Your latest product or service may be projected to succeed; however, the reality often depends on your pricing. If you price it right, you’ll benefit from the positive impact on profitability, customer perceptions, and market competitiveness. Price it wrong, and your launch may fall flat. The solution? Knowing which pricing research technique to use to identify pricing that will maximize reach and revenue. With over three decades of experience in pricing research, we can help you make the right choice with this three-part series on common pricing research techniques and when to use them.
Common Pricing Research Techniques
While Van Westendorp, Gabor Granger, and Choice-based Conjoint Analysis may sound like bizarre Scrabble entries to most, we’ve used them to provide impactful and actionable answers to pricing questions for over 100 brands and organizations locally and globally.
The Van Westendorp Price Sensitivity Meter, the Gabor Granger Technique, and Choice-based Conjoint Analysis each have their own strengths, and the choice depends on your needs.
Van Westendorp Price Sensitivity Meter
In this first part of our series on success in pricing, we’ll cover the Van Westendorp Price Sensitivity
Meter, which is best used to explore price ranges. The Van Westendorp Price Sensitivity Meter is an exploratory approach that determines consumers' price perceptions. Respondents are asked to evaluate a product's price based on four key questions:
- At what price would you consider the product (or service) to be so expensive that you would not consider buying it?
- At what price would you consider the product (or service) to be starting to get expensive, but you would still consider buying it?
- At what price would you consider the product (or service) to be a bargain—a great buy for the money?
- At what price would you consider the product (or service) to be priced so low that you would feel the quality couldn’t be very good?
When It Is Used:
- Early Stages of Pricing: Van Westendorp is often used for the exploratory phase of pricing. It helps you identify the general price range within which a product or service might be considered acceptable by a target audience.
- For New Products: When launching a new product with little to no pricing data, Van Westendorp provides a good starting point to help you gauge price sensitivity without overwhelming the respondent with too many details.
- To Understand Perceived Value: If you are interested in understanding how consumers perceive the value of a product relative to its price, this method provides insight into consumer expectations and the perceived value-price relationship.
Limitations:
- Simplicity Can Be a Drawback: While it’s easy to implement, Van Westendorp doesn’t account for the actual purchase likelihood at different price points. It also assumes that consumers can accurately predict their behavior, which isn’t always the case.
- Not Ideal for Complex Pricing Decisions: If your product or service has multiple features or options that significantly impact pricing, Van Westendorp may oversimplify the pricing decision.
- Challenges with New Products: For entirely new products or services, especially those that introduce new value propositions or categories, consumers might struggle to answer the Van Westendorp questions meaningfully, as they lack reference points for what constitutes acceptable pricing.
Retail Pricing Example:
Facing high pressure from competitors, our retail client needed to reassess its value/price positioning
and make the necessary alignments to protect market share.
We conducted an online survey with 4000 consumers who provided feedback to understand consumer perceptions of the retailer vs. competition with respect to price - overall and at the department level.
We reported on the impact of price differentials and availability of promotions on customers’ choice of retailer.
Our client used the research to validate and guide the price/value repositioning offer and brand value strategy by category to consumers.
For guidance on the best pricing research technique for your new product or service, please contact Advanis today.