There are four major techniques used for pricing research:
- Gabor Granger technique
- Van Westendorp Price Sensitivity Monitor (PSM)
- Conjoint Analysis (also known as Discrete Choice Analysis)
- Brand Price Trade-Off (BPTO)
Gabor Granger Technique
Gabor-Granger pricing research is also known as direct pricing research. In this technique customers are asked if they would buy a product at a particular price. The price is changed and respondents are asked again if they would buy or not. Thus collected data reveals the optimum price for each individual.
This technique helps understand the price elasticity for the product by identifying the levels of expected demand at each price point.
A major weakness of Gabor Granger pricing research technique is that customers may understate or overstate the price they are willing to pay. Thus to place the customer in the buying frame of mind, the framing of the “would you buy” question and other related questions is very important. Normally, Gabor Granger is used when considering one product only. It cannot be used to compare competitive response to different prices if competitors are offering the same product for less.
Van Westendorp Price Sensitivity Monitor (PSM)
Van Westendorp Price Sensitivity Monitor (PSM) technique helps one identify the acceptable range of prices or price space in the minds of the customers and determine whether the price is set too low which can create suspicion about quality or too high which can result in poor value for money.
This technique is mostly used for price positioning rather than estimating optimum pricing. As with Gabor Granger technique competitive pricing cannot be evaluated using this study.
Also since it gives no direct measure of likelihood to buy, this technique is often combined with Gabor Granger or Conjoint study questions.
It is a technique that allows organizations to understand how people make trade-off between different products and services and the values they place on different features.
It is a technique that allows organizations to understanding how choices are made and consequently what is the importance of price. Discrete Choice Analysis which is a subset of conjoint is mostly used to estimate price elasticities for brands in supermarket style layouts.
Conjoint analysis is a more complex form of pricing research and thus requires higher degree of skills.
By understanding precisely how people make decisions and what they value in a product or service, one can work out the optimum level of features, economic impact of price changes and services that balance value to the customer against cost to the organization.
Conjoint analysis can be used by for example a online travel ticketing company to create price brackets for time sensitive pricing since it help create a dynamic pricing model.
Brand Price Trade-Off (BPTO)
Brand Price Trade-Off (BPTO) technique is a variation of the Conjoint Analysis, where several brands are shown at once and the customer chooses the preferred option.
This technique is used to identify the impact of price increases and decreases on the sales of the brand. Unlike Gabor Granger technique and Van Westendorp Price Sensitivity Monitor (PSM) techniques it is also capable of providing the response to competitors’ changes in price and provides an analysis of gains and losses. This technique also helps identify how much premium a brand can charge. In this case customers evaluate a range of products and prices are adjusted until customers stop purchasing.
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