In this blog, we explore pricing analysis in consumer market research through various pricing research techniques. By understanding market dynamics, competitor strategies, and customer behavior, you can set prices that maximize profitability and market share.
Table of Contents:
- What is pricing analysis?
- Benefits of pricing research and analysis
- Conducting a competitive pricing analysis
- Key concepts and types of pricing strategies to consider
- Step-by-step approach to pricing analysis
- How to conduct automated pricing analysis with quantilope
What is pricing analysis?
Pricing analysis is a form of market research that includes evaluating various pricing factors, including market trends, competitor pricing, and customer preferences, to determine the most effective pricing strategy for your own products or services. This type of analysis empowers businesses to make informed pricing decisions that will maximize profitability and allow them to set the right price. It also ensures businesses are meeting customer expectations when it comes to what they’re willing and able to pay for their products and services.
Pricing analysis is typically done through online questionnaires, using a variety of quantitative survey questions and advanced pricing methods. These types of studies ask respondents questions like what they’re willing to pay for a product/service, what’s the absolute highest/lowest they’d spend, or if they consider the price of a product a bargain.
Pricing analysis is one of the most universal types of market research. Any business, of any size, in any category or market, needs to justify what they’re charging for their products/services if they want to be successful. Some businesses may use pricing analysis to set the price of a new product, while others will use it to make sure their existing pricing is still competitive and lucrative. Pricing analysis can really be done at any stage throughout a product/service lifecycle, to justify, confirm, or pivot pricing strategies.
Back to Table of Contents
Benefits of pricing research and analysis
By investing in pricing analysis, companies will closely understand their market dynamics, competitive landscape, customer psychologies, and external pressures. This translates into a significant competitive advantage, allowing them to:
- Optimize profit margins: Identify the sweet spot where prices are attractive to customers yet yield healthy profits.
- Gain market share: Position offerings competitively to capture a larger portion of the target market.
- Improve customer satisfaction: Align pricing with perceived value and customer expectations to enhance customer satisfaction and loyalty.
- Increase sales volume: Drive sales by implementing strategic pricing adjustments based on real-time market dynamics.
- Enhance competitiveness: Stay ahead of the competition by understanding competitive pricing strategies and adapting accordingly.
- Mitigate risks: Make informed pricing decisions that minimize financial risks and maximize returns.
Pricing analysis is a strategic investment that yields a multitude of benefits. In today’s dynamic marketplace, it’s a key step to unlocking sustainable growth and achieving business objectives.
Back to Table of Contents
Conducting a competitive pricing analysis
One of the most impactful use cases of pricing analysis is a competitive audit. A competitive pricing analysis process involves a deep dive into your competitors' pricing strategies to understand their market positioning and identify opportunities for differentiation.
This process typically includes:
- Identifying key competitors: Pinpoint the main players in your market who directly or indirectly influence your pricing strategies.
- Gathering pricing data: Collect data on competitor prices for similar products or services, considering various factors like product features, discounts, and promotions.
- Analyzing pricing patterns: Identify trends and patterns in competitor pricing, such as price fluctuations, reactions to market changes, and responses to competitor moves.
- Assessing competitor value propositions: Evaluate the overall value offered by competitors in terms of product quality, features, customer service, and brand reputation.
Based on the feedback you gather about competitive pricing, you’re well-positioned to price your own offerings. You can opt to price your products similarly to close competitors, or try to steal their market share by pricing higher/lower depending on the value you offer. If you convey a sense of high value, consumers might be willing to pay more for your product. Meanwhile, if you set your prices lower than competitors, you might attract budget-conscious shoppers who appreciate your brand’s affordability.
To figure out precisely what to set those prices at and what makes the most sense for your business and your shoppers, that’s where pricing analysis methods come into play:
Methods for competitive pricing analysis
Several advanced methods can be used for effective competitive pricing analysis:
Van Westendorp Price Sensitivity Meter:
The Van Westendorp Price Sensitivity Meter (PSM) is a pricing method that gauges consumer perceptions of acceptable price ranges for a product. All PSMs ask respondents the same four key questions:
- At what price would you consider the product too expensive?
- At what price would you consider the product so inexpensive that you would doubt its quality?
- At what price would you consider the product a bargain—a great buy for the money?
- At what price would you consider the product expensive, but still consider buying it?
This pricing method helps businesses identify an optimal price point for their product by highlighting the range where most people find the price acceptable and are willing to buy it. It's particularly useful for new products where there's no existing market price data.
Choice-Based Conjoint Analysis:
A Choice-based Conjoint Analysis (CBC) presents respondents with various product configurations that each include different features (price being just one of them). Respondents choose their preferred option from each set, which helps businesses determine the relative importance of different product attributes - including price, and how they influence consumer choices.
CBC provides a realistic simulation of consumer decision-making. It helps deduce how much price (among other features) influences consumers’ purchasing decisions.
Gabor-Granger Method:
Gabor-Granger is a pricing method focused on determining the maximum price consumers are willing to pay for a product. It involves asking respondents if they would buy a product at a specific price, and then iteratively increasing or decreasing the price until the respondent switches from "yes" to "no." Using a Gabor-Granger, businesses can directly measure price thresholds and identify the upper limit of acceptable pricing.
Monadic price testing:
Monadic testing involves showing different groups of respondents a single product, but each with a certain differing element. In the case of pricing analysis, that differing element would be the product’s price point. This method helps assess the impact of different prices on purchase intent and perceived value by isolating the effect of price.
___
By using or combining any of these advanced methods, businesses gain a comprehensive understanding of pricing dynamics and make informed decisions.
Back to Table of Contents
Key concepts and types of pricing strategies to consider
Within a pricing analysis, brands can test any form of pricing strategy they may want to consider for their final product or service. Below are a few pricing models that businesses often use:
Competition-based pricing
This strategy focuses on setting prices based on what your competitors are charging for similar products or services. It's useful in highly competitive markets where price is a major differentiating factor such as consumer packaged goods (CPG). This type of pricing strategy is simple to implement and tweak as necessary, but sometimes leads to price wars within the market.
Cost-plus pricing
Cost-plus pricing involves calculating the total cost of goods involved in producing a product or service and adding a markup to determine the selling price. It's a simple and straightforward method for businesses seeking stable profit margins, and is commonly used for manufacturing or retail where products have easily identifiable costs.
Dynamic pricing
Dynamic pricing involves adjusting prices in real-time based on market demand, competitor pricing, and other external factors. It's commonly used in industries like travel, hospitality, event ticketing, and e-commerce. Because this approach allows businesses to respond quickly to market fluctuations, it’s a good way to maximize revenue. However, with this pricing method it’s important to be transparent with customers about any price changes so you don’t lose loyal customers.
High-low pricing
This strategy involves setting higher prices for products or services and then offering frequent discounts and promotions to attract customers. It's often used in retail to create a sense of urgency and excitement around inventory like seasonal products or trendy fashion items. This approach can drive sales quickly, and is good for bargain hunters. However, it’s important to be strategic in your use of this pricing strategy, as it could erode brand value over time. Clearly communicate value propositions when offering discounts to evoke a sense of exclusivity (e.g. ‘on sale for a limited time’ or ‘while supplies last’).
Penetration pricing
Inverse to high-low pricing, penetration pricing involves setting a lower price initially to gain market share and attract customers quickly. It's often used for new products or services entering a competitive market. This pricing strategy quickly builds market penetration (hence the name) and can help grow an initial customer base. Brands thinking about this pricing method for a competitive edge should make sure they’ll be able to offset costs, as it could result in lower initial profits and make it harder to raise prices later on.
Skimming pricing
Along the same lines of high-low pricing, skimming pricing involves setting high prices for a new product or service initially but then gradually lowering them over time (as opposed to offering sudden discounts or promotions like high-low pricing would). It's often used for innovative products with limited competition, such as tech gadgets or luxury goods. For brands with a highly price sensitive customer base, this wouldn’t be the best choice in pricing strategy.
Value-based pricing
Value-based pricing focuses on setting prices based on customers’ perceived value of a product or service. It requires a deep understanding of customer needs and preferences, often done through pricing analysis research studies. Value-based pricing is good for a premium priced product or service with unique benefits, where customers can’t easily shop elsewhere for that same item.
Psychological pricing
Psychological pricing uses psychological tactics to influence customer perception and encourage purchases. It often involves techniques like bundling, odd-even pricing, and charm pricing (e.g. using pricing that ends in .99 to create the perception that it’s cheaper than it is). This is a common pricing strategy used in retail, e-commerce, and impulse categories. While this can increase sales among many shoppers, some customers may view it as manipulative or tricky.
Geographic pricing
Geographic pricing involves adjusting prices based on the customer's location. This can account for factors like shipping costs, local taxes, and market conditions across different regions. Geographic pricing is often used for e-commerce brands and international businesses.
Back to Table of Contents
Step-by-step approach to pricing analysis
Once you decide you’re ready to tackle pricing analysis, use the following steps as a general guideline – knowing that the exact process will depend on your business, your goals, and your resources.
1. Define your objectives
Begin by clearly outlining your pricing goals. Are you primarily focused on maximizing profitability, expanding your market share, or penetrating a new market? Your objectives will serve as the foundation for your pricing strategy, your research study, and of course, your analysis.
2. Survey your consumers
Gather direct feedback from your target audience through surveys, focus groups, and customer interviews. Understand their perception of your pricing and their willingness to pay for your offerings through usage and attitude (U&A) questions or advanced pricing methods.
3. Consider competitors’ price strategy
Add to your own research findings by looking into competitors' pricing strategies. Identify their price points, discounts, promotions, and any discernible patterns or trends in their pricing behavior.
4. Conduct price analysis
Using the information gathered from your research, analyze customer expectations and competitive dynamics. Identify key customer segments and their respective price sensitivities. This will be key information when setting or adjusting your pricing.
5. Create a pricing strategy
Based on the insights gathered from your analysis (and perhaps even leveraging historical data), develop a comprehensive pricing strategy that aligns with your objectives, market conditions, and customer expectations. If resources allow, iterate on your initial pricing research study by further testing your proposed pricing strategy among your target audience before actually implementing it.
6. Consider legal or compliance restrictions
Lastly, be mindful of any legal or regulatory restrictions that may influence your pricing strategy. Research industry-specific regulations, antitrust laws, and pricing transparency guidelines to ensure full compliance.
Back to Table of Contents
How to conduct automated pricing analysis with quantilope
quantilope’s platform allows businesses to easily automate their pricing analysis process.
Platform users can choose between pre-built survey templates or build an entirely custom project from scratch using drag and drop modules. The platform is intuitive and collaborative, meaning researchers of any background or skillset can leverage automated, advanced pricing methods such as a PSM, CBC, or Need-based segmentation.
Research teams can work simultaneously in the platform, with any changes to their study or analysis reflecting in real-time for all users assigned to the project. As soon as you launch your study (using any panel provider or sample of your choice), watch respondent metrics populate your platform charts in real-time. Any new data will continue to automatically update any charts in your report or dashboard, leaving very little manual work to be done.
Platform users can even lean on quantilope’s integrated AI co-pilot, quinn, for survey input guidance and chart takeaways/summaries. Your pricing data will be shown through a variety of chart types, with a dashboard that’s easily shareable with stakeholders through a web link with no risk of version control issues.
By leveraging quantilope's capabilities, businesses can conduct efficient and accurate pricing analysis, optimize their pricing strategies, and achieve sustainable growth in competitive markets.
Learn more about pricing analysis with quantilope by getting in touch below!
