In Pricing Research, Range Matters More Than Exactness

Price Is (Still) King — But Context Is Crucial

I’m not going to say to ignore price lest my market researcher card be revoked. Price is clearly a core driver of consumer choice. It consistently ranks at the top in importance across 1000s of conjoint studies across various industries. In fact, TRC recently conducted a meta-analysis across 16 industries to gauge what drives selection. And in 15 of the 16, price was one of the top 2 factors.

However.

Studies are worthless without context, and that’s no different for pricing studies. Let me ask you, do you need to get price right down to the penny? Or do you need to get price within range so as not to price yourself out of consideration, and then focus on other factors?

Conjoint Analysis Confirms: Small Price Changes Rarely Move the Needle

I’d argue the latter, and in fact we see this phenomenon in those same conjoint studies I reference. Once you have price within a specific range, toggling simulated prices up or down a small amount doesn’t do much to persuade consumer preference. In other words, once you’re zoomed in to the necessary extent on price, you can start toggling other attributes to make your offering stand out.

Case in Point: How Price Range Changes the Game in the Hotel Industry

Below is an illustration from a conjoint analysis of the hotel industry showing how the importance of factors determining choice are dependent upon your price range:

Once a hotel’s competitive space has been narrowed to a particular price range, the hotel can use other decision criteria to set the price knowing small changes have nominal impact on consumers. For example, the hotel may consider the psychological effects of staying under the $200 barrier or having the ability to promote discounted prices still within the determined range. Alternatively, the hotel can focus on addressing other factors (like workout facilities or internet access) that will do more to differentiate itself from competitors than fine-tuning its price.

Your Pricing Journey: Are You Setting the Range or Fine-tuning the details?

So the true question becomes, where are you on your pricing journey? Perhaps you’re just starting to test a new product for which the bounds are wide and need to be narrowed. Or you already have research in hand that suggests a particular range, but more is needed to explore price/feature trade-offs or tiered options. Or, you already have a really good handle on price, and now you need to understand other differentiators to make your product stand out. Knowing where you are will help develop the best research approach.

For more detail see our white paper on pricing research, also published in Quirk’s.