Pricing Research

Role of Pricing Research

Pricing research helps marketing decision making in
the following ways:
Pricing for new products - determine their viability
Deciding on price hikes for brand
Understand the Value-Price equation for a brand in
the market scenario

Techniques in Pricing Research

There are 4 commonly used techniques for conducting the
pricing research:
1) Buy Scale or Intention To Purchase (ITP)
2) Gabor Granger or Psychological pricing technique
3) Brand Price Trade Off (BPTO) Technique 2 variables
conjoint
4) Van Westendorp Pricing Model

Buy Scale

It uses a 5 point scale to measure intention to purchase

Stated purchase intents converted to actual probability

of purchase
Top Box scores
Probability estimates attached to proportions of
Definitely and Probably

The Gabor-Granger Technique

Respondent exposed to product / concept and ITP taken
at different price points
The responses are then cumulated to draw up a demand
curve for the product at each price point
The prices are read out in a randomized order to
minimize rationalization & responses are collected
Can test multiple price points with the same respondent

Brand/Price Trade-off Technique

The BPTO technique measures prices sensitivity of
brands in a competitive context
Treats each brand as a composite of two entities
The brand is looked on as a fixed bundle of benefits
The price - the highest price is associated with the lowest
value

At each purchase, a trade-off happens between the two

entities
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Brand/Price Trade-off Technique

Objectives defined in terms of
Market definition
Price ranges to be tested

Data Collection
Respondent shown a card with packshots and prices
of different brands
Respondent indicates his purchase decision
The price of the chosen brand is raised by one level
and a fresh choice asked for
The exercise ends when the respondent opts out of
the market or the range being tested is exhausted
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Brand/Price Trade-off Technique

Analysis
Using the data collected, the brand choice of each respondent for
any combination of prices can be simulated
Market shares of each brand can be simulated for different price
scenarios - including the current market scenario
The price elasticity of a brand and its cross-price elasticity with
other brands in the market
The demand curve for any of the brands in the market can be
derived

Van Westendorp Model

Four simple questions asked

At what level of cost might you begin to feel that this product
is so inexpensive that the quality is not to be trusted?
At what level of cost might you begin to feel that this product
is inexpensive but probably of acceptable quality ?
At what level of cost might you begin to feel that this product
is expensive but still a possible purchase ?
At what level of cost might you begin to feel that this product
is too expensive to consider whatever its quality ?

Van Westendorp Model: Optimal Price

Point

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Van Westendorp Model: Optimal Price

Point
Indifference Pricing Point (IDP)
This is the point at which expensive and inexpensive
lines intersect
Percentage of respondents who consider the product
inexpensive equals the percentage who consider it expensive
Tends to be close to the current average market price

Optimal Pricing Point (OPS)

Optimal Pricing Point is where the too expensive and too
inexpensive lines intersect
It is also the point at which the least number of respondents
rejected the product for either of the two reasons
The point of maximum revenue for the brand

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Summing Up: Pricing Research

Two robust models available - the BPTO and the Van Westendorp
Model
Together, the two can be used to address almost query in the
area pricing
The Van Westendorp model can be used to derive the range over
which prices should be checked in a BPTO
The market share a brand would garner for any price derived
through the Van Westendorp model can be simulated in the BPTO

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