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.