Customers lie. Yep. Customers and prospects lie. When they talk to your company, even outside a sales situation, they will say things to get you to lower your prices. In almost all cases, they want you to believe that price is their most important purchase decision driver and that your price is too high. Way too high.
Why do they do this? Because next time they are going to buy something that your company provides, they want a better deal. They want you to provide more for less. And it is just human nature. Think about yourself – would you tell the car dealer: “No Mr. Dealer, I don’t want any more cash-backs. In fact, I think I’ll pay you another two grand for this car!” Of course not. Even if you are getting the deal of the month, and you’re happy as a lark for it, you’ll still going to explore the boundaries of low price or higher discount.
The solution is 3d party anonymous research. When a potential buyer talks to a 3rd party research company, it is not in a sales situation. When they aren’t speaking to a vendor, the conversation becomes different. There is nobody to target the lies to. There is no future benefit for the buyer to lie. And consequently the conversation is very different. Buyers open up and tell the researchers what they really want, what is important for them, and what they are willing to pay to get what they want.
This is why research in any pricing project is so critical to the project’s ultimate success. The purpose of the research is simple; understand in detail the value perceptions, the decision making drivers and criteria of the buyers as well as their willingness to pay for your product or service. Well known techniques of statistical analysis will reveal optimal price points as well as actionable insights into your buyers’ value, purchase and price drivers. This is the key to achieving your pricing objectives.
RESEARCH METHODS
The most effective way to extract those value perceptions, drivers and willingness to pay is through primary research utilizing on-line surveys. Within these surveys tried and true research methodologies are deployed which ultimately will derive a statistical significance of 95% or greater. But the gold standard is to add in-person interviews to the survey data; providing both qualitative and quantitative research in the same project.
Analysis Methodologies include:
Conjoint Analysis
This is a technique used in research to determine how people value different features that make up an individual product or service.
The objective of conjoint analysis is to determine what combination of a number of attributes, of which price is one, is most influential on respondent choice or decision making. Two bundles of features or benefits of a products or a services is shown to respondents who are asked to determine which of two the bundles they most prefer. As the respondent make the selection, a two different bundles are presented. By analyzing how respondent make preferences between these products, the implicit valuation of the individual features or benefits elements making up the product or service can be determined. These implicit valuations (called utilities or part-worths) can be used to create market models that defined the optimum price, best feature set, estimate market share, revenue and even profitability of new or re-priced products or services.
Example of Conjoint Analysis (Utility of different features in a trade off scenario)
Price Sensitivity Measure
The Van Westendorp Price Sensitivity Meter (PSM) is a market technique for determining price preferences. It was introduced in 1976 by Dutch behavioral economist named Peter van Westendorp. The technique has been widely used by researchers in the market research industry.
The PSM is surprisingly simple and accurate. When the raw data captured in the PSM is subjected to statical analysis, it provides a market simulation of how market share for a product or service will change with price. When executed correctly, the PSM will, within an accuracy of 2-3%, inform the company of what market share, and therefore sales volume, the company can expect at different price levels.
Example of demand and revenue projections at different price levels
Value Attribute Positioning
A product or service can be described by a number of attributes, such as color, shape, performance, accuracy, quality, customer support, brand, and price. Customers consciously and subconsciously evaluate the product on these and other attributes when making a purchase decision. When the rankings of these attributes, together with the perception of value-for-money is X and Y plotted it becomes easy for companies to see on which attribute they are loosing out competitively, and how the marketplace weigh the company and its competitors overall.
Armed with this data, companies can take corrective action to increase their competitiveness, better serve their clients and enhance and increase relevance of its marketing messages.
Perceptions of Product Quality vs Value for Money by customers, resellers and the company internally
Assess the Attribute Importance Weights
Not all attributes of a product offering are equally valued. It is important to understand the relative importance of product attributes to your customers.
Identify Customer Segments
Customers are not all alike.
While there may be some trends that are common to all customers, and some markets that are homogenous, often segments will emerge where the decision landscape, purchase drivers, value drivers and willingness to pay are different. Using a statical method called K-Means Clustering, these segments can be identified and the importance variance of the decision and drivers for each can be ranked. With this data, companies get a baseline for what pricing strategy and marketing messages are most effective for each of the segments. A recipe to expand a company’s addressable market!
Segmentation based on K-Means Cluster Analysis
PERCEPTION GAP
Every company make at least some of their strategic and tactical decision on its perception of the marketplace. It influence segmentation, marketing strategy, marketing tactics, sales messages and even product development and service definition. It certainly influence a company’s pricing strategy.
But no company’s internal perception of the marketplace is perfect. There are alwayS gaps. The company thinks this, and the marketplace thinks that.
Likewise, there are perception gaps within almost every company. Marketing thinks this about the marketplace, sales that, and executives something different yet again.
This gaps, internal or external affects a company’s ability to execute. They slow down the business process. Makes marketing and sales less efficient. Makes product development and service definitions less optimal. May even direct a company to try to sell to the “wrong” market segment.
RESEARCH SECTION CONCLUSION
So market research is key to an optimized pricing strategy. It arms the company with hard data derived from primary research, preferably with statistical significance to define not only the optimal price but also the optimum price structure, optimum price strategy, and optimum segmentation. The data can also influence your marketing messages and your sales strategy – so you reap the maximum benefits from the data.