Brand Price Tradeoff Analysis

Brand Price Tradeoff Analysis (BPTO)

 

Background

  • Typically used to measure price elasticity.
  • Developed in early 1970’s.
  • Described in working papers by Johnson (1972),Jones (1975), Johnson & Olberts (1991).

Description of How it Works

  • A group of products are presented to a customer.
  • Each product is priced at its lowest level.
  • The consumer is asked to select one product.
  • The price of the product they select is then increased to the next level, no other prices change.
  • The consumer is asked to select again.
  • This process is repeated, until the product reaches its maximum price or the consumer selects another product.
  • The study may move through all of the competing products.
  • Sometimes the process will include the choice “None of the above”, at which time the task ends.

Our Assessment

This method is generally worse than doing nothing at all.

 

 
 

Strengths

  • Upon an in-depth review of several BPTO studies and the available quantitative literature we are not able to provide any.

Weaknesses

  • The purpose of the study quickly becomes obvious to the consumer leading to self-consciousness which in turn causes artificial behaviour.
  • The typical result is the product’s price elasticity is significantly overestimated.

Measures of Predictive Validity

  • In a study that employed the BPTO methodology the estimated measure of elasticity was found to be –4.5, whereas the comparative TAG results using a different methodology estimated the elasticity at –0.8. The lower elasticity was proven to be correct. This has profound implications for forecasting revenue and market share changes.

Johnson, Richard M. (1972), A New Procedure for Studying Price-Demand Relationships. Chicago : Market Facts, Inc.
Jones, D. Frank (1975), “A Survey Technique for Measure Demand Under Various Pricing Strategies,” Journal of Marketing, 39 (July), 75-77
Johnson, R.M. and Kathleen Olberts (1991), “Using Conjoint Analysis in Pricing Studies: Is One Price Variable Enough?” Presented at American Marketing Association’s Advanced Research Techniques Forum, Beaver Creek, Co. (June).