Pricing Studies

In our experience, most pricing decisions incorporate a combination of “cost-plus” and “price-to-market” pricing methodologies. While both of these are valid perspectives they are often also constraining perspectives. We have tools to enable our clients to go beyond these simplistic methods to discover new pricing/profit opportunities using more advanced tools such as conjoint analysis or discreet choice analysis where the pricing equation also incorporates consumers’ valuations of product features, appearance and performance; in other words the whole picture rather than just cost of competitive considerations.

Conjoint Analysis and Discreet Choice Analysis are tools to illuminate how consumers make purchase decisions.  They enable us to understand the importance of different attributes in a category of products and the importance of different variables for each of those same attributes.  Price is often one of the variables used and we can use this technology to identify ways to maximize price to maximize profitability by charging the right amount for a product with an optimal mix of attributes. 

Conjoint also enables after the fact simulation which allows us to project market shares under varying conditions.  We often provide clients with different scenarios of price and product configuration and the resulting market share.  We then provide second and third level simulations by simulating what competitors might do in response to client moves and how clients might best react.  

An alternative methodology (non-conjoint) asks respondents a series of key price questions.  The resulting data allows us to define:
1)    The Average Price at which respondents are most likely to purchase each product.
2)    The Average Price where Quality would be questioned (considered too cheap)
3)    The Average Highest Price respondents would pay (expensive but acceptable)
4)    The Balanced Price Range – the point in which just as many respondents feel the price is good as feel it is expensive but still acceptable.

Regardless of which price testing methodology we employ, we have always been able to deliver additional insight to clients on how consumers appraise the value of products.  Better information always leads to better informed decisions.