Deciding on a price for a product or service is one of the most important decisions for any organization. Because companies need to cover their costs, it is vital that the price of an item is high enough to cover expenses, but not so high that customers won’t be willing to pay for the product. There are many market research techniques that are important to determine the best price point for any given product.
The most basic market research pricing strategies include the following:
Conjoint analysis is one of the main research techniques for determining price. When conducting price analysis with this process, researchers determine what customers give up by paying a certain price for a product and compare that against the features the customer is gaining by purchasing the product. By determining how customers make their purchasing decisions, the economic impact of price changes can be assessed.
Doing conjoint analysis provides price sensitivity and allows researchers to create a market model to determine what price changes will have an effect on or not change.
Gabor-Granger is basically direct marketing. When using this method, customers are asked whether they would buy a product at a particular price. Then, the price is changed, and the customer is again asked if they would purchase the product. From these questions, an optimum price is determined. Then, demand can be determined once a price point is chosen.
The biggest issue with this strategy is that customers may understate or overstate the price they are willing to pay for a product. Also, determining what your customers will pay for a product, then setting that price may not keep up with the competition, particularly if the competition is offering the product for less.
The Van Westendorp strategy is also a direct pricing method. This strategy is the process of presenting respondents with different questions to determine whether a product is either too cheap, cheap, expensive, too expensive, or a bargain. Then, these prices are plotted, and the area between is used to determine the range of acceptable prices.
The Van Westendorp method removes a competitive element from determining prices, and it assumes that customers know what the market situation is. It is best to use this method either with Gabor-Granger, or with Conjoint.
Any of these three methods can provide a solid foundation to determine what the best pricing strategy is for a project. In addition to these strategies, organizations can use competitive intelligence from syndicated market research reports to determine competitors’ successes and failures to help determine what pricing strategies attract, or deter, customers as a compliment to their own research.
MarketResearch.com offers syndicated research and competitive intelligence on 26 different competitive industries. To learn more about how market research can help you identify growth opportunities in business, check out our free white paper.
Thanks for reading!