Finding the perfect pricing for your product is no easy feat.
While price can majorly influence consumers' buying habits, it's an equally important factor for businesses. Finding the optimal price point can allow you to attract buyers, maximize profits or grow market share.
But choosing a pricing strategy isn't quite that simple.
If you choose a price point that is too low, consumers might well assume your product is low quality. But on the other hand, if the price is too high you'll likely turn them off altogether.
After investing months (or even years) in product development, honing in on the perfect pricing strategy is crucial for success. Research from Harvard Business School has shown even a 1% improvement in your pricing can generate up to an 11% increase in your profits. And what is the best way to improve your pricing? Pricing research.
Pricing research allows you to discover what consumers are willing to pay for your product or service. Depending on the type of pricing research, you can better understand the value consumers place on both your product and its features.
With the data collected, you can then determine the optimal pricing that boosts sales, increases market share, and piques consumer interest.
Pricing Research Methods
The research methodology you choose is dependent on your research goals, the maturity of the product, and other data points. Below are a few techniques to consider:
We would recommend using Conjoint Analysis if you are interested in learning not only about price, but also the optimal combination of product attributes to pair with it. It can help you optimize your product and your pricing.
Conjoint analysis helps to identify the rules consumers explicitly (and implicitly) use to make their purchasing decisions. The premise of this technique is fairly simple. Consumers conduct mental trade-offs between pricing and other factors like quality, functionality, style, etc.
For this type of research, you expose consumers to multiple product components shown in various combinations, each with different pricing. Once the data is collected, the subsequent analysis will show you what features consumers value the most and the price(s) they are willing to pay for them.
For example, say you have new ice cream flavor ideas. You may want to test:
Once you’ve identified your features and pricing, all that is left is to use the SightX Conjoint functionality. Simply insert your combinations and the platform will generate a balanced experiment.
The analysis will leave you with a clear understanding of your optimal pricing and the value consumers place on each of your product features.
This study will provide you with insights into the overall favorability and sensitivity to various pricing brackets.
Concept testing is the process of evaluating a product feature to better understand the way it will be received by consumers in the market. Concept tests allow you to expose consumers to your offering and then directly ask for their feedback on its appeal, their purchase intent, and the amount they would be willing to pay for it.
This test is quite straightforward. It works by simply sharing information about your product, usually via a combination of text and images, and then asking consumers about their degree of price sensitivity through a series of multiple-choice questions.
For example, let’s say you have four price points you would like to explore: $30, $35, $40, and $45. You would ask questions like: “How likely are you to purchase [X Product] for $30?” Then: “How likely are you to purchase [X Product] for $35?”
This would continue until you’d asked about all of your price points. We often recommend randomizing the order to ensure unbiased market research.
Gabor-Granger is similar to the test above and is best if you already have a defined price range and are looking to pinpoint the optimal price.
Like the price rating method above, Gabor-Granger asks respondents if they would purchase your product at a specific price. The question is then asked again, with a new price. Often, this research is done with multiple price points, asking respondents: “Would you buy [X product] for $30”.
The following questions change according to the respondents' answers; if they will purchase at $30, the next question will present them with a higher price. The goal of this research is to find the maximum price consumers are willing to pay. The data will then show you the optimal price for your product in the market.
Numeric Price Entry
We would recommend numeric price entry if you're just exploring the pricing perceptions of your target audience.
This method of pricing research consists of simply asking respondents: “how much would you be willing to pay for [X product]”. The aggregate responses provide insights into the average price consumers are willing to pay.
Van Westendorp's Price Sensitivity Meter
This method of research is best if you are looking for a simple and quick study that will give you a lower threshold, upper threshold, and optimal price point.
It does this by asking respondents only four questions:
At what price would you begin to consider the product so inexpensive that you would question the quality and not purchase it?
At what point would you think the product to be a bargain?
At what price would you say this product is starting to become expensive- to the point that you’d have to give some thought to buying it?
At what price point would you consider the product to be so expensive that you wouldn’t consider buying it?
Ultimately, the pricing research method you choose will depend upon your unique goals and current stage of product development. Whether your brand is looking to increase revenue, attract buyers, or grow market share, pricing research can help you succeed.
Request a demo and started on your own pricing research with SightX today!