January 29, 2025
Pricing is of course only one of the marketing mix elements and is never in isolation of our product or service, promotional activity or buying channel. That said pricing is very important, get it wrong and the consequences can be disastrous. Pricing research is therefore as essential as any market research we do.
The good news is that there are some really great and relatively simple pricing market research techniques we can use to look at pricing challenges. My favorite among these techniques is the Van Westerndorps Pricing Sensitivity Meter. Market research is best when we keep it simple and effective and this technique really reflects those values.
Using VWPSM we go from not knowing what price to charge to getting a price range between the lowest suggested price and highest possible price, as well as knowing the optimum price. Incredible output from just a few questions. This provides valuable insights to be considered together with other relevant data, insights and market modelling to aid the decision making process on price.
I really like the simple but effective output that you get with VWPSM, it’s easy to interpret and communicate. I also like the fact that we only have to ask 4 questions in an interview to get the data we need and run the analysis:
• At what price would you consider this product/service to be so expensive that you would not consider buying it?
• At what price would you consider this product/service to be priced so low that you wouldn’t trust the quality and would not consider buying it?
• At what price would you consider this product/service to be expensive but you would still consider buying it?
• At what price would you consider this product/service to be low priced but would consider buying it?
That means you can incorporate this into a wider piece of research or focus on the price in a relatively straight forward piece of research – either way this is a great way to get insights on price. I also like VWPSM as it can be used with relatively small sample of say n=50. This is very useful for B2B markets or healthcare markets where very often the product or service under consideration is niche and you actually have a very small universe of potential respondents.
In the illustrative example below we start with not knowing at what price point we can enter the market. The research results however suggest an optimum price point at £75 (the price at which we’ll exclude the fewest buyers of the product/service). The VWPSM also neatly suggests a pricing window between £55 to £95. Great insights to aid the discussion on pricing.
Nice Simple Output from VWPSM Gives Us The Optimum Price & A Suggested Price Range
If VWPSM is my favorite pricing market research technique conjoint market research is a very close second. A highly useful tool for looking at price challenges in competitive markets when we need to consider those other elements of the marketing mix in more detail. Few buyers buy a service or product based on price alone. The attributes they assign to the product or service in question will lead to trade-offs on their willingness to pay. Buyers in any transaction are considering a bundle of attributes as well as the price. Conjoint research can tell us what is the optimum ‘bundle’ or offer to the buyer from a number of options at a particular price point.
Consider a new platform for the financial services industry that may have several pricing options they want to consider but don’t know which their potential customers would accept. They may want to bundle into the price access to different features, different levels of customer service, or different levels of integration with their existing technology or apps. Using a conjoint approach we decide the pricing options and the attributes we want to test – as well as the various levels within the attributes. We simulate the offers across dozens of iterations of the price at various levels of the chosen attributes – buyers select from the range of offers the one they find most appealing over and over again and this enables us to arrive at an optimum offer of price and attribute levels. This helps us to decide the ideal price and offer to our customers.
Some qualitative research and a team workshop, preferably with the involvement of some invited market experts helps to determine the attributes and levels to test. Remember the more attributes and levels you have the more options the buyer will need to test, this can if the number of attributes is too long produce a very long questionnaire which you want to avoid. So determining the most important attributes and the levels is paramount. Time taken doing this up front helps to produce more meaningful approach to tease out the key attributes and pricing options.
Simulators! Another thing I love about conjoint is that you can produce wonderfully simple but effective market simulators from the results. This allows us to test various scenarios of price and attributes to help our decision making.
Top Tips for Pricing Market Research
1. Don’t leave your pricing to chance! Incorporate pricing research into your market research plan.
2. Keep it simple and effective. Beautiful simplicity - market research is most beautiful when we keep it simple. These techniques help us to do that. Beautifully simple market research that produces very insightful modeling to aid our business decision making. What could be more beautiful than that?
3. Use the market research to aid your decision making – pricing decisions are tough and such complex decisions must be viewed and considered from a number of angles of which the research is only a part. Price decisions are never taken in isolation but only as part of the wider marketing mix.
4. Pricing market research doesn’t give you ‘the answer’ it helps you get to the answer!
Want to talk about how our pricing research can help you with your marketing challenges? Get in touch with scott@smartconnectresearch.com
