Research Methods for Pricing Decisions by pptfiles


									       Chapter 9
 Research Methods
for Pricing Decisions
n Pricing Strategy and Pricing
n General Pricing Research
n Some Specific Price Research
    Pricing Strategy and Pricing
n   Three Basic Pricing Research
n   will price sensitivity be tested for a
    single product or brand by itself or in
    the context of competing products?
n   will customers’ responses to the price
    be tested directly or indirectly?
n   will each person be asked to respond
    to one price or to several prices?
General Pricing Research
n Surveys
n Experimentation

n Statistical Methods and Models

n Panels
Surveying requires administering a
  questionnaire through personal
  interviews, telephone interviews, or the
To elicit facts and opinion from
  respondents relating either to a
  prediction of the quantity they would
  be willing to buy at various prices.

Usually such questions over-estimate the
degree to which buyers are sensitive to
price and lead to pricing decisions that do
not reflect what buyers really are willing to
A second problem is that survey typically
elicit responses from people when they
are not very interested in making a
purchase of that type of product.
The advantage is the opportunity it
  provides to isolate and control
  various market factors that may
  affect market demand and then to
  observe buyer’s reactions to
  change in one or more of these

 The disadvantage is that the
laboratory is not a natural
shopping environment.
 The lack of control over other
factors that affect sales -----
advertising, competition,
●Statistical Methods and Models

The advantage of using
 historical statistical analyses is
 that the researcher can test
 different scenarios in a form of
 “what if” simulations.
●Statistical Methods and Models

 First, it does not provide
 information on whether other
 prices would have led to higher
 sales levels or whether such prices
 would be better in the future.
 It may not be very useful for
 relatively new products.
The households that comprise the
  panel record their purchases by
  brand and price in a daily diary or
  a store’s checkout counter.
The data are aggregated across the
  panel on a weekly or biweekly
The advantage is that observations
  accumulate quickly to establish
  an adequate database to
  develop and test models.
A disadvantage is that the panel is
  not likely to be representative of
  the general population.
 Another disadvantage is the
  possibility of errors.
    Some Specific Price
   Research Techniques
n Estimating   Price-Level
  Sensitivity (Absolute Price
n Determining Willingness to Buy

n Estimating Sensitivity to Price
   Estimating Price-Level
 Sensitivity (Absolute Price
Ø Direct Question Approach
Ø Price Sensitivity Meter

Ø Price Categorization

Ø Magnitude Scaling
 ●Direct Question Approach

Q1:What is the minimum price you
 would be willing to pay for
 (product and/or brand specified)?
Q2:What is the maximum price you
 would be willing to pay (product
 and/or brand specified)?
               TABLE 9.1
Determining Price Limits Using the Direct
         Question Approach
                FIGURE 9.1
Scales for Determining Acceptable Prices
        ●Price Sensitivity Meter
Q1:At what price would you consider this
 (product and/or brand) to be so inexpensive
 that you would have doubts about quality?
Q2:At what price would you still feel this
 product was inexpensive yet have no
 doubts as to its quality?
Q3:At what price would you begin to feel this
 product is expensive but still worth buying
 because of its quality?
Q4:At what price would you feel that the
 product is so expensive that regardless of its
 quality it is not worth buying?
Q5:What price would be the most acceptable
 price to pay?
              Table 9.2
Determining Price Limits Using the PSM
               Figure 9.2
Determining Price Limits: PSM Approach
       ●Price Categorization
To ask buyers to sort a set of prices for a
  product into smaller groups or categories
  according to how they perceive these
  prices to be similar or dissimilar to each
To label any groups of prices that are
  unacceptable and indicate why the prices
  are unacceptable.
 To label the set of prices that is most
  acceptable to them.
      ●Price Categorization
The analysis proceeds as described for the
  direct question approach for each of the
  price categories identified: unacceptable-
  low, acceptable-low, most acceptable,
  acceptable-high, and unacceptable-high.

Using the median response, when 50 percent
  of the respondents indicate that a particular
  price might belong in a particular price
  category or the price category adjacent to
  it, then that price forms a category limit.
     ●Price Categorization

The advantage is that it does not
  implicitly assume there is only one
  definable set of acceptable prices
  in the market.
Using a wide range of prices and
  explicit evaluations of prices.
        Magnitude scaling
Underlying the approach is the fundamental
  belief that people can provide meaningful
  information about the magnitude of their
  sensory experiences.
The most widely used form of magnitude
  scaling is numeric estimation, where
  respondents are instructed to assign
  numbers to the stimulus product or price
  relative to a standard number for the
  reference product or price.
        Magnitude scaling
The procedure of measuring the price-value
  judgments :
1.They are asked to assign the current or
  reference product an index value of 100.
2.Respondents are asked to judge the relative
  quality of the “new” product by assigning it
  a number above or below 100.
3.Next, respondents are asked to give the
  price they currently are paying a number of
       Magnitude Scaling
4.Then, the same instructions given in
  step 2 are used to ask the respondents
  to indicate the price that would be
  acceptable for the new product---how
  much more or less they would be
  willing to pay for it.
5.If several product-price combinations
  are being evaluated, the procedure is
  repeated by asking the respondent to
  evaluate the next “new” product
  against the original reference product.
       Magnitude scaling

By using several product-price
 combinations, a scale can be
 developed indicating the proportional
 perceived differences between price
 and different product attributes.
 Determining Willingness to Buy
The Parker Pen Company applied magnitude
  scaling techniques along with attribute
  value analysis to determine the
  introductory price for a new pen.
To test market this new pen, the company
  followed a five-step process beginning with
  target market identification(10 to 45 year old
  people, particularly European students and
  white collar professionals).
 Determining Willingness to Buy

In the second step, they identified the
  desirable pen attribute including writing
  smoothness, smear resistance, style, and
Consequently, the research team
  described the attribute “feel” as a
  composite of weight, barrel size and
  shape, balance, and tactile impression.
  Determining Willingness to Buy
In the third step they estimated the
  ‘price’ of each attribute in the
  following regression equation:
P=suggested retail price
Size=circumference of the barrel
S=geometric shape of the barrel
B=whether the pen is balanced in the hand
T=tactile feel of the material
R=resistance–the amount of effort needed to write
C=consistency of the ink flow
              TABLE 9.3
Estimated Value Prices for Pen Attributes
   Determining Willingness to Buy
In step 4, a sample of consumers was
  given a pen to use as a standard of
  reference for the magnitude scaling
Fifth step used regression analysis to
  calculate the respondents’ willingness
  to pay more or less for any particular
  Estimating Sensitivity to
      Price Differences
n Sequential   Preferences : Two
n Trade-off Analysis

n Conjoint Analysis
  Sequential Preferences : Two
When the objective is to determine
sensitivity to price differences for
comparable brands, one approach is
to ask respondents to indicate their
brand preference as the price of
brand is changed.
               FIGURE 9.5
Response Sheet for Sequential Preferences :
               Two Brands
                  FIGURE 9.6
Sensitivity to Price Differences: Sequential
           Preferences Approach
        Trade-off Analysis
The need to make trade-offs while
simultaneously evaluation multiple
alternatives with multiple attribute
Trade-off analysis uses either what
may be called a limited-profile
approach or a full-profile approach.
        TABLE 9.4
Limited Profile Trade-Offs
               TABLE 9.5
Relative Attribute Contribution to Price
       Conjoint Analysis

Conjoint analysis has been designed
to explore these buying complexities
to determine the relative perceived
value in different product attributes
including price.
Three terms commonly used when
discussing conjoint analysis are
important : factors, levels, and utility.
        Conjoint Analysis
Factors are the product or service
 attributes that provide the relative
 benefit buyers derive from acquiring
 and using the product.
Level refers to the number of different
 options available for a particular
Utility refers to the quantified degree
 of preference a person has for a
 particular factor.
        Conjoint Analysis

Conjoint analysis is a technique for
 breaking down buyers’ overall
 preferences into utilities for each
             TABLE 9.6
Hotel factor Description and Levels
           TABLE 9.7
Features and Utilities for a Hotel
~The End~
Thank you!!

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