentation, marketing messaging, and sales strategy.
In today’s post, we’ll explore three different market research methodologies for collecting pricing input. For each methodology, we’ll discuss use cases, pros, cons, and the types of conclusions you can draw from the outputs. Let’s jump in!
1. Van Westendorp Pricing Model
The Van Westendorp Pricing Model is a price sensitivity meter that uses inputs collected through a series of four key questions:
What price would you consider this product price so low that you would question its quality or too cheap?
At what price would you consider this product to be a bargain? A great value for the money.
At what price would you consider this product as starting to get expensive? It’s not out of the question that you would purchase, but you need to give it more thought before purchasing.
At what price would you consider this product to be so expensive that you would not consider purchasing it?
The distribution of data collected for each of the four questions is plotted into one consolidated view, and the areas where distribution lines intersect tell you optimal price point, point of marginal cheapness, point of marginal expensiveness, and indifference price point.
The straightforward questions posed by this model leave you with a simple, fast analysis and ample survey room to collect other data. This is an ideal methodology when assessing a new product that most people don’t have experience purchasing or during early production development when testing a simple product concept.
On the contrary, because there are no questions that dig into likelihood to purchase, and the product is being assessed in isolation, this model is not ideal when you’re looking to compare competitive scenarios. It also leaves much to be desired when you’re assessing a common product or service for which respondents generally know what they spend when purchasing because you’ll see the data skew towards the pricing models they’ve experienced with their current or past vendors.
To summarize, if you need quick and easy insights on product pricing, the Van Westendorp Model is a great option, but if you need real data on likeliness to purchase or real-world competitive scenarios, this method will miss the mark.
2. Gabor-Granger Pricing Model
Like the Van Westendorp Pricing Model, Gabor-Granger can provide simple and quick analysis, but there are some key differences to consider. This research technique is used to gauge optimal price points using a set of predefined price points. For this methodology to be effective, you need to go into the research knowing some ranges of prices that you think the market will accept. You’ll test those specific prices, unlike Van Westendorp where respondents can input whatever price they feel is fair.
To collect data, respondents will simply be asked if they would purchase a product if the price was reasonable. Those who show interest are then asked a series of follow up questions using the pre-determined price points. If, on their first question, the respondent gives a positive response, they’ll be prompted to answer the same question on increasing price points until a maximum price is reached. Alternatively, if the respondent gives a negative response on their first question, they’ll receive varying lower price points until you reach the price that is acceptable for them to purchase. The output of this data would be a chart showing you at what price you could maximize your revenue.
This model allows you to identify maximum price, generates elasticity of demand, and identifies your revenue-maximizing point with low survey efforts and easy analysis. These are key factors when you’re considering a price increase or decrease, but all other components of the product are fixed, and when you’re trying to identify that sweet spot to maximize revenue.
A challenge of this model is that respondents easily understand the exercise and, as a result, are capable of “gaming” their answers to pick lower prices. Additionally, it does not consider real-world competitive scenarios, and, because the price range is pre-determined, respondents could value the product at a dollar amount outside of the tested range, leaving you with an incomplete picture.
Keeping the above in mind, the Gabor-Granger Model is a quick and easy tool for understanding how to maximize your revenue, but, like the Van Westendorp Model, it’s not going to provide more in-depth analysis like competitive comparisons.
3. Conjoint Analysis
Substantially more complex than the two above, Conjoint Analysis is a method for pricing and product research used to measure the value customers place on product attributes and services. To conduct this type of research, you’ll need to create a list of attributes and levels within those attributes. This set up allows you to compare various configurations against each other and gives you a more accurate gauge of tradeoffs customers make when making purchasing decisions in the real world.
Data provided by these tradeoffs is modeled to create several outputs:
Attribute Importance Scores: These indicate which attributes within the configuration most impact purchasing.
Preference Scores and Utilities: These identify which levels within an individual attribute are most or least preferred.
Market stimulators: This is the key output allowing you to test hundreds of different product configurations and price points against the competition.
For this methodology, respondents are presented with multiple options at once and asked to list out which products would or would not meet their needs. As they progress through the exercise, they’ll be asked to pick which option they’d be most likely to purchase from a lineup of products. The results show you how important each attribute is to the purchase decision, or how much impact it’s having on the decision. It also tells you, within each attribute, which levels are most or least preferred. Putting all the data together, and running several analyses allows you to see price sensitivity by segmentation, competitor comparisons, share of preference, and revenue maximization.
Perhaps the biggest benefit of this analysis style is the robust analyses it allows you to conduct. This complexity more closely stimulates real-world purchasing conditions and can be used to predict the acceptance of new products before launch, determine which features drive purchasing decisions, and measure yourself against your competition.
As you might have expected, this methodology does take quite a bit more time than the two previously explained models, but if you have the time, it presents you with richer data insights that can more effectively drive your product strategy.
There are several ways you can collect insights on pricing your product. Whether you utilize one of the three methods above, or a method of your own, this is a pivotal part of your go-to-market planning. To learn more about how pricing research could be a valuable tool for launching your next product, contact us today. Our team of market research experts look forward to discussing the best methodologies to get you the insights you need to optimize your product strategy!
https://scienceandmedicinegroup.com/wp-content/uploads/2018/03/logo.png00SDi Editorial Teamhttps://scienceandmedicinegroup.com/wp-content/uploads/2018/03/logo.pngSDi Editorial Team2022-11-22 17:55:502022-11-22 17:55:50Three Methods for Pricing Research to Drive a Successful Product Launch
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