“Price is what you pay. Value is what you get.”
Warren Buffett
The start-up had a price point in mind for the gadget and asked that Marketing Workshop solicit impressions based on that stated price, among other learning objectives, through qualitative research. But we pushed back, extending our experienced influence; first, we had a hunch their suggested price point was way lower than the perceived value and second, the learning we gain from unaided price value feedback is more real-world in terms of price tolerance (how much the consumer values the item to be and is willing to pay), lending more relevance to price positioning strategies at that stage of development.
Long story short, the client acquiesced, and we didn’t bias the interviewees with an initial stated price. In the end, one of the biggest learnings from the project was that the intended price point was, as Marketing Workshop had hypothesized, much lower than what every single respondent imagined it would be. We say this not to pat ourselves on the back—in truth, most experienced market researchers would have lent the same recommendation. Rather, it’s to reinforce the importance of effective pricing strategies beginning with early stage development and the research that supports it. Getting a feel or gut checking with qualitative research is a widely used starting point.
Continuing to use the project referenced, going in the client was satisfied with their price position that was, no lie, up to 560% less than what most of the consumers valued the items for (expected to pay). That was cause for pause for two very important reasons: Most obviously, it would have left money (lots and lots of money) on the table. The consumers we spoke to were voracious for this gadget and expressed being more than happy to pay for in the focus-group facility (seriously). Additionally, pricing it so low would have unintentionally cheapened the device, setting a detrimental value (and potentially, quality) expectation. Lastly, as everyone knows, it’s infinitely easier to lower prices on merchandise to beat competitors or indulge Black Friday sales than it is to raise them simply because the company didn’t understand consumer perception and willingness to spend.
Marketing Workshop recommends the inclusion of price position learning at every research step to gut check, guide, and validate. It’s in every marketer’s interest to learn about price sensitivity at the outset rather than waiting until the concept is developed. This means vetting concepts along with price positioning and even marketing messaging. Continually probe price expectation, sensitivity, and boundaries, as the market situations you enter may not be the same a few months from now, and being priced right is paramount, if not critical, to your business success.
Practically speaking, there’s no way to know if you are optimizing revenues if you are not testing your price positing among your target consumers, and in addition to guidance received though qualitative research, we engage a variety of statistically based and analytically driven quantitative methods depending on the project. Each technique possesses unique advantages, and often these techniques are engaged as an element of a multi-faceted study as opposed to a standalone. A few techniques for example:
Conjoint – to help us understand what consumers give up by paying a certain price for a product and allows us to compare that against the features the consumer gains when buying the product.
Van Westendorp – to reveal the range of acceptable prices through an exercise where consumers react to price points and lend opinion of too cheap, a bargain, expensive, and too expensive.
Gabor-Granger – indicating optimum pricing. Consumers are shown a specific price point and questioned about willingness to purchase, and subsequently are prompted to respond to different prices. Ultimately an optimum price is determined. This technique is typically followed by exercises to determine demand.
Pricing, as tipped in our earlier example, is a nuanced proposition. The success model of a business has many moving parts, few of them more important than an optimized price positioning strategy. Ultimately, success is realized when two things align; a product of interest at a compelling price. To get there, be consumer led and insights driven. As a marketing research consultant Marketing Workshop engages the appropriate research design, conscious of the business decisions and affecting circumstances.
~ Marketing Workshop