Knowing when the Price is Right

Research on pricing products and services, obviously popular, can bring successful results through several different research methodologies: find the right one for you.

CHICAGO – DECEMBER, 10, 2009—A recent Google search on “pricing” turned up 233 million results. “Pricing research” turned up over 33 million. Pricing products and services evidently are popular topics and no less so here at Sawtooth Technologies Consulting, although you won’t find it referenced 33 million times—yet. Given this popularity, we’ll assume that you know how important research on pricing has become.

What we’ll focus on here is when to use which method. In particular when to use conjoint analysis/discrete choice, Van Westendorp, or the monadic approach to conducting pricing research. Perhaps in a future blog we will delineate within the different conjoint and discrete choice methodologies, but to avoid trying to tackle too much in one entry, we’ll keep them grouped together here and refer to conjoint and discrete choice collectively as conjoint.

The main factors that will influence your decision regarding which methodology to use are:

Product Configuration: When Price is one of many features you are studying
If price is one of many features you are studying, you will want to use conjoint analysis to help you choose the right price. Conjoint forces respondents to make trade-offs among feature sets and, when conducted properly, can provide an understanding of price elasticities and the value of certain features with respect to others. So, if you are determining how best to configure your product, what features to include and how to price those features to achieve a specific goal—such as optimizing market share or profitability—conjoint is the preferred approach.

Pricing a product where the configuration is set
If, on the other hand, you are looking to price a product where the other features are already determined, then it makes sense to apply the monadic approach to pricing research. In this approach, you choose a few prices that you determine most applicable based on your understanding of the market, focus groups, etc. Then you conduct surveys asking purchase likelihood questions to different sets of sample, where one sample set would see the product offered at a certain price, another sample set would see the product offered at a different price, etc. If, for example, you collected four sets of data, you could then plot the curve of the percent of respondents who would definitely or probably buy at each price point.

Pricing if you have a set configuration and the need for a smaller sample size, or if you have no pre-conceived understanding of the relevant price range
As might have been obvious from the monadic approach, since you are basically conducting multiple surveys, the monadic approach requires a larger sample size. If you don’t have that luxury, a possible alternative is the Van Westendorp approach, which needs only sample sizes similar to those for a conjoint study. With a Van Westendorp survey, you would present the product to your respondent and ask them four questions about price: 1) At what price would they consider this product a bargain; 2) At what price would they consider it was getting expensive; 3) At what price would they determine the product was so cheap that it must not be good quality; and, 4) At what price would they consider the product to be too expensive.

Since the responses to these questions are open-ended, Van Westendorp is often used when the product is entirely new or, for whatever reason, the researcher has no pre-existing indication as to the appropriate range of prices before conducting the study. After collecting the data and plotting the responses, a relevant range becomes suggested.

Summary
Each of these approaches can provide a wealth of information and each requires an understanding of the nuances to optimize the results of the approach. However, the above should provide a quick understanding of where to turn your attention depending on what you’re trying to accomplish: conjoint/discrete choice when price is one of multiple features you are trying to configure; monadic when it’s not and you have sufficient sample size; or, Van Westendorp if you don’t need to configure other features and your sample size is limited to that of conjoint, or if you have no pre-conceived understanding of the relevant range of prices.

This content was provided by Sawtooth Technologies. Visit their website at www.sawtooth.com.

Tweet

Conjoint Analysis: Product Line Strategy

by Sawtooth Technologies Consulting Group

In this case study Sawtooth Technologies conducted research into consumer preferences regarding mortgage product lines, modeled preferences for client and competitive products, and recommended an unexpected product strategy. Read Article »

Conjoint Analysis: New Product Selection

by Sawtooth Technologies Consulting Group

In this case study Sawtooth Technologies researched a variety of new products to determine which were most likely to succeed and which matched the client’s image/positioning in the financial market. Read Article »

Conjoint Analysis: B2B Customer Service Strategy

by Sawtooth Technologies Consulting Group

In this case study Sawtooth Technologies researched the values for service attributes in the channel (brokers, agents and distributors) and with end-customers. Read Article »

Conjoint Analysis: Product Portfolio Optimization

by Sawtooth Technologies Consulting Group

In this case study Sawtooth Technologies conducted research into consumer preferences regarding various features and pricing of online classified ads. The objective was to develop an “optimal” product line that would increase sales volume. Read Article »

Conjoint Analysis: Staff Training

by Sawtooth Technologies Consulting Group

This report describes the process of teaching a client proper execution of a conjoint study to enable them to conduct their own studies in the future. Sawtooth Technologies trained the client's staff on multiple teaching points and illuminated distinct market segments for the client to focus on. Read Article »

Understanding Conjoint in 15 Minutes

by Joseph Curry, President, Sawtooth Technologies Consulting Group

This white paper arms you with the basics of conjoint analysis using a simple example. Read Article »

Finding the Sweet Spot of Competitive Positioning

by Sawtooth Technologies Consulting Group

The sweet spot of competitive positioning ensures your brand is relevant to the target audience and differentiated from the competition. This article from Sawtooth Technologies pinpoints ways to position your brand, particularly in the business-to-business market. Read Article »

MaxDiff – maximum power to act on market preferences

by Sawtooth Technologies Consulting Group

Determining preferences in product features or benefits, marketing slogans, logos, service options, or even restaurant names, allows for trial and error without the error. Read Article »

Predicting Choice with Conjoint Analysis and Discrete Choice

by Sawtooth Technologies Consulting Group

Conjoint Analysis and Discrete Choice are popular techniques because they let marketers predict choice behavior. Follow this detailed example from Sawtooth Technologies. Read Article »

Segmenting for Success

by Sawtooth Technologies Consulting Group

Segmenting for success in both consumer and B2B markets means going beyond traditional segmenting variables, such as demographics or company type, and focusing on needs, attitudes and lifestyle. In this article Sawtooth Technologies highlights the benefits, approach, and uses of segmenting a market in such a way. Read Article »

Discrete Choice Analysis Makes Comparing Apples to Oranges Possible

by Sawtooth Technologies Consulting Group

Discrete choice lets you understand how your market makes relevant apples to oranges comparisons. Sawtooth Technologies provides an example question for this type of scenario. Read Article »

Predicting Revenue from Conjoint Results

by Sawtooth Technologies Consulting Group

Conjoint analysis is a powerful tool for predicting market reaction to changes in existing products or services or completely new products. But how well do conjoint model results translate into real world results? And can you predict revenue from conjoint results? Read Article »

Aligning Your Line: Using Conjoint to Manage Product Lines

by Sawtooth Technologies Consulting Group

It is common to think about using conjoint / discrete choice to configure products and test pricing, but it also extremely useful for finding opportunities to shrink product lines, testing whether additional products cannibalize or add to preference, and uncovering segments and aligning products with their preferences. Read Article »

MaxDiff: A New Way to Prioritize Benefit Statements

by Sawtooth Technologies Consulting Group

MaxDiff is a great methodology for prioritizing benefit statements. You’ll learn which statements resonate most with your market in this article. Read Article »

Conjoint/Discrete Choice Model Output: What’s the Share About?

by Sawtooth Technologies Consulting Group

When business decision-makers look at conjoint and discrete choice model output, how should the share results be interpreted and used? In this post, we share our thoughts about preference share and market share, based on decades of practical experience. Read Article »

Asking Discrete Choice Questions When the Answer is, “It Depends”

by Sawtooth Technologies Consulting Group

Discrete choice questions are typically straightforward – “Which product do you prefer?” However, in some situations, the respondent may be thinking, “It depends.” This article describes these situations and some possible solutions. Read Article »

Using Discrete Choice and MaxDiff to Spend HR Dollars Wisely

by Sawtooth Technologies Consulting Group

Especially in times of shrinking budgets, it is critically important to allocate benefits dollars wisely. Human Resources departments have the opportunity to use customer-focused approaches to maximize ROI. Techniques such as Discrete Choice Analysis and MaxDiff can help companies maximize employee satisfaction for each dollar spent. Read Article »

Why I Still Love Conjoint

by Sawtooth Technologies Consulting Group

Conjoint analysis, also referred to as discrete choice, has been in use for decades. What has led to its popularity? Why does it keep researchers, academicians, and research end-users engaged? In short, why do we still love conjoint? Read Article »