Pricing
Price optimisation contains greater potential than any other market research topic, because no other measure has a more immediate impact and greater leverage upon profitability. At the same time, price optimisation is one of the most difficult and complex issues in market research, because it isn't simply about how high the price is.
Price transparency, which companies often presume on the part of customers, is generally vastly overrated. People rapidly construe the customer as being a rational decision-maker who is only all too aware of not only one's own prices, but those of competitors too. Yet when customers complain about excessive prices, that doesn't necessarily have to be traced back to the actual price level.
Instead of setting a dangerous price spiral in motion as a result of price cuts, one should look at (and correspondingly make use of) the entire spectrum of pricing and above all price structures, marker elements, and price thresholds.
Numerous Vocatus surveys demonstrate that people faced with complex price structures are frequently not in a position to correctly estimate the actual price of a product. Objectively more expensive products are then subjectively rated as cheaper. Vocatus investigates precisely these irrational decisions so as to open up scope for pricing and new margin potentials for your company.
Being Aware of Marker Elements
Such less than ideal decisions are often caused by marker elements. The customer sees individual products or
product components whose price they believe they know very accurately, and use this price as the basis for
estimating the price of the entire product or product range.
People can thus feel that an offer is inexpensive even though it is dearer than the competitor product in purely numerical terms. Vocatus therefore ascertains the marker elements within your product range and the price the customer estimates for them, and provides you with clear recommendations for the strategic pricing of these marker elements.
Managing the Decision-Making Process
The point in time during the decision-making process when the customer receives certain price information is also
of major importance for the purchase decision. This is why Vocatus frequently carries out price studies combined
with an analysis of the entire decision-making process.
This is where the significance of individual items of price information in different decision-making phases is analysed, resulting in clear recommendations as to the sales phase in which certain information should be highlighted (or preferably shifted into the background).
Analysing the Pychological Price Profile
In order to gain a better understanding of customers' overall decision and purchase processes, Vocatus analyses the
so-called Psychologcial Price Profile. This essentially comprises
three aspects: price interest, price knowledge, and price assessment. One can only obtain a holistic and realistic
picture if one takes into account the extent to which a customer is actually interested in prices, how much they're
actually aware of them (or think they are), and how cheap or expensive they duly assess a given price to be. One
must understand this if one is to validly predict purchase behaviour at specific price levels or in the case of
price changes.
Considering Consumer Types
However, Vocatus goes one step further and also investigates the fundamental motivation with which a consumer
enters a decision and/or purchase process: do they primarily want to snap up a bargain, or do they want to acquire
a particularly innovative and high-quality product, even if the latter is slightly in excess of their proposed
budget? Or do they even mistrust the price promises made by providers/suppliers, and above all don't want to be
ripped off?
Nevertheless, the question of how motivation, price interest, price knowledge, and price assessment impact upon the decision process is even more important. Whereas some customers make particularly detailed comparisons, others buy the product that most appeals to them from an impulsive and emotional perspective. Then again, others always turn to the same product without noticing the price, and for some people the price is even a matter of utter indifference.
It was precisely this interplay of factors that Vocatus examined in its international baseline study entitled 'Smarter Pricing with GRIPS (Grand International Pricing Study)', which involved ten product categories in over 20 countries. This also resulted in a decision typology whose five GRIPS types can be encountered in every country and sector, albeit with varying degrees of frequency. It's sometimes the case that Bargain Hunters searching for the most attractive discounts predominate, whilst in a different sector it might be the anxious and mistrustful Loss Avoiders who constitute the largest group of purchasers. However, depending on the actual product or brand, situation, and point of sale, it might also be the Dynamic Price Accepters, Comparison Avoiding Loyals, or Price Indifferents who prevail.
All these various types react differently to product and price stimuli, and duly have to be addressed differently within the context of the pricing strategy and treated differently within the decision process.
Ascertaining the Optimal Price
However, the crucial question now and in the future is: what is the optimal price? Finding this out is often very
complex and comprehensive, so there's no single method that's always suitable. Nevertheless, as well as examining
price thresholds and price sensitivity one finds that conjoint analyses have frequently proved indispensable for
this type of question.
Price threshold analysis can help to test price sensitivity and price acceptance for a given product or service in the market, thereby fully exploiting margin potentials in pricing: below a certain threshold, the company can increase the price without affecting sales, thus increasing its margins.
Conjoint analyses have particularly proved their worth within the context of product development and pricing. They allow one to experiment with fictitious products and prices before the former are launched onto the market. With the further development of Multi Rule Conjoint, Vocatus once again markedly increases the quality of predictions since this also takes irrational decision behaviour into account.
If complete products rather than just isolated characteristics are compared within the assessment process, customers feel that they've been placed in genuine decision situations and are able to provide very realistic responses regarding their preferences and motivation. We can thus ascertain which product attributes are particularly important to customers, which combinations of features offer the highest likelihood of purchase, and whether customers think the attractiveness of the entire product is actually diminished if certain elements or options are no longer offered. This then means that the company has considerable opportunities to save on costs and reduce complexity. It is also possible to reliably assess the impacts of product or price changes within the competitive environment.
Regardless which method is used in a pricing study, it's vital that consumers' various decision strategies are suitably taken into account: only when the results of conjoint analysis or Price Sensitivity Measurement (PSM) are enriched with information about customers' actual price knowledge and price interest can purchase behaviour be validly forecast. Thus, for example, the price thresholds that have been ascertained can now be categorised as less critical or maybe particularly critical, or the quality of conjoint results can be further improved. Vocatus thereby ensures that incorrect (and expensive) decisions are avoided, and available margin and sales potentials are exploited in the best possible way.