Pricing research – when to use it and how to improve it

By Nicola Warrington

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There was an interesting article last week in Research Live about the gamification of pricing research arguing that traditional approaches need to be more engaging in order to improve data quality, limit respondent bias and reduce the rationalisation of responses. Improving traditional approaches and respondent engagement can only be a good thing but the underlying principles for pricing research remain.

Choosing the right methodology requires a clear understanding of your objectives – whether that be at the beginning of the process and assessing the importance of price in driving brand choice, through to identifying the optimal price range or estimating purchase intention once a price point has been set.

Below are three traditional pricing research methodologies, when to use them and our thoughts on how gamification can be used to enhance them:

1. Conjoint modelling: Assessing the importance of price on brand choices

Conjoint models use a simple trade-off exercise to identify the optimal combination of product features and price to drive the greatest product uptake. Within the survey respondents are offered a number of combinations and asked to select which one they would be most likely to buy. Through modelling this data, we then identify the optimal combination and which features consumers are willing to trade-off against each other.

If not designed well, they can be unengaging for respondents. Wherever possible, visuals – brand logos, product images – and narratives should be used to increase the interest of consumers and improve data quality.

2. Price sensitivity measurement: Identifying the optimal price range

Van Westerndorp’s price sensitivity measure (PSM) is often used to understand the elasticity of the price and identify the optimal price range.

Within the survey, respondents are asked to assess the price of a product or service at 4 simple levels – when is it a) too expensive, b) getting expensive, c) a bargain and d) too cheap. From this we can identify the price range within which consumers are willing to pay for the product before it impacts uptake, thus determining the optimal price point.

The key benefit of this approach over showing specific price points is that the questions are left open and we can determine what a consumer is willing to pay for a product (what do they think it’s worth) without guiding them to a specific retail price and biasing their opinion.

There is however a danger – ask consumers what they are willing to pay and they may respond with what they would like to pay. If possible, use projective techniques to ask respondents what they think other consumers would be willing to pay; reducing bias as there is no personal benefit from their response.

3. Purchase intention: Understanding consumers’ likelihood to buy

Once a suggested price point is established, a simple purchase intention question is often used to estimate likely product or brand trial.

This can be asked both priced and unpriced: Assessing consumer likelihood to purchase before the price is revealed can determine how believable claims are and how motivating they are to drive purchase. This can then be repeated with the price introduced to understand whether price is a significant barrier to uptake.

Often with this approach we see that levels of purchase intention are over or understated compared to the realities of market performance. In order to anchor price points in reality it is often useful to start a pricing exercise by establishing the context through recall of current price points of client or competitor brands and products.

These are just three examples of the many pricing research approaches; each scenario is unique and there is no one-size fits all answer to which solution is best. Equally, gamification can often enhance pricing research but don’t jump straight in – each objective should be individually considered to ensure the right approaches and techniques are used.