Research into pricing is important because it uncovers the optimal price points to maximise sales and profitability. Getting pricing right is vital when it comes to business success. Understanding price sensitivity enables organizations to price products or services at a level that’s acceptable to customers.
Why do organizations need to conduct pricing research?
Setting the wrong price is costly. If it’s too high, you may lose customers, if it’s too low it impacts the bottom line. Organizations can use different techniques to suit the different stages of product development; whether it’s for early-stage products, existing products, independent features or services.
How do you conduct price research?
Key metrics can be used to demonstrate acceptable ranges and optimal prices – plus their impact on sales, profitability, and market size. There are several models that can be used to find the optimum price for products and services:
- Gabor-Granger pricing: this technique asks questions about the demand of set prices directly, to find the highest price consumers are willing to pay.
- Van Westendorp’s price sensitivity meter (PSM): this covers a range of acceptable prices and can be enhanced with the Newton, Miller, Smith extension, which creates demand and revenue curves as additional outputs.
- Conjoint: this enables organizations to model real trade-off scenarios to understand the impact of price, demand, and sizing of products in the market.
What is the benefit of pricing research?
- Understand the impact: examine how different pricing models can increase or decrease demand in the market for your product or service.
- Identify sensitivity to price positioning: find out what justifies a price premium amongst your customers by testing their responses to a range of price points.
- Set an insight-led pricing strategy: establish a price point strategy that will maximise sales and profitability.
Summary: why it’s important to get the price right
Research into pricing is invaluable in giving you the information you need to price products or services at the right level for your audiences to maximise profit.
Consider also how you plan to communicate any price changes to your customers. Research can help you frame the value you provide customers which can ultimately help drive up conversion, maintain customer satisfaction and reduce churn.
As with any research, it allows you to make better business decisions and get a strong understanding on areas where there is room for movement – up or down – to grow product and category performance.
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To learn more about how we could help you successfully uncover optimal price points to maximise sales, profitability and boost your commercial returns please get in touch.