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Pricing Research

Disciplines > Marketing > Pricing > Pricing Research

Competitive pricing analysis | Direct surveys | In-store analysis | Pricing experiments | See also

How do you know what price to charge for things? A useful approach is to do some research. Social research done well is complex and costly, but the result is often proportionate to the effort that you put into finding out what people really will pay.

A critical question for pricing research is to discover price elasticity. This is the pattern of how sales change as the price is varied up and down. Sales of a price-inelastic product will drop off sharply above a certain point.

Competitive pricing analysis

The easiest way to see what customers might pay for your product is to look at what they are already paying your competitors.

This can be useful when your products and brands are equivalent, so you can compete on a level playing field. It is trickier when your competitors have stronger brands and where their offering is distinctly different to yours.

Setting prices based around competitor pricing can also cause issues where the competitor changes their prices or marketing in response to your positioning. Price wars may benefit customers in the short term but are seldom desirable for sellers.

Direct surveys

Perhaps the most accurate method of determining what the customer will pay is to go and ask them. How you do this depends on who they are. Normal retail customers may be waylaid in the street to answer questions, invited into focus groups or even be paid subjects in lab experiments.

Price surveys can:

• Ask what products the person currently buys, and how often.
• Explore how attached they are to the products.
• Ask what they would pay for an equivalent alternative.
• Ask how much you would have to pay them to get them to switch.
• Test discount structures to find which are most tempting.
• Give them samples and discover how sensory interaction affect buying decision.
• Test price points.

Generally, survey questions should be clear and direct. 'Would you pay X?' is better than 'Which of these prices would you pay?'. They should not pressure customers into an answer when they are not sure, otherwise you will get false data.

While the benefit of this seems obvious, this again can be fraught with difficulty, mostly because the person is in an unnatural situation and may easily try to give you answers that they think you want to hear or that make them look good.

In-store analysis

Retail stores are where people look at prices of items on display and decide whether or not to buy. A simple method here is to watch people shop. There are four steps to observe:

1. Looking at product category.
2. Looking at your product.
3. Picking up the product or otherwise examining it closely, including checking the price.
4. Putting it in the basket or otherwise deciding to buy it.

If few people look at your product, then you may have a product brand, wrapper or placement issue. If they choose lower-priced items, you have a pricing issue. If they examine your product and replace it, you may also have a pricing issue.

An important part of in-store analysis is in understanding the role played by other factors such as the placement of products, promotional displays, other products, lighting, staff knowledge, general cleanliness and so on.

Pricing experiments

A really good way of understanding price is to do experiments, changing prices and seeing what happens. This should be done using a careful plan and not just changing prices up and down randomly.

A dilemma with price changes is that customers may get confused, suspicious or annoyed by this. To handle this, you need to either give good reason for changes or ensure a customer viewing one price does not know about others.

A way of testing prices using 'good reason' is by having special promotions, such as sales, 'earlybird' pricing for events and price points for volume sales. This allows you to give a rationale for changing prices.

Keeping customers separated can be done with regional pricing, although this needs consideration of regional price sensitivities. This may be understood somewhat by looking at local economic health and general culture around price sensitivity.

Online, pricing can be varied with each sale and based on a wide range of factors including customer profile and overall sales trends. The complexity of data allows for deep knowledge to be gained, although this complexity can also make the analysis very difficult.

See also

Social Research