A question very often asked about price research is who uses it or benefits from it in an organization. The first answer is typically either "Marketing" or "the pricing manager", and they certainly can use the insights generated by price research. But in many cases, price research can also help sales people in various ways:
Knowing what customers are willing to pay, rather than guessing, can be an excellent communication tool in-house. It steers internal discussions about price positioning, price increases or the "absolute need for discounts" in a more fact-based direction. Indeed, if being able to show that e.g. customers are willing to pay a higher price today, if we add a new product extension or change some services is a great way of aligning everybody.
Basic outputs can e.g. be demand curves like this one:
If your current price is lower than the optimum price, then it should be no or only little discussion about the next price increase.
Confidence in own prices
Pricing departments very often know a lot about prices, customer segments and willingness-to-pay. Sales people less so. So when faced with customers who see it as part of their buying jobs to always demand discounts and lower prices, many sales people don't get the full picture but often an unbalanced perspective on what customers value. This is no way to say that sales people's input and feedback from customers should be disregarded.
When sharing price research with the sales team, information about cross-customer willingness-to-pay is better understood and very frequently leads to greater confidence in own value and own prices. This applies both to industries looking at the willingness-to-pay of the direct customer, and in industries where the WtP research was done further down the value chain (e.g. consumers) through negotiating higher up (e.g. with retailers or distributors).
Tactical opportunities with the customers
Price research can also help identify opportunities in the assortment. In e.g. consumer goods it is quite common to see that a brand has many varieties, e.g. think different types of chocolate bars, different types of detergents, different flavors of soft drinks, etc. But very often they are having the same price. Willingness-to-pay research can be used with great effect to demonstrate that customers often are willing to pay a higher price for certain varieties. Similar approaches can be taken to e.g. determine through market facts how much (or how little) of a premium consumers are willing to pay for branded goods over private label.
Price increase effectiveness
Price research excels when it comes to supporting the implementation of price increases. This includes:
- How much should the price increase be? As long as you are below customers' measured willingness-to-pay point, there should be room for confidence and increases.
- Are there customer segments willing to pay more than others? If you can reach those segments through communication, product "packaging", sales channels or other means, effectively the price increase will achieve better results.
- What features are valued by the customers? When marketing AND sales develops communication plans for price increases, it is key to know what customers actually value, and what they don't care so much about. We often see that in certain industries there can be such a tunnel vision of value based on product features that real customer value is often overlooked. A choice-based conjoint analysis can help understand what features, services or characteristics drive value.
The whole discussion of whether to discount or not is far more complex than what can be covered in this article, but it is fair to say that in most industries discounts are prevalent and frequently used.
Price research into elasticity, e.g. derived from a demand curve like above, can help understand promotion effects and how much or how little is gained from a price-off. While many pricing managers instinctively know that many promotions have negative paybacks because of too much profit lost from the price off cannot be made up by the increase in quantity sold, having hard facts from primary market research helps cement this position, and is a strong argument internally. Similarly, it can be used with great success by sales people when e.g. discussing with retailers if consumer prices should be promotionally discounted (many retailers will demand that the suppliers pay for these price discounts).
Many pricing initiatives, in particular in B2B, overlook that without the sales team convinced of the pricing policy and the value delivery then poor results will follow. Use price research to get the organization aligned and equipped with the best possible arguments.
If you are interested in seeing how easy it is to run price research and gets results with just a few days, please book a demo with PriceBeam: