Friday, September 22, 2017

Pricing Research

The purchase process for high technology products can lead to Z-shaped price curves.One of the most fundamental questions marketing managers face is "how should we price our products?" Pricing decisions not only directly impact profitability, they also affect product and brand positioning. There are many different techniques used for conducting pricing research. Some of these techniques are more effective than others. All strive for the same goal - to understand the relationship between price and demand (volume). A poorly designed/implemented pricing study can lead to very expensive mistakes. Pricing a product too low "leaves a lot of money on the table" while pricing a product too high can doom a product to failure.

Pricing research is different for advanced technology and business-to-business than it is for consumer products. This is due to differences in the purchase process. Many consumer products are "commodity-like" in nature. They are well understood by customers and multiple companies offer similar products. In this case we typically see a traditional relationship between price and demand. This is often seen as a concave price curve. At very high prices, there is little change in demand. The price range where price has little affect on demand is described as "price inelastic." Conversely, at very low prices a small change in price results in a disproportionate change in demand. This price range exhibits high price elasticity.

The purchase process for high technology products often result in a different shaped price curve. It is not uncommon to see a "Z-shaped" price curve for these products. This is because the markets for high technology product are heavily influenced by industry gurus. Classic examples are the editors at PC Magazine and Cnet who review product categories. These reviews establish a de factor expected price range for a product. Within this expected price range, products compete more on features and brand than on price. Changes in price, therefore, has little affect on demand. Products priced above the expected price range are summarily rejected for consideration. Changes in price in this range have a large affect on demand. Products priced below the expected range gain disproportionate attention and sales because they are "such a great deal." Understanding which pricing technique to use for different product categories is key to gaining an accurate picture of the market.
 

Questions a Pricing Study from TechWise Could Answer:

  • How price sensitive is the market?
  • What price point maximizes revenues?
  • How should a "loss leader" product be priced?
  • How large of a promotional discount is needed to cause demand to spike?
  • What are the likely competitive responses to a pricing change?
  • What response, if any, should be made to a competitor's pricing change?

Depending on the overall goals of the study, a TechWise Market Model study may be the best approach to a pricing project. Other projects could benefit from a modified monadic design.

If you are interested in learning more about pricing, or to request a quote on a project, contact us.


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Pricing Research
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