Price/quality

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Answer - there are some excellent ways of conducting pricing research that give you precise price/volume curves. However, they tend to be extremely expensive, and even more complex. We recommend price/quality research as a quick, easy and good-enough alternative.

Key points

Full traditional pricing research is extremely valuable, but it is also horrendously complex and expensive, unless you are using online sales, or telesales.

Intel reputedly provided computer manufacturers with pricing research on a regular basis to demonstrate the additional value provided by the “Intel inside” logo - $150 per computer, if the rumour is correct. It was a huge investment, but it helped build the brand strength, and proved to be worth it.

There are several ways of conducting pricing research:

1. real-time real-world – running statistics off real-time sales data
2. historic real-world – running statistics off sales data when you can get hold of it
3. test market – running statistics off sales within a test market
4. market research – conjoint, brand trade-off, price/quality or scaled research

Real-time, real-world data is clearly the best, so long as you build in the critical variables above and beyond quantity of sales and what price per unit.

For the rest of us, a much cheaper (and often more realistic) alternative to doing full formal pricing research is to do price/quality research. The data is cheap, even on an ongoing basis (in consumer markets you could capture it for less than $1,000 a time using an omnibus survey), the feedback is immediate, and the result gives you a ball-park assessment to answer the two key questions:

• is this offer relatively cheap or relatively expensive?
• is this offer relatively cheap or relatively expensive comparative to the other offers available?

In more detail……………..

There are several ways of conducting pricing research:

1. real-time real-world – running statistics off real-time sales data
2. historic real-world – running statistics off sales data when you can get hold of it
3. test market – running statistics off sales within a test market
4. market research – conjoint, brand trade-off, price/quality or scaled research

Real-time, real-world data is clearly the best, so long as you build in the critical variables above and beyond quantity of sales and what price per unit.

For sales through retail outlets, you also need to know:

• number/size of facings, by location
• proportion of facings, by location, comparative to each competitive brand
• pack type – quantity, promotions, style
• contemporaneous communications activities
• whether the buyer has seen the contemporaneous communications activities

If you have all this, you can make some actionable plans as to how you maximise sales and profitability by manipulating pricing in relation to facings, pack type and communications investment.

Why are the additional variables important?

The proportion of “share of mind” that you own is critical to the purchase decision. In a supermarket, your proportion of facings helps define your position in the market hierarchy. A major brand with comparatively more facings signals its market strength, its implied popularity and its endorsement by the retailer. A relatively unknown brand with comparatively more facings signals a “deal”, endorsed by the retailer. Both signal that you should seriously consider them for purchase.

Within pricing research, the comparative number of facings has a determining impact on the willingness to purchase at a certain price. Change the comparative number of facings, and you change the outcome very significantly.

Communications activities will also impact price decisions. When buying a product, customers react to several inputs:

1. their own views and experiences with the brand
2. the retailer’s implied level of endorsement of the brand
3. the normative view of the brand – is it popular with other people?
4. immediate prompting stimuli – the advertisement at the shop door, the display just inside the door, the advertising on the floor, the shelf display and signing, the packaging, the sales person, the retailer leaflet

In full pricing research all these have to be controlled for.

Can we do it?

If you are selling online or via telesales, you will probably manipulate prices (and thus conduct research) without elaborating the data with additional variables (although factoring in competitive pricing, brand “share of mind”, image sizes, wording etc. would be very valuable).

For sales through retail outlets, it is not beyond possibility that many of these variables can be added into the database alongside the real-time sales data in the near future.

This will not only enable real-time pricing analysis, but potentially the brand response – electronic price changes and electronic advertising.

And ultimately much of this could be handled by lights-off systems, equipped with a manual over-ride – similar to some stock market price tracking tools.

But this will not be easily applicable outside markets with high levels of pricing transparency.

For the rest of the markets (i.e. most of them), pricing research will have to rely on more market research based tools.

The trouble is that controlling for all the variables is exponentially complex and expensive. It is also very rapidly out of date unless all the key variables are controlled for.

$50,000 may not get you very far in pricing research.

Price/quality research

An alternative to doing full formal pricing research is to do price/quality research.

This, in essence, asks about the:

1. the relative quality of the offer
2. the relative price of the offer

and draws a line between the two to say:

• is this offer relatively cheap or relatively expensive?
• is this offer relatively cheap or relatively expensive comparative to the other offers available?

Versus recent real-world pricing data elaborated with the key additional information about pack sizes, comparative number of facings and communications activity, this is very much a secondary source of information.

However, it is fast, cheap and easy to obtain the key underlying information, and you can then “adjust the controls” to match the current situation at no additional cost and in real-time.

Our Better-than-guessing™ brand proposition, price and tracking tool contains the two questions on which the analysis is based:

1. How do you perceive the quality of Brand A/B/C/D? - very poor, average, good, very good, excellent
2. How cheap or expensive do you think Brand A/B/C/D is? - very attractively priced, attractively priced, average, expensive, very expensive, outrageously expensive

This gives the base position of the brand. After that you can adjust the controls to reflect:

Impact on quality perceptions (variables can be changed):

• Any news publicity which is likely to impact the buying decision
• Increased visibility of the brand in the market
• The comparative level of facings in-store / distributor endorsement
• Advertising investments
• Brand-building promotions

Impact on price perceptions (variables can be changed):

• Price-based promotions
• Price cuts

The data is cheap, even on an ongoing basis (in consumer markets you could capture it for less than $1,000 a time using an omnibus survey), the feedback is immediate, and the result gives you a ball-park assessment to answer the two key questions:

• is this offer relatively cheap or relatively expensive?
• is this offer relatively cheap or relatively expensive comparative to the other offers available?

The tool that runs this calculation is called the Better-than-guessing™ Value for money analyzer.

The data is cheap, even on an ongoing basis (in consumer markets you could capture it for less than $1,000 a time using an omnibus survey), the feedback is immediate, and the result gives you a ball-park assessment to answer the two key questions:

• is this offer relatively cheap or relatively expensive?
• is this offer relatively cheap or relatively expensive comparative to the other offers available?

The tool that runs this calculation is called the Better-than-guessing™ value for money analyzer.

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