Companies are increasingly turning to pricing research to maximise their profit and with good reason. Given its scientific accuracy, it is a reliable way to optimise your pricing strategy. When used correctly, pricing research is a tool that companies cannot afford to ignore. Having a firm understanding of how prices are being perceived by your customers is now more important than ever. Sound pricing research can be the difference between a successful product or service or a flop.
Re-analyzing core pricing strategies can help both lulling businesses as well as businesses pursuing growth. One such consumer products company was stuck with this issue. The business kept prices at 99 cents, a key pricing threshold but was not meeting their profit objectives. Management was concerned that customers were too accustomed to the price that pushing through the 99-cent threshold would dramatically reduce volume, ultimately hurting their bottom line. The company needed information from their customers in order to make this critical pricing decision.
After vigorous research, Pricing Solutions determined in order to mitigate profit losses the price increase should be set at $1.29. Pricing Solutions saw that volume would fall after the 99 cent threshold. However volume remained relatively similar at prices between $1.00 and $1.29. With this information, the company could now confidently set new prices at $1.29, improving their overall profitability.
Pricing Research can go a long way in helping you discover and create new opportunities for your business. Here are 6 ways you can successfully conduct research and get the most from your results.
Start Pricing Research Early
When conducting pricing research for a new product or service, the earlier in the development phase you can start, the better. This way you can “design-to-price”, a philosophy where you deliver the most value to a customer by first setting a price point and then building products around those thresholds. Pricing research will allow you to understand what your customers are willing to pay, and make sure you don’t over or under deliver on your product or service at price points. By realising these pricing objectives you can make more profitable design decisions.
Choose the Right way to Research
Pricing research methods are based on two very different categories, business-to-business (B2B) and business-to-consumer (B2C). For B2B companies’ qualitative (discussion-based) research seems to be most effective. Since B2Bs have considerably smaller customer bases, conducting interviews, and product tests are the best methods for effective pricing research. For B2C companies’, quantitative (survey-based) research will provide the most useful data because the consumer base is much larger and diverse.
Indirectly Conduct your Research.
Never directly ask customers what they would be willing to pay. Customers often underestimate or overestimate their willingness to pay and are susceptible to bias. When conducting pricing research it is best to gather information on price indirectly. Do this by having consumers answer tangent questions on related issues and value drivers.
Use Pricing Research to Build Meaningful Segmentation
The main objectives of pricing research are to help you segment the market and help you decide the niche you want to target. More importantly, it can help you understand which markets you are not going to pursue. Pricing Research can give you insight into a consumer’s willingness to pay, to make sure your product or service has an adequate market.
Pass the Data to the Sales Team
Once you have developed your pricing strategy the results should be passed on to the sales force. By giving them access to this data your sales force can more efficiently target and sell to customers. Many companies provide their sales force with product education but that seldom relates to what customers are willing to pay. In providing them with relevant pricing data they can better articulate sale pitches and reduce confusion when negotiating prices with customers.
Set Definable Goals
Consider long-term growth when conducting pricing research. Don’t simply research how to price a single new product. Try to gather data from competitors, pricing history, and other sources to help you make ongoing decisions for your business. Set definable goals of what you want to accomplish through pricing research and squeeze as much value out of your research investment.
Businesses should constantly be looking for ways to increase profits and better optimise every aspect of their operation. One proven way to do so is by evaluating pricing strategies to make sure they maximise profits. Pricing Solutions is an industry leader in this field and can help your company conduct effective pricing research.