Pricing Market Research

By investing in pricing market research, companies can avoid the pitfalls of overpricing or underpricing, ensuring that their offerings are competitively positioned while maintaining profitability.

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Getting the right price can make or break a product’s market success. That’s why pricing market research is the hidden powerhouse behind effective pricing strategies, providing businesses with the knowledge they need to navigate complex market dynamics.

What Is Pricing Market Research?

Pricing market research provides businesses with critical insights into how pricing affects consumer behavior, market positioning, and overall profitability. By exploring factors such as competitor pricing, customer willingness to pay, and market trends, pricing market research helps companies develop strategies that align with their business goals.

One of the key issues that pricing market research addresses is the challenge of setting a price that balances customer expectations with business objectives. It identifies price sensitivity levels among different customer segments, highlights potential pricing barriers, and uncovers opportunities to optimize pricing structures. Additionally, this research aids in pinpointing market gaps, allowing businesses to adjust their pricing strategies to stay ahead of competitors.

Why Do Businesses Need Pricing Market Research?

One significant issue that pricing market research addresses is understanding customer price sensitivity. By analyzing how different price points affect demand, businesses can identify the optimal price that maximizes revenue without alienating potential customers. This is particularly important in industries where small price adjustments can lead to significant changes in sales volume. Moreover, pricing market research helps businesses understand regional variations in pricing preferences, ensuring that pricing strategies are tailored to specific market conditions.

Another critical reason businesses need pricing market research is to stay ahead of competitors. This research provides insights into competitor pricing strategies, highlighting areas where a business can differentiate itself through pricing. By leveraging these insights, companies can develop unique pricing approaches that not only attract customers but also reinforce their market positioning. Ultimately, pricing market research is essential for businesses looking to refine their pricing models, enhance customer satisfaction, and achieve long-term growth.

Today’s customers have endless purchasing options in the global marketplace. Price communicates the product’s value and information about the entire product and its benefits.  Value is defined as benefits minus costs.

Pricing research also allows a company’s management to compete strategically with competitors. Given that 9 in 10 new product launches fail, gaining robust pricing insights is essential.

When to Conduct Pricing Market Research

One of the most strategic moments to engage in this research is before launching a new product or service. Understanding the market landscape, customer expectations, and competitor pricing strategies can significantly impact the launch’s success. Pricing market research provides insights into the optimal price point that balances profitability with consumer appeal, ensuring that the product is competitively positioned from the outset.

Another key moment in conducting pricing market research is during market expansion. Whether entering a new geographic region or targeting a new customer segment, businesses need to adapt their pricing strategies to local conditions. Market-specific factors such as economic conditions, cultural preferences, and regional competition can all influence pricing dynamics. Conducting pricing market research during these times helps businesses tailor their approach, ensuring that their pricing strategy aligns with the new market’s unique characteristics.

Additionally, businesses should conduct pricing market research when they experience significant shifts in market conditions, such as increased competition, changes in consumer demand, or economic downturns. Re-evaluating pricing strategies becomes crucial to maintaining market share and profitability during these times. 

Considerations

Pricing market research is complex. Different market segments can react differently to the same pricing, impacting marketing strategy. Costs and profits can dominate pricing policy. Divisions often duel over the focus of pricing strategy, emphasizing different strategies like market pricing, market penetration, profit maximization, differentiation, and value pricing.

On a global level, standardized pricing may be successful in one region but fail in another. Aggressive pricing strategies may result in competitive reactions that immediately impact sales.

Approach

SIS International provides an integrated research approach, global coverage and expertise to deliver a “full market view.”  Our Integrated Research approach uses several levels of research and intelligence to deliver full insight into the entire market landscape necessary for pricing strategy.  In Pricing Market Research, we examine the following factors:

• Customers
• Competitors
• Companies
• Cultures
• Supply Chains

Key Pricing Market Research services include:

• Cost Structure Analysis
• Fixed and Variable Cost Analysis
• Revenue Analysis
• Profitability Analysis
• Breakeven Analysis
• Competitor Pricing
• Pricing Strategy
• Price Framing (in consumers’ mind)
• Price Forecasting
• Price Elasticity

Pricing Psychology

Companies may need price framing research and strategies. We research the most appropriate ways that price is framed in the customers’ minds. Pricing psychology factors heavily in this process, and SIS examines findings with pricing psychology. The importance of price framing emerges when local companies compete against global companies and when relative pricing is more important than nominal price tags.

Conjoint Analysis

What is Conjoint Analysis?

Conjoint Analysis is a technique used in market research that helps to understand how consumers value different attributes in an individual product or service. Such attributes may include tangible attributes such as size, weight, color, etc., and intangible attributes such as price, quality, etc.

Respondents are provided with descriptions of products that would correspond to the attributes of the product being measured. Respondents are then asked to choose between those products based on their attributes. They are then asked to choose again based on a rotation of attributes.

A regression analysis, a type of statistical analysis that compares averages, would then be run on the data for each respondent, resulting in the value of each attribute. Linear or logistic regression can be run depending on the design of the survey. By using a sub-set of all possible products and sets of features, we ask about only a few of the possible products to be able to predict the attractiveness of all possible products. 

The following are factors to consider when thinking about Conjoint Analysis:

• Conjoints may not explain the interaction effects between attributes well.  Qualitative research can augment understanding in that regard.
• Does not work well if you don’t know the relevant features to include.
• Conjoint is static, and does not explain how things will chain over time.
• Assumes that participants are aware of the features.

Gabor Granger & Van Westendorp Approaches

The Gabor Granger method is a pricing technique in which a respondent is asked how likely they are to buy the product at various stated price levels.  All tested prices should be presented in a random order.

There are a few considerations to keep in mind with Gabor Granger.  Different market segments can react differently to the same pricing, impacting marketing strategy.   Outside of customers’ value considerations, costs and profits impact pricing policy.

Another metric to use is the Van Westendorp PSM (Price Sensitivity Meter), which is a battery of four questions. After being presented a description of the product or service, respondents are then asked:

1. At what price would you consider the product a good value? [“Cheap”]
2. At what price would you say the product is beginning to get expensive, but you would still consider buying it? [“Expensive”]
3. At what price would the product be so expensive that you would never consider it? [“Too Expensive”]
4. At what price would the product be so inexpensive that you would doubt its quality? [“Too Cheap”]

Divisions often duel over pricing strategies’ focus, emphasizing different considerations like costs, market pricing, market penetration, profit maximization, differentiation and value. On a global level, standardized pricing may bring success in one region but may bring new challenges in another. If  companies implement competitive pricing strategies, competitive reactions may immediately impact sales. 

Understanding Willingness to Pay in Pricing Market Research

Willingness to pay (WTP) is a crucial concept in pricing market research that helps businesses determine how much customers are willing to spend on a product or service. This insight is fundamental for setting optimal prices that align with consumer expectations and drive sales. Pricing market research employs various methods, such as surveys, conjoint analysis, and behavioral data, to measure WTP, providing businesses with a clear picture of price sensitivity among different customer segments.

By understanding willingness to pay, companies can better position their products within the market. For example, if research indicates that customers value a product highly and are willing to pay a premium, businesses can set higher prices that reflect this perceived value, maximizing profit margins. Conversely, if WTP is low, companies might consider adjusting their pricing strategy, offering discounts, or adding value to justify the price.

Understanding Price Elasticity in Pricing Market Research

Price elasticity of demand is a crucial concept in pricing market research. It helps businesses understand how sensitive consumers are to changes in price. It measures the percentage change in quantity demanded in response to a percentage change in price, providing valuable insights into how price adjustments can impact sales volume and revenue. By analyzing price elasticity, companies can set pricing strategies that align with consumer expectations and market conditions, ensuring that price changes do not negatively affect demand.

For highly elastic products, even small price increases can lead to significant drops in demand, making it essential for businesses to carefully consider their pricing decisions. Products like consumer electronics, fashion items, and luxury goods often exhibit high price elasticity, as consumers can easily switch to alternatives if prices rise. 

Conversely, products with low price elasticity, such as essential goods, unique services, or products with strong brand loyalty, can withstand higher prices without substantial changes in demand. Understanding price elasticity enables companies to optimize pricing models, maximize revenue, and make informed decisions about when and how to adjust prices.

How SIS International’s Pricing Market Research Helps Businesses

SIS International’s pricing market research provides businesses with tailored insights that drive enhanced strategic planning and optimized pricing strategies. Our expertise in advanced data analytics, consumer behavior analysis, and competitive benchmarking equips companies with the knowledge they need to set prices that align with market dynamics and customer expectations. 

Enhanced Strategic Planning:

We help businesses develop robust pricing strategies that are grounded in market realities. By analyzing factors such as price elasticity, willingness to pay, and competitor pricing, our research enables companies to refine their pricing models, ensuring they are both competitive and profitable. 

Increased Revenue:

Our pricing market research identifies optimal price points that maximize revenue without compromising customer satisfaction. Whether it’s setting premium prices for high-demand products or implementing discount strategies to boost sales volume, our research guides businesses toward revenue-generating pricing decisions.

Risk Reduction:

SIS International’s research reduces the risks associated with pricing changes by providing data-driven insights that minimize uncertainty. Our analysis helps companies avoid costly pricing mistakes, such as setting prices too high or too low, by offering a clear understanding of market conditions and customer responses. 

Improved Marketing Efficiency:

Effective pricing is closely tied to marketing success. Our research helps businesses align their pricing with their marketing strategies, ensuring that promotional efforts resonate with target audiences. 

Accelerated Growth and Innovation:

We empower businesses to innovate with confidence by providing the pricing insights needed to support new product launches and market expansions. Our research identifies market gaps and consumer needs, allowing companies to set prices that reflect the unique value of their innovations. 

Boosted ROI:

Our pricing market research drives better return on investment by helping businesses make strategic, data-backed pricing decisions. By optimizing prices to align with market demand, companies can improve profitability and maximize the impact of their pricing strategies on overall business performance.

Competitive Pricing Research

SIS conducts Strategy Research to provide data and insights about the competitive reactions to pricing strategies.  SIS is a leader in competitive analysis and was a founding member of the SCIP organization, which specializes in Strategic and Competitive Intelligence.  We provide War Gaming, Competitive Benchmarking and customized competitive reports related to pricing.

About SIS International

SIS International offers Quantitative, Qualitative, and Strategy Research. We provide data, tools, strategies, reports, and insights for decision-making. We also conduct interviews, surveys, focus groups, and other Market Research methods and approaches. Contact us for your next Market Research project.