How to Price Your Product or Service With Market Research Data

How to Price Your Product or Service With Market Research Data

Setting the optimal price for your offering requires balancing multiple factors from costs to competitor pricing to customer willing-to-pay. Robust market research guides pricing strategy.

This guide explores market pricing techniques to determine the ideal price point based on costs, analysis, experiments, and customer feedback. We’ll cover common pricing models, quantitative and qualitative pricing research methodologies, and optimizing pricing over the product lifecycle.

Let’s help you leverage data to price profitably!

Why Pricing Research Matters

Price profoundly impacts purchase decisions. Setting pricing too high risks limited adoption. But pricing too low leaves profits on the table and devalues your brand.

Without data, pricing becomes guesswork. Research minimizes risk by informing strategy based on:

• Customer willingness-to-pay
• Price sensitivity and elasticity
• Competitor benchmarking
• Production, distribution, support costs
• Ideal premiums for product/service tiers
• Reactions to different pricing models like subscriptions vs one-time
• Impact of discounts, bundles, financing options on purchases
• Pricing gaps and opportunities in your industry

Backed with insights, you can maximize revenue while aligning to customers’ reasonable expectations. But failing to validate assumptions with research risks disappointment.

Pricing Research Methodologies and Tactics

Leverage both qualitative feedback and quantitative data through:

Customer Interviews

Ask target buyers open-ended pricing questions to surface concerns, willingness to pay, reactions to models, etc.

Focus Groups

Facilitate product pricing discussions with 6-8 prospects. Observe interactions.

Surveys

Collect feedback at scale via online surveys. Ask about preferences, acceptable price points, interest in tiers.

Conjoint Analysis

Have prospects choose between product/pricing combinations to reveal preferences.

Discrete Choice Modeling

Similar to conjoint, determine preferences based on trade-offs between pricing factors.

Van Westendorp Analysis

Using four questions, identifies acceptable price ranges based on too cheap vs. too expensive thresholds.

Gabor-Granger Testing

Measure price elasticity by offering different groups different pricing randomly for the same product.

A/B or Multivariate Testing

Test alternate pricing on your website and track conversion rates to gauge impact.

Cross-methodology insights build a complete picture guiding strategy. Combine qualitative and quantitative learning.

Common Pricing Models and Strategies

Armed with pricing research learnings, several models exist to maximize value.

Cost-Plus Pricing

Determine fixed and variable costs to produce, distribute and support. Add desired profit margin.

Competitive Pricing

Match competitors’ pricing after confirming positioning and costs support parity.

Price Anchoring

Establish perceived value with an initial high price, then drop to target regular price appearing discounted.

Penetration Pricing

Price low initially to acquire customers, then increase later once established.

Premium Pricing

Higher pricing reinforces perception of quality and exclusivity for certain brands/products.

Good-Better-Best

Offer a tiered lineup with clear delineations between entry, mid, and premium offerings.

Bundled Pricing

Discount when multiple related products purchased together. Increase average order value.

Each model serves specific positioning, customer, and competitive contexts. Research indicates which maximizes your value.

Pricing Considerations By Product Lifecycle Stage

Ideal pricing evolves across the product lifecycle:

Introduction Stage

Price competitively to attract early adopters and build market share. Discounts help penetration.

Growth Stage

As popularity and demand increase, consider raising prices gradually. Test for price sensitivity.

Maturity Stage

Establish clear product tiers. Manage production costs and aim for profit maximization as competition intensifies.

Decline Stage

Lower pricing to retain customers as interest falls. Reduce production levels to maintain margins.

Leverage introductory discounts, premium tiers, cost control, and bundled offerings at different lifecycle stages.

Optimizing Pricing Over Time

Once launched, continue refining pricing:

Regularly Research

Stay on pulse of customer perceptions and willingness to pay over time through ongoing surveys, interviews, and moderator groups.

Track Sales Data

Analyze price elasticity, order values, and conversion rates by offer. Watch for patterns.

Monitor Competition

If competitors alter pricing, evaluate matching or maintaining based on your positioning and costs.

Test Strategically

Try promotional discounts, financing incentives, or model shifts periodically. Measure impact on metrics.

Address Issues Proactively

If volume drops significantly at a given price point, assess external factors and adjust quickly.

Offer Client Savings

Provide loyalty pricing, upgrades, or subscriptions for VIP clients to maintain relationships long-term.

Pricing optimization never ceases. Consistent research, competitor monitoring, and data analysis ensure you keep earning maximum value.

Notable Product Pricing Failures

While research guides smart pricing, some notable historical mistakes caution against missteps:

• Google Glass – Priced originally at $1,500, it failed to entice mainstream technology consumers vs. early adopters.
• Juicero – The $700 juicer failed by pricing far above competing products providing similar functionality.
• HP TouchPad – HP slashed prices by over 60% just weeks after launch to spur lagging tablet sales, angering early buyers.
• MoviePass – Attempted to gain subscribers through a low $10 per month movie ticket subscription that ultimately proved grossly unprofitable.
• Amazon Fire Phone – Amazon’s smartphone tried to compete on price alone at $199. Mediocre device quality caused failure.
• New Coke – Coca-Cola replaced its classic formula with New Coke without sufficient testing. Mass rejection forced relaunch of “Coca-Cola Classic”.

While pricing missteps happen, thorough data-driven research provides the compass to navigate uncertain markets and set the optimal price.

Key Takeaways for Research-Based Pricing

Here are core lessons for maximizing pricing through testing and data analysis:

• Conduct quantitative and qualitative research through surveys, interviews, focus groups, and experiments.
• Gauge customer willing-to-pay, price sensitivity, reactions to models, feature trade-offs.
• Use techniques like conjoint analysis, A/B testing, and elasticity tracking.
• Factor in competitive pricing and production, distribution, support costs.
• Align pricing strategy to product lifecycle stage based on maturity and demand.
• Continuously monitor sales data, customer sentiment shifts, and competitor behaviors.
• Adjust pricing periodically based on new learnings to optimize revenue.

Getting pricing right means balancing company profit, customer value, positioning, and strategic goals. Market research provides the missing link revealing ideal pricing sweet spots.

While some trial and error persists in pricing, robust data illuminates the path, reducing risk and revealing opportunities to capture greater customer willingness-to-pay.

So commit to treating pricing as an evolving science. Consistent research, testing, and monitoring leads companies prospering from ideal price discovery.

FAQ: How to Price Your Product or Service With Market Research Data

1. Why does pricing research matter?
Pricing research is crucial for setting optimal prices that balance customer value with profitability. It helps in understanding customer willingness-to-pay, competitive benchmarks, and the impact of pricing strategies on sales and brand perception.

2. What are some factors that pricing research addresses?
Pricing research addresses customer willingness-to-pay, price sensitivity, competitor pricing, production costs, pricing models, discounts, and market opportunities.

3. What are some common pricing research methodologies?
Common pricing research methodologies include customer interviews, focus groups, surveys, conjoint analysis, discrete choice modeling, Van Westendorp analysis, Gabor-Granger testing, and A/B or multivariate testing.

4. What are some common pricing models and strategies?
Common pricing models and strategies include cost-plus pricing, competitive pricing, price anchoring, penetration pricing, premium pricing, good-better-best pricing, and bundled pricing.

5. How does pricing vary across different product lifecycle stages?
Pricing varies across different product lifecycle stages, including the introduction stage (competitive pricing), growth stage (gradual price increases), maturity stage (establishing clear product tiers), and decline stage (lowering prices to retain customers).

6. How can businesses optimize pricing over time?
Businesses can optimize pricing over time by regularly conducting research, tracking sales data, monitoring competition, testing different pricing strategies, addressing issues proactively, and offering client savings or loyalty programs.

7. What are some notable pricing failures in history?
Some notable pricing failures include Google Glass, Juicero, HP TouchPad, MoviePass, Amazon Fire Phone, and New Coke. These failures often resulted from misjudging customer value perceptions and market dynamics.

8. What are the key takeaways for research-based pricing?
Key takeaways for research-based pricing include conducting both quantitative and qualitative research, considering customer willingness-to-pay and price sensitivity, using various pricing analysis techniques, aligning pricing with product lifecycle stages, continuously monitoring data, and adjusting pricing strategies based on new insights.

9. How can businesses use market research data to set optimal prices?
Businesses can use market research data to set optimal prices by understanding customer preferences, analyzing competitor pricing strategies, evaluating production costs, and experimenting with different pricing models and strategies to find the right balance between profitability and customer value.