Pricingresearch

Overview of Pricing Research Techniques

 

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There are a number of ways to establish pricing for products or services, including adopting a markup on costs (a cost plus formula) or setting prices in relationship to competitor offers. Market research also has a role in underpinning effective pricing strategies. By understanding market perceptions of prices and the value consumers attach to existing or new products, market research can help identify optimum pricing.

 

The typical objectives of pricing research includes:

 

• to ensure a new product is priced in line with market perceptions, and perceived value of the product

 

• to estimate demand and revenue levels before adjusting prices

 

• determine the value of individual product features or add on services, and develop appropriate pricing strategies

 

Pricing Research Techniques

There are a number of different techniques which can be used to undertake pricing research, depending on the objectives and practical considerations of the project design.

 

Price Sensitivity Meter (PSM)

PSM is a technique used to help determine acceptable price levels against the perceived value of products or services. It is particulary useful where brand is not an issue, or where there is little knowledge of prices or competitive offerings. Hence, it is a useful technique for innovative or new products.

 

Gabor Granger

A simple but effective technique developed in the 1960s, but still highly applicable for exercises where the pricing research is a small element of the research objectives, or where a single product is being evaluated. 

 

Choice Based Conjoint (CBC)

There are a number of techniques for evaluating price using conjoint analysis. CBC is one of the most recognised and used where brand is important. It has the advantage of measuring purchase intentions of whole product bundles rather than intention to buy on a specific price. The technique also allows "what if" simulations to see the effect on market share and revenue levels against competitors.