Setting an optimum price for a product or service is a challenge. Statistical research techniques can help in this process by identifying the value which customers place on different attributes.
Pricing studies need to be tailored to each individual project to ensure they reflect as closely as possible the market concerned. A number of different research and analytical tools can be used, in isolation or in combination.
These research techniques can include:
- Price Sensitivity Measurement
- Gabor Granger and extended Gabor Granger
- Trade off analysis (i.e. Conjoint Analysis)
Conjoint / trade-off analysis
This type of analysis is the preferred tool for understanding complex pricing issues. Respondents are shown a number of different combinations of products or services at different price levels and asked which they would choose. This is repeated with different combinations. The analysis allows a number of questions to be answered according to needs such as:
- How important is price in the market? Are there product features that can be used to leverage price?
- What is the price elasticity within the market generally or for specific brands?
- What are the key price thresholds and does this differ for sections of the market?
- What is the impact of changing price in terms of competitor share?
- How can I change price to attract specific customer groups?
- How does substitution and cannibalisation work in the market?
- Can price differentiation be used to optimise the portfolio of brands?
- How will introducing a value or premium brand effect the range?
Lychgate has used this method successfully as part of programme of product development for a major building product manufacturer. The research was conducted with the Trade and DIY sectors analysing their price sensitivity relating to specific product features and benefits and predicting the affect of introducing new products on the existing market.