Pricing is key to product success. Price too high, and you lose customers. Price too low, and you throw away profits. It’s perhaps odd then, that pricing is the most neglected element of the marketing mix.
Odd, but understandable. Brands often set prices in relation to their direct competition. Alternatively they adopt a “cost +” approach: the price is the result of adding the brand’s desired margin to total costs.
These are both cautious approaches with obvious pitfalls. The first relies on your product being identical to the competition. The second removes the customer from the equation completely.
Value is the real focus. Price is the outcome.
A third, less common, approach is to focus on perceived market value. Strategic Research carries out studies to identify the value of a given product to your customers. In this way, we enable you to price accurately and gain more sales at a higher margin.
Why do more marketers not follow this approach? Spontaneous consumer declarations relating to price are notoriously unreliable. Our research is carefully structured to elicit accurate responses. We use conjoint analysis, a rigorous methodology that provides detailed and reliable results.
Conjoint analysis is rooted in the real world, where customers rarely focus solely on price, but also consider brand and product features. This makes every purchase a compromise. Crucially in conjoint analysis, the importance of price relative to other variables is not drawn from direct questions and consumer statements, but instead from calculations based on observing the trade-offs consumers make when confronted with various choices.
Our advanced Choice-Based Conjoint approach enables you to:
- Establish the optimum price that maximizes demand and/or brand revenue
- Determine price elasticity (how demand varies in responses to changes in prices)
- Optimize pricing for a product line: defining prices for different products in the same line to maximize overall brand demand while avoiding cannibalization
- Determine pricing strategies to follow in response to competitor moves.
Our detailed analysis and presentation of data collected ensures that results are accessible and can be communicated easily to your internal teams.
Let’s get strategic
Sometimes price becomes a question of strategy. This is particularly true when considering the price positioning of a brand (as opposed to a single product).
A brand’s pricing strategy should result from a clear understanding of the competitive advantages the brand already holds, and those on which it needs to focus its resources. We measure your brand’s strategy differentiation through the Strategy Canvas: a snapshot in time of the market and your position within it on factors of key importance for your industry. This snapshot also shows the areas you need to work on to maintain price versus the competition.
Pricing also becomes a strategic question in the absence of competition, for example in the case of breakthrough innovations. Our approach in this scenario is to benchmark more widely, by finding out the prices of products that are different, but perform the same function or achieve the same objective.
A classic example of this is the Australian wine “yellow tail”, the biggest-selling wine brand in the US. The company revolutionized the market by offering a wine brand which can be bought and drunk as easily as a bottle of beer. This was crucial to penetrating the American market, which is highly resistant to the traditional associations of this product category.
To set the price, the brand considered different alternatives, enabling it to define a potential price bracket:
- Current market: premium vs. low-cost wine
- Alternatives: drinks other than wine
- Products filling the same objective (pleasure, loss of control) such as… ecstasy pills.
These alternatives set the range of prices in which the product can reasonably be positioned and the trade-offs consumers are likely to make before buying the product.