Methods for Pricing Research

2,021 views
1,839 views

Published on

Methods for Pricing Research

Published in: Business, Economy & Finance
1 Comment
8 Likes
Statistics
Notes
No Downloads
Views
Total views
2,021
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
170
Comments
1
Likes
8
Embeds 0
No embeds

No notes for slide

Methods for Pricing Research

  1. 1. Methods for Pricing Research
  2. 2. Survey research on price sensitivity helps market professionals on decision making at each stage of a new product development: concept analysis, development and launch.
  3. 3. Do you have a new concept to be tested? Are you developing a new product? Did your competitors changed their prices? Is your brand going to launch a new product in the market? Survey research on price sensitivity can really help you out on understanding consumer preferences.
  4. 4. This presentation compares six methods of pricing research: their ability to recover information about customer values, how they are executed, how can results be interpreted and their limitations. Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint)
  5. 5. Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint) Methods for Pricing Research
  6. 6. PSM Price Sensitivity Meter This method was introduced in 1970’s by Peter van Westendorp, a Dutch economist. It is based on the premise that there is a range of prices bounded by a maximum that a consumer is prepared to spend and a minimum below which credibility is in doubt. In this method respondents must ask to four price-related questions:  At what price would you consider the product to be so expensive that you would not consider buying it? Too expensive  At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? Too inexpensive  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? Expensive  At what price would you consider the product to be a bargain – a great buy for the money Inexpensive
  7. 7. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 € 2 € 3 € 4 € 5 € 6 € 7 € 8 € Too Inexpensive Inexpensive Expensive Too Expensive The cumulative percentages are plotted and the four key intersections are interpreted. It allow us to predict the optimum price point (OPP) and the range of acceptable prices: These distributions are usually display in a chart, as shown below. Range of Acceptable Prices PMC – point of marginal cheapness PME – point of marginal expensiveness IPP – Indifference price point OPP – optimal price point PSM Price Sensitivity Meter OPP IPP Range of Acceptable Prices
  8. 8. PSM approach has some limitations:  data is dubious as it relies heavily on consumer’s price awareness in a market, which means that respondent’s ability to answer these questions is dependent upon their having a good reference price. For this reason, in a large sense, PSM becomes a test of price rather than a measure of price sensitivity.  do not provide any insight into the customer values that drive a purchase decision.  it is misleading because it combines buying intention with price sensitivity. PSM Price Sensitivity Meter
  9. 9. Methods for Pricing Research Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint)
  10. 10. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Definitely would not purchase Probably would not purchase Might or might not purchase Probably would purchase Definitely would purchase 5 € 10 € 15 € Concept test /concept evaluation In this method respondents are presented with a product concept and asked how likely they would be to purchase this product at a specific price. How likely would you be to purchase this box of chocolates if it cost 10€? Definitely would purchase, Probably would purchase, Might or might not purchase, Probably would not purchase, Definitely would not purchase
  11. 11. Concept test /concept evaluation The Concept test method has some limitations:  provides no competitive information: respondents do evaluations without any information about other products that might be available in the market. They are not able to do trade-offs between features and price to determine their preferred product, which means they do not model real-world decisions.  relies on price awareness: respondents base their answers on their awareness of the current pricing in the category.  is inefficient when evaluating numerous product specifications: each respondent should only evaluate one concept.  relies on aggregate-level analysis: this approach will make respondent heterogeneity difficult to detect and measure.  cannot indicate what a better or ideal price might be, but only if the proposed price is acceptable.
  12. 12. Methods for Pricing Research Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint)
  13. 13. Conjoint Analysis In conjoint analysis each respondent is exposed to many concepts. Respondents are asked to make hypothetical trade-offs between products, as buyers are forced to do when actually shopping. In each product the combination of features shown together (including price) changes, so that a large number of product features can be evaluated. Impossible combinations (e.g., an expensive attribute and a low price) are eliminated. Example 1: Considering the purchase of a tablet. Below are 8 options for this tablet. They differ in 3 basic benefits (weight, the length of the battery life, and the price). Rank order these 8 options from 1- 8 by assigning 8 to your most preferred option and 1 to your least preferred option (it is very important that you assign 8 to your most preferred option.) OPTION WEIGHT BATTERY LIFE PRICE RANKING 1 300 gr 6 hours 500€ 2 500 gr 12 hours 300€ 3 500 gr 6 hours 500€ 4 300 gr 12 hours 500€ 5 300 gr 6 hours 300€ 6 500 gr 12 hours 500€ 7 500 gr 6 hours 300€ 8 300 gr 12 hours 300€
  14. 14. Conjoint Analysis Example 2: Considering two TV alternatives. Which would you prefer? or 1 2 3 4 5 6 7 8 9 Strongly prefer product on left Strongly prefer product on right Example 3: Extremely clear picture quality $300 Clear picture quality $200 Please distribute 100 points between the following attributes according to the influence each has on your decision to purchase Points Price Bonus Airline Miles Extra Leg Room Preferred Security/Screening On-Time Departure /Arrival Assigned Seating Total 100 Each respondent provides information on his or her trade-offs so that the utility of each product characteristic (including price) can be estimated for each respondent. This individual-level estimation allows the identification of individual differences that can lead to a market segmentation scheme and can be used to help predict acceptance of products by different individuals in a heterogeneous market.
  15. 15. The Conjoint Analysis method has some limitations:  requires the respondent to state a preference among a set of configured products, but it does not ask if the respondent considers the configured product well enough to buy it.  the respondent task of providing a rating is still not as realistic as choosing a product, like consumers actually do when shopping. Conjoint Analysis
  16. 16. Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint) Methods for Pricing Research
  17. 17. BPTO Brand Price Trade Off BPTO is a simplified form of conjoint analysis in which respondents choose a brand from a series of price scenarios. This approach is the simplest method for assessing the relative impact/value of the brand as it only uses two variables: brand and price. Several brands are shown at once and the customer chooses the preferred option. Price are adjusted and the customer chooses again. This method allows answering to these questions:  What are the maximum acceptable prices for a product?  What differences of monetary values are perceived by consumers between the products being presented?  What market shares can a product achieve at certain price levels if it competes with other products? BPTO is most used in consumer type markets where there is little to choose functionally between products. For other type of products, such as services, industry and technical, more sophisticated techniques are needed.
  18. 18. BPTO Brand Price Trade Off Example: Limitations  in most markets it results in exaggerated price elasticity. Imagine you are choosing a bottle (2 litres) of soft drink from a shop. If the drinks were priced as follows which would you choose? Choose a product then click on ‘Select’ to see some new prices and to choose again. Brand Price Choose… 7 Up 1.20  Coca Cola 1.20  Fanta 1.20  Pepsi 1.20  Sprite 1.20  None of these 1.20 
  19. 19. Methods for Pricing Research Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint)
  20. 20. Monadic scenarios This approach asks respondents to make a realistic purchase from a shelf display, price marked as in the real world. Respondents are not prompted to look at price in any overt way. The effects of different price scenarios are evaluated by creating different displays and obtaining a choice from a different sample of people. Monadic scenarios are used to generate an accurate price elasticity and have been validated across a wide variety of fmcg (fast moving consumer goods) markets. This method can be combined with other methods such BPTO. Limitations  the cost, as every extra scenario we want to test means an extra sample of people.
  21. 21. Methods for Pricing Research Concept test /concept evaluation Conjoint Analysis PSM BPTO Brand Price Trade Off Monadic scenarios Discrete Choice Modelling (Choice Based Conjoint)
  22. 22. Discrete Choice Modelling (Choice Based Conjoint) In Discrete Choice Modeling a set of products with different features and prices is presented to respondent and he/she has to pick one. In this regard, it is based on a more realistic task that consumers perform every day: the task of choosing a product from among a group of competitors. The scenarios can be varied across participants, with different choice sets or different prices and data is aggregated later. The utility of the products relative to price can be measured then. The results from discrete choice modeling are quite similar to those from conjoint as both approaches allow what-if simulations. Example: Which TV would you purchase? Brand A 81 cm Wi-Fi, 3D €500 Brand B 106 cm No Wi-Fi, 3D €600 Brand C 101 cm Wi-Fi, 3D €700 NONE If these were my only alternatives I would not purchase anything
  23. 23. Contact us Adress: Rua Carlos Mardel, N.º 94, 1º Esquerdo, 1900 – 125, Lisboa, Portugal Telephone: +351 218 496 151 E-mail: sonia.casneuf@em-estudosdemercado.pt Website: www.em-estudosdemercado.pt E.M. - ESTUDOS DE MERCADO E SONDAGENS DE OPINIÃO Count on us! Together we make the difference. Do you want to know more about research on price sensitivity? We can help you decide the most suitable method for you. Contact us, we are at you disposal!

×