Research can help drive the design of packages or marketing messages for a produ

Question

Research can help drive the design of packages or marketing messages for a product quite effectively. Pricing also has to be competitive and research can allow you to find out from consumers exactly what they are willing to pay for product or service. I have done extensive price testing with consumers for various products in a research setting. There is a commonly used pricing sensitivity process that helps identify the optimal price as well as price range that consumers are willing to pay. The process is based on 4 simple questions and I would recommend you read about it at: https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensitivity_Meter While wikipedia is not necessarily always a great source, the information compiled on this topic is very well put together. Class, what are your opinions on this approach? How does your company test pricing - do they use research or in market testing? How else might pricing be tested?

Explanation / Answer

As mentioned in the case, pricing is key aspect a firm or entrepreneur must think about to maximize value for company and consumers.

Van Westendrop Price sensitivity meter captures the consumer “perceived” value and respective pricing nicely. The questions are simple to ask and analyze, thus responses will be close to true representative. As studied in organization strategy, a company can gain competitive strategy only if it can provide sustainable value to consumers through their products. If the prices are not in sync with the firm’s value strategy, firm can never be successful in developing competitive strategy. Thus, Price sensitivity meter has unique advantage of providing reference on “value”. Also, the output of price sensitivity meter is not just a single price value, but provides a range for the price points a firm can play within. Due to the easy nature of questions, easy execution and analysis Price sensitivity meter seems to be good pricing research tool. At the same time, Price sensitivity meter approach is not considering competitive pricing or competitive offerings into considerations. Also, for a new product when customers are not aware of the features very well, can their responses be considered at face value?

Depending on the product features and competition intensity, along with Price sensitivity meter, our company uses conjoint analysis or including their propensity of purchase. Through combining other product features and propensity of purchase, we can calculate potential revenue or potential profit and its dependence on pricing. For our online commerce channel, in market testing (pricing changes and measuring pricing sensitivity to conversion, which is final purchase as % of total product page views) is preferably used as the reach of this mode of testing is very high.

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