Pricing is one of the most important but least understood marketing decisions. Learn and practice concepts, techniques, and get to grips with the latest thinking on assessing and formulating pricing strategies. Analyze how firms attempt to capture value, as well as profits, in the revenues they earn. After this course, you will be able to contribute to the process of formulating pricing strategies for your own products and services, or those of your firm. This course has an additional focus on pricing dynamics and the reaction to and by competitors, taking a highly pragmatic approach and one that is directly applicable to your day-to-day professional life. Martin Boehm - IE Professor and Dean of the Business School with over 10 years experience - will guide you through four modules. We begin with the importance of pricing and how it ultimately can affect the bottom line. Then, we move on to methods to help you decide what is the optimal price for your product; and then price discrimination - should all your products follow the same pricing strategy or should you differentiate depending on the customer segment? Finally, we look at pricing psychology and how you can manipulate customers in order to drive the highest possible price for your product.
Customer Surveys
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Del curso dictado por IE Business School
Pricing Strategy
434 calificaciones
De la lección
Determining Willingness to Pay
After finishing this module you will be able to take advantage of four different methods to determine the willingness to pay from customers. Whether using Market Data or Experiments (Observation based) or Expert or Customer Surveys (Survey based), you'll be able to use this information in order to identify the optimal price.
Conoce a los instructores
Martin BoehmProfessor of Marketing
Dean of IE Business School
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This module is going to focus on how we can use customer surveys in order to
extract demand information.
There are two fundamentally different methods to extract
price response estimates from customers.
Directly ask customers how they would respond to certain prices,
or what they would be willing to pay for instance.
Or to infer the response from an analysis of data on
customers' expressed preferences for one product over another.
This module is going to focus on direct price response surveys.
In a direct price response survey,
the respondent is asked a series of questions of the following type.
For instance, what is the likelihood you would buy this product at a price of,
let's say $25?
Or, at what price would you definitely buy this product?
Another version would be, how much would you willing to pay for
this particular product?
How much of this product would you buy at a price of $0.99?
Or, last but not least,
at which price difference would you switch from product A to product B?
Let's now demonstrate the direct open-ended method for
a product called the Microsoft Surface.
Which is essentially a mixture between a laptop and a tablet PC.
Let's imagine that you are one of the chosen participants for
this particular pricing research study.
So, considering this product,
what is the maximum price you would be willing to pay for this product?
Similar to you, the other participants only had to give
their maximum willingness to pay for this particular product.
The following chart illustrates the research results.
Let's now assume a market size of, let's say,
100 laptops in order to find as well the revenue maximizing price.
We're observe in this particular chart that a strong price threshold
exists at 1,000 euros, and another one at around 750 euros.
Suggesting a possible price either just below 1,000 or just below 750 euros.
Let's now consider a different example.
This time we're going to use a closed ended pricing question.
We are now considering the manufacturer of a new point and
shoot camera, let's say Panasonic for instance.
This time we're going to ask you to indicate your purchase intention
on a seven point scale.
From definitely would not buy that product to definitely would buy that product.
How would you choose?
Let's assume further that one third of the respondents was told the camera cost $120.
One third was told it cost $180.
And the remaining third was told that's it's going to cost $250.
The result of the survey is shown in the following table.
In interpreting the result of this kind focuses typically put
on those answering probably would buy or higher.
In this particular example we would see that 47%
were indicating these options at a price of $120.
18% at a price point of $180 and 11% at a price point of $250.
Armed with this potential sales information and knowledge about costs,
the pricing manager could then decide on the optimal camera price.
That maximizes not only the firm's revenues but
also the firm's profitability.
Let's now assume for simplicity's sake, again,
a total market of 100 cameras and a variable cost of, let's say, $100.
While the revenue maximizing price seems to be $120,
the price that maximizes profit contribution is clearly $250.
A more sophisticated variation of direct price response surveys is called the van
Westendorp Price Sensitivity Meter.
Respondents are asked four different questions to determine what prices
are too cheap, cheap, expensive or too expensive.
By plotting the cumulative curves for each of the four prices,
the crossing points are deemed to be optimum points.
So, in this particular example,
we have now taken the information from multiple respondents who
participated in a study similar to the question we have seen before.
What we see is it provides us with a space that helps us to determine
what is the range of, let's say, acceptable price points.
So we clearly, as we see now, have a lower price point and obviously an upper price
point and we have something called as well a penetration and indifference price.
This is a technique which is more used for price positioning type
studies than actually for estimating the optimal price point.
It is typically, as well, quite useful to have this as a pre-study in order to then
follow up with some of the other examples that we have actually seen before.
Let's now put this into practice.
Let's now consider an example or, the example that
you are a participant in a study conducted by Porsche, the car manufacturer.
In this particular case, Porsche is interested in finding the right price,
in order to position their new product called the Porsche Cayman.
So, now please answer the four questions for this particular product.
Let's now assume that you were not the only respondent in this particular
marketing research study.
So what we have done is we did plot the information from
multiple respondents in this study.
As you can see as in the previous example,
the four different lines clearly intersect.
Indicating most importantly, an lower acceptable price point,
and an upper acceptable price point.
In this particular case, Porsche clearly used that information in order to come out
with the adequate or the right price for their Porsche Cayman product.
However, they actually, in order to make very clear
that their product is positioned as a premium product.
They even went beyond the upper price range, and
priced the product slightly above 60,000 euros.
Note that typed response surveys have potential problems.
For instance, such surveys can induce an unrealistically high level of
price consciousness for our consumers.
On the other hand, consumers are only asked about their willingness to pay.
And they are not actually required to spend their money or
put the money on the table.
So the survey results often paint an overly optimistic picture
of the product potential.
Nevertheless, such surveys are often a good first step in
assessing perceived value of a product or service.
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