OK, so of course your product or service has a price. A price that reflects what you think is a fair price for the value you deliver to the customers(?). But do the customers see it the same way? And do you charge appropriate prices for what the customers value, or is it disjointed?
This is the time of year when many companies are planning or executing price increases for the new year. Some are successful and reap considerable improvements in profitability. Others have difficulty in making the price increase stick. And others simply fail to implement a price increase.
Over many years working in the pricing industry, I have seen a number of things that successful companies do when it comes to implementing the price increases. Here are some of those insights.
"Can we include competitor prices into the price research?" is one of the more frequently asked questions at PriceBeam. The answer is a loud "yes", but sometimes the second question should be: do competitor prices matter?
The answer is "most of the time". But sometimes the focus is too much on competitors compared with the adequate attention to how you deliver value to your customers. Competitor prices do matter, because they set a reference against which your value is being compared. In value-based pricing models there is often a NBCA (Next Best Competitive Alternative) to which value drivers are added or subtracted, to arrive at the value of your own product.
But products also deliver value on their own. If your product or service helps your customers, it does so regardless if the competitor is priced high or low, or doesn't even exist. And this is where too strong a focus on competitive pricing can become an issue. In organizations overly obsessed with competitive prices there is a tendency to only focus on how their own price compares with that of the competition. Conversely, they don't focus enough on delivering independent value through product benefits and features.
PriceBeam's price research methods focus both on your own value-based pricing and customers' willingness to pay for that value, but also allows you to bring competitive WtP analytics in play. The outcome is a solid understanding of your own value and pricing opportunities, while keeping a health eye on the competition.
About to launch a new product? Or updating the positioning of your existing service? Using pricing research can help determining the value that customers perceive, before the actual launch.
Price research asks existing or potential customers about their willingness-to-pay. This is in itself powerful and will help marketers understand how customers respond to their value proposition. But repeating the willingness-to-pay research across multiple concepts or with competitive propositions, it is also possible to test different concepts against each other.
PriceBeam has recently launched a Comparative Willingness-to-Pay study type, that does exactly that:
- You define the target market, such as country, demographics and other restrictions
- You describe a set of product/service concepts.This can be different iterations of your offering, but also include several competitive offerings.
- PriceBeam does all the hard work and conducts the market research. We ask them a series of pricing questions for each product concept and thus collect comparative data.
- You can analyze willingness-to-pay of the individual offerings, but also compare the different WtP data sets. This allows you to see what market segments respond favourably to different value propositions or product configurations.
The new PriceBeam Comparative Willingness-to-Pay study type has been tested by some of the largest companies in e.g. FMCG/CPG and hospitality, and is now being used to determine pricing for various product launches in 2018.
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Price Research benefits the marketing team as well as the pricing department: they get insights into willingness-to-pay and can better determine the optimal price. But what about Sales? In a recent sales conversation we were asked if price research could be used when e.g. putting price increases through. The short answer is "Yes". The longer answer is it depends. (And the legal answer is: yes, but don't dictate resale prices).
When pricing internationally, pricing research can provide a firm platform for superior performance:
- Understand true differences in willingness-to-pay and don't fall into the trap of harmonizing prices across borders, just because it is easy.
- Understand global as well as local value drivers and adjust marketing messages accordingly. Don't do global marketing on Benefit A, if this benefit is only appreciated in Japan but not in Germany.
- Base local pricing on true willingness-to-pay rather than gut feel.
- Force the pricing team getting closer to local markets and customers, by having to do pricing research in all (key) markets.
- Take the guesswork out of pricing: with price research you know he real market facts instead of guessing.
- Make price increases more successful by reflecting local specifics and willingness-to-pay insights, rather than one-size-fits-all price increases
- As exporters: understand customer dynamics and willingness-to-pay even in markets around the globe and without a large local market team in place.
- Use price research and willingness-to-pay insights as proxies for brand health, and adjust marketing spend levels accordingly.
- Make global or regional product launches more successful by understanding willingness-to-pay in each market ahead of launch.
- Use local willingness-to-pay insights to better negotiate with international customers who are looking to harmonize prices across countries.
Shameless self-promotion: at PriceBeam we specialize in pricing research and provide insights in over 70 countries world-wide. Get in contact or even sign up for a free trial of our powerful price research solution.
When pursuing a value-based pricing strategy, the core focus is on Willingness-to-Pay. What are customers willing to pay for given product or service. This can of course be on the overall level but for proper value-based pricing, it should also be on the feature level. How much value do customers put on individual features or combinations of features. This is where Conjoint Analysis comes in handy.
When setting the price for a new product*, willingness-to-pay research can be a strong decision support tool. But there are different types of WtP research and different situations that require different methodologies.
In many organizations this is the time of the year for making marketing budgets. Marketing teams build plans for the coming year and petition various stakeholders for (additional) funds.
Willingness-to-pay research can be very useful to plan and defend marketing budgets, and the starting point can be something as straightforward as this:
If a product has a current price that is higher than the value customers put on it (i.e. their willingness to pay), then that product is over-priced. Similarly, if the current price is lower than what customers are willing to pay, then it is under-priced.
Willingness-to-pay insights can easily and rapidly be identified using PriceBeam's solutions.