Pricing Research Pitfalls: What to Do When You Don’t Know What Prices to Test

If you’ve been in the pricing research business for a while, you’ve probably heard this concern: “How do I set prices if I don’t know what prices to test?” It’s a legitimate question. Picture this: you’re starting a conjoint study and ask stakeholders for pricing levels, only to get blank stares. There are several common pitfalls to watch out for when doing a pricing study. Here are three big ones:

1. Pricing in a Bubble

Sometimes, stakeholders set prices based only on internal metrics, ignoring the competition. For example, you might think about testing widget prices in a given range based on production costs. But if the leading widget in the market is priced way higher or lower, your results won’t match market reality. Including competitive pricing helps you get a better read on market preferences.

2. Too Narrow a Focus

Stakeholders might box themselves in by assuming customers won’t pay more than a certain amount. They might take the competitive landscape too seriously and hesitate to test prices above or below current market rates. Testing a narrow range can lead to the false conclusion that price doesn’t matter much to product buyers, as preferences might be similar at both ends of the range. This can also mean leaving money on the table if consumers are willing to pay more than the tested prices.

3. Ignoring Brand Equity and Value

A consumer’s willingness to pay for a widget isn’t always just about its features and price. Perceptions of quality, service, and availability are crucial factors that can influence their decision. Much of this ties into brand equity—the extra a buyer is willing to pay for a perceived better product based on who makes or sells it. Testing prices without considering the brand, availability, and quality assurances can lead to poor research outcomes.

Tackling These Issues in Your Pricing Research

To make sure your pricing research initiative is successful, try these tips:

1. Keep an Open Mind: Be willing to explore a wide range of prices, within reason.
2. Use Market Knowledge: Tap into your understanding of the market or use secondary sources to find out what competitors are charging.
3. Consider Preliminary Research: Use qualitative methods or open-ended lines of questioning like the Van Westendorp Price Sensitivity Meter as a first step before diving into your quantitative study.
4. Stay Flexible: Be ready to pivot if initial findings don’t match your expectations.

By keeping these points in mind, you can navigate the complexities of pricing research and make informed decisions that reflect what’s really happening in the market.