Pricing Strategy Research

Choosing the appropriate price to sell a product or service is more than a challenge for every business. Getting it right is crucial to its eventual survival.

Pricing Strategy Considerations

Many factors go into pricing, most of which can be studied and directed to favor your company.

All markets are not the same. In some regions, there may be variations in

• Production costs due to real estate or labor rates
• Number of potential customers
• Cost of delivering your goods

These known factors can generally be predetermined and controlled.

How do sales objectives guide pricing strategy?

Below are several common goals, which often change over time depending on their success rate and reactions from customers and competitors.

• Elicit a trial
• Elicit repeat business
• Open a new market
• Grow an existing market
• Expand a product line – offer different models or features at different price points to broaden overall appeal to customers
• Cross-sell several products (life, auto and home insurance; air, hotel and car)
• Increase market share
• Defend against competition; create a barrier to entry
• Seek a specific profit margin over the cost of production, promotion and distribution

Market research and testing can guide one to identify optimal price points for each situation.  Here are a few examples:

• What price will maximize a trial?
  • How low should initial price be?  A survey can ask questions about different prices, or a market test can compare the percent who take the offer.
  • After trial, will additional discounts or offers be needed, or can prices be raised without losing customers?
• Will package or bundle pricing effectively sell more than one item or service?
  • A variety of offers can be tested, e.g. “BOGO” or “twofers”, 50% off a second entree; a golf bag with a set of new clubs; free checking with a brokerage service.
• Can enough commodity products or supplies for the home or office be sold at a low price and still make a profit?
  • Research can help analyze a market, its customers, and its competition regarding current pricing and purchase activity.
  • Should you set a price to match your competition to remove that differentiator?
  • In some cases, products such as batteries, printer paper, or cleaning supplies may be sold as “loss leaders” (even below actual cost) to generate sales of more and higher-margin items.
• Will enough of a market pay a premium price?
  • Is there support for high-priced, exclusive, or luxury items? (e.g. Tiffany, Prada, Mercedes, Apple)
  • Are there other customer tiers which can later be sold less expensive models at lower prices?  Or can you customize a product or service and charge an even higher price for an exclusive version to satisfy specific customer needs?

Do you need help with Pricing Strategy?

You do not need to gamble and hope. Rather, you can calculate all the costs involved in producing, promoting/selling, and distributing a product and then set a price that covers expenses while providing some level of profit.

However, to approach an optimum price point, it may be useful to observe and/or survey your customers. Even better, get a sense of what your competition is or might be doing regarding pricing.

Asking customers what they would pay for a product or service is tricky. Getting insights into your competitors’ strategies is a bigger challenge.

Customers may be exposed to the product via a survey (online or phone) or in person. 

• Here, a set of variables, including price, might be presented to a subject. A statistical technique called conjoint analysis may be applied to determine the optimal tradeoffs of features and prices.
• You can assess price elasticity and experiment within such a range.
• Further, you can identify matched groups of prospective or current customers, offer each a different price via online, coupons, ads, etc., and then measure the percent who purchase at each price.
• (Note:  there are instances where you might want to find out what a customer would pay based on a concept or prototype – before beginning production – to be sure there is room for profit!)

Competitive activity can be monitored by following their channels of distribution (e.g. site visits to stores, following online and offline ads), attending trade shows, and perhaps speaking with your customers. 

• But to learn their future plans it is almost always necessary to use a third party to conduct interviews in an effort to uncover such information.

Unfortunately, there is more to the equation!  Your company is not operating in a vacuum.  As such, just like you, your competitors may alter pricing to achieve specific objectives.  Thus, pricing strategy is an ongoing process that needs almost constant attention and tweaking.

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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.