Pricing Research
A well chosen price should do three things:
  • Achieve the financial goals of the company (e.g., profitability)
  • Fit the realities of the marketplace (Will customers buy at that price?)
  • Support a product's positioning and be consistent with the other variables in the marketing mix.
A good pricing strategy would be the one which could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).

Pricing is, in essence, a risk management strategy—pricing research. Pricing research offers a variety of quantitative methods to measure the ‘right’ price.

The most effective quantitative approach addresses a wide range of research problems, such as customers’ willingness to pay, price sensitivity, and perception of value. As with anything else, the benefits of a quantitative approach must be balanced against its costs; pricing research should be used as a supplement, not in place of, other types of strategic research and brand positioning.

But when utilized, pricing research should be done right.

Several different research methods are commonly used in pricing research—each with their own strengths and methodologies.

Pricing Articles

A cruise line example illustrates how to use discrete choice to determine marginal value in this piece published in Quirk’s Marketing Research Review, How to Price an Island.

Using a Grange-Gabor Price Model with Price Elasticity, respondents are asked to complete a survey where they are asked to say if they would buy a product at a particular price. The price is changed and respondents again say if they would buy or not.

Pricing and Revenue Monte Carlo Forecast Model reveals the ‘price point’ winner, not only of product demand at test price levels, but taking into account the estimated market area and fixed costs.

Multivariate Pricing, published in Research World Magazine, explains how to base prices on consumers’ perception of value.

The Van Westendorf Price Model asks respondents four price-related questions and then evaluate the cumulative distributions for each question.

Dual Usage Market Penetration Likelihood Simulator – A dual use simulator is a combination of discrete choice model where respondents are asked to choose one item from a list of four or five, generally with rotating prices. In addition, respondents are then asked, of the one choice they make, how likely would they be to purchase it. This extra inquiry not only allows the researcher to gauge price sensitivity, but also to determine market penetration by simply adding one more question per section. Email us to request a copy of the simulator.

The Price Toolbox is an article published in Admap Magazine summarizing various pricing methods and their effectiveness.

The Power of Segmentation examines the price differences various segments of drivers are willing to pay for gasoline.