Introduction
Pricing competition refers to the competition among firms to establish the prices of their goods or services. It is a common occurrence in most markets and has a substantial impact on a company’s profitability. Companies compete on price to get more market share by charging less than their competitors. This strategy, however, may not always be effective in the long run because it may result in lower profitability and market saturation. Businesses must utilize pricing research and develop their pricing strategy in order to compete effectively in the market. Effective pricing strategies not only help firms increase their market share but they also promote consumer loyalty and brand value. To be competitive and profitable, businesses must regularly examine the market and adjust their pricing strategy as needed.
What Is Pricing Research?
Pricing research is a method of research that is utilized to ascertain the amount of money that consumers are willing to pay for a particular product or service. Through the process of pricing research, the impact of prices is evaluated, and the optimal price for new products is determined. Businesses can use customer insights to learn about the psychological effects of price on sales and to get feedback from customers regarding response to new prices.
What Are the Types of Pricing Research Methods?
There are many types of pricing research methods, such as:
- Choice-Based Conjoint Analysis
- Adaptive Choice-Based Conjoint
- Gabor Granger Method
- Van Westendorp Analysis
- Max Diff In-Market Price Tests •
- Regression Analysis
- TURF Analysis
- Brand Price Tradeoff Analysis
- STEP Pricing Research
- Monadic Price Tests
Let’s discuss 5 main methods here:
1. Van Westendrop
Van Westendorp’s price-sensitive method determines basic psychological prices by surveying customers and determining how much they are willing to spend on a product based on their responses. As a result, it allows us to identify a range of potentially appropriate prices as well as the drop-off in consumer interest that occurs as prices rise.
2. Gabor Granger Method
The Gabor-Granger technique includes testing four to five different prices and asking respondents how likely they are to buy the product at each of these prices. Respondents were informed about their willingness to buy at these predefined price points the company has already verified. This information is used to determine the best price point for the product in the market.
3. Brand-Price-Trade-Off (BPTO)
BTPO, or Brand-Price Trade-Off, is a statistical tool for determining the impact of price on various factors such as profitability, revenue, market volume, and brand awareness. It is a choice-based price technique that displays customers’ varying brand preferences based on price.
4. Conjoint Analysis
Conjoint analysis is a survey-based market research technique that allows us to study people’s processes as they make complex decisions. Even simple decisions like selecting a pair of shoes or locating a restaurant involve mental conjoint studies that lead us to our conclusion.
5. Monadic Testing
It is a series of questions aimed at getting customers’ opinions about a concept as well as which specific qualities and features they prefer or dislike. The target audience is divided into several groups, each presented with one of the ideas and asked questions about them.
6. Choice-Based Conjoint
To analyze new prices, you should be able to anticipate customer reactions. Choice-based models are regarded as the most appropriate marketing research tools for pricing.
7. TURF Analysis
For a company with multiple product variants, the business objective may extend outside of predicting preference shares at specific prices. It may also want to understand how to reach the biggest possible customer base, considering its entire product offering.
8. In Market Price Research
Market research is often employed to establish and confirm the pricing for existing products. This type of research can help predict how a major price adjustment or increase might affect consumer demand.
9. STEP Price Research
STEP was created to test new product concepts as well as pricing and sales methods for existing products. Field research using the STEP method can be conducted via mail, the Internet, or personal intercepts/interviews.
10. Regression Analysis
Regression analysis makes use of historical data and is commonly used to estimate the effect of price changes on sales. Historical data can help predict how changes in price and market variables, such as promotions, advertising, competitive product prices, and other relevant variables, will affect sales volume.
How Can You Conduct Pricing Research?
Clearly, pricing research can help companies find and develop new business opportunities. But how can you ensure that you have done pricing research correctly? Here are five ways to conduct Pricing Research.
- Define the research purpose: Understand who, what, why, where, when, and how your customers make pricing decisions. Focus on using elements like frequency of purchase, key decision maker, and length of purchase for the purchasing process in the research design.
- Know your tools: Not all tools are created equally, and not every method can be used at all times. The key is to match the data collection method to the pricing problem for which you need input.
- Understand how your customers perceive price: Understanding how your customers see price in the context of their purchase is critical to developing effective pricing research designs.
- Use research to sell: Take the time to develop your sales representatives and provide them with full communication of pricing research to support any changes to your pricing strategy.
- Use differentiation to Select and Reject Potential Customers: Price segmentation is frequently used to determine which group of customers is best to serve. Many businesses can’t resist the temptation to sell their product or service to the entire market in a misguided attempt to increase volume.
Why Is Pricing Research Necessary?
Pricing research is necessary for businesses for the following reasons:
Introducing new products: Price research can help organizations guide their pricing strategy and reduce the risk of unsuccessful product launches.
Improved profitability: Pricing research helps businesses achieve their business goals of maximizing profits and increasing revenue by determining the ideal price point for a product or service.
Increased customer loyalty: Businesses can tailor their pricing strategies to meet customer needs and increase satisfaction by knowing consumer preferences and behavior through price research, which aids in accomplishing a business firm’s goal of customer satisfaction.
Product development: Price research can provide insights into client demand and willingness to pay for specific features or benefits, which can aid in product creation. It contributes to the company’s business goal of increasing its market share.
Achieve social aims: Pricing research also helps businesses achieve their social objectives by allowing them to determine the best price while remaining socially responsible.
Understanding customer behavior: Price research helps businesses gain a better understanding of consumer preferences and behavior, such as how much they are willing to pay for a commodity or service, allowing them to set reasonable pricing that reflects market demand.
Choosing the optimal pricing for a product or service: Pricing research helps organizations determine the ideal pricing point for their products or services, optimize earnings, and increase sales.
Best Practices for Pricing Research
Know and implement the following things to make the most of your pricing research:
Define value proposition: Why should the customers pay more for your products/services?
Know your target: Income and habits of your customers and competitor pricing.
Hear customer voices: Surveys and interviews to understand value perception.
Track competitor moves: Find pricing gaps and leverage them.
Data is king: Use it all (customer, competitor, market) to set winning prices.
Conclusion
Now that you’ve grasped the concept of conducting pricing research and its potential benefits for your company, it’s time to explore opportunities to tune your strategy and engage with customers. These steps are crucial. Invigorating for any business endeavor. Undoubtedly, employing research methods can greatly contribute to the success of a project; one such method is pricing research. As demonstrated today, when executed effectively, pricing research can enhance quality and market positioning based on principles. When dealing with data, utilizing research tools is key to implementing a successful pricing research strategy. Uncover valuable insights that can drive your business forward. For businesses looking to refine their pricing strategies further or explore other avenues of competitive differentiation, Rubick.ai offers a suite of services designed to enhance market positioning and profitability.
