By Andrew Dalglish - 14th December 2016
Last week I discussed two research techniques which can be used when determining the optimum pricing strategy – Gabor-Granger and Brand Price Trade Off (BPTO). These techniques are beautifully simple, but this simplicity has a flip side.
This week, I’ll look at two pricing research techniques which can overcome these issues – the Van Westendorp Price Sensitivity Meter and Conjoint Analysis.
The Van Westendorp Price Sensitivity Meter
The Van Westendorp Price Sensitivity Meter overcomes some of these issues by allowing respondents to choose their own price points and share more detail on their reactions. To do so, respondents are shown the product and asked to indicate:
At each price point mentioned, the cumulative percentage of respondents placing the product into each of the four categories above is calculated. For example, in a study to identify the optimum pricing strategy for a Business School’s one day courses for professionals we found the following pattern:
This chart can be interpreted as follows:
So in this example the Business School was advised to ideally set the price at £700 or failing that, somewhere between £650 and £800.
Van Westendorp is a simple and useful technique but has four drawbacks:
These issues can be overcome by using one of the most advanced pricing techniques – Conjoint Analysis.
Real-life purchase decisions involve a complex series of conscious and unconscious trade-offs between price and product features. Conjoint Analysis seeks to mimic this. To do so, different components of the offering (product features and price) and the different ‘levels’ at which these components might be realistically ‘set’ are identified, e.g. the feature of product delivery could be offered as same day, next day or 48 hours.
Using this information, the conjoint algorithm creates a series of hypothetical products each with slightly different attributes and prices. These hypothetical offerings are then grouped into sets of 3 or 4 and respondents asked which one, if any, they are most likely to buy.
This is repeated several times until a large number of potential combinations have been compared across all of those people surveyed. In making these choices respondents are indicating, without knowing it, the relative value (called a Utility Value) they attach to different product features and their price sensitivity. This means that, following statistical analysis to identify patterns in the data, Conjoint Analysis reveals:
It also allows ‘what if?’ scenarios to be explored where the impact on demand of different actions can be estimated, e.g. How would demand change if the price was raised by 10%? What impact would removing feature X have on demand? What would happen to demand if feature X was kept but at a lower performance level?
Learn more about Circle’s approach to business-to-business (B2B) pricing strategy research here.
Andrew has specialised in B2B research for over a decade and co-founded Circle Research in 2006. He is a columnist for B2B Marketing Magazine, a regular contributor to Research Live and frequent speaker at leading events such as the B2B Leaders Forum, Customer Experience Live and the Social Media World Forum. Andrew is a Chartered Member of the MRS, teaches the MRS B2B research course and holds an MA in Psychology from Aberdeen University alongside an MSc in Marketing from Strathclyde University.