We use three key techniques to derive the ideal product price. Triangulating is very important in pricing studies due to stakeholders’ tendency to underestimate their true willingness to pay for different products.
The Price Sensitivity Meter (PSM), was developed by economist Peter Van Westendorp to understand consumer’s willingness to pay. It is based on the theory that consumers have an idea about what reasonable price they are willing to pay for a product and that consumers are willing to pay more for a high-quality product.
This method can be incorporated into a quantitative study with the following 4 questions which are asked in order to conduct this analysis:
Acceptable and recommended price ranges are then developed based on where the “expensive”, “too expensive”, “bargain” and “too cheap” curves cross. An example of this is shown on the right.
Van Westendorp analysis works well as respondents are not prompted with specific price points. However, following this exercise we recommend using a price laddering technique to provide you with pricing sensitivity curves around the price of interest.
This is usually conducted by providing respondents with approximately 5 pre-determined price points in a random order. For each price point, respondents are then asked their likelihood of purchasing the product. By analyzing likelihood to purchase at each price point, pricing sensitivity curves can be developed.
We will also analyze willingness to pay vs. the other pieces of data collected during the research survey to see if there are particular attitudes or behaviours which predict consumer willingness to pay.
Determining the relative importance of price will provide a first step in understanding the extent to which consumers are price sensitive. This is ideally done using Choice-Based Conjoint Analysis but can also be done using Stated and Derived driver analyses.
A CBC analysis can also help assess whether the presence of other attributes (manufacturer, efficacy, number of strains, HCP recommendation, etc.) may reduce price sensitivity.
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