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White paper: assessing the value of pricing research methods Page: 1
A study performed by suAzio® consulting in participation with the European Pricing Platform
Assessing the value of 5 pricing research methods
An evaluation by your pricing peers
Authors: Koenraad Dierick, Dirk Depril, suAzio consulting
Editors: Lieve Heylen, Geertrui vander Meûlen, Carolyn Wessels and Kasper Van den Elsacker (All suAzio consulting)
With the participation of the European Pricing Platform
Abstract:
This article discusses the awareness, satisfaction and usage patterns of five different pricing research
methods. The included pricing research methods are: Conjoint Based Pricing, Van Westendorp Price
Sensitivity Meter, Gabor Granger, Brand vs. Price Trade-off, and Expert Session. Moreover we briefly
discuss how information is shared within the pricing community. In addition we provide a
recommendation on how to select the appropriate method for your needs.
Conjoint Based Pricing is the best known and most frequently used method. It is perceived to be the
most useful, credible and accurate. When trying to achieve a quantitative understanding of price
sensitivity and determining the price optimum, the best substitute for Conjoint Based Pricing is Van
Westendorp’s Price Sensitivity Meter. If understanding the psychology behind price sensitivity is
desired, Expert Session is the preferred method. The most important reason not to use Conjoint
Based Pricing is the perceived difficulty of performing such a study.
Overall satisfaction with the currently available methods for pricing research is low (average 5.7 on a
scale from 0 – 10). Satisfaction levels were higher in a B2B environment compared to B2C. Usage and
awareness levels on the other hand are higher in the B2C group.
Most information is shared between pricing professionals by means of informal conversations,
trainings, internet searches and reading books.
White paper: assessing the value of pricing research methods Page: 2
A study performed by suAzio® consulting in participation with the European Pricing Platform
Study Setup
What is the right price for our product? It is a question we are confronted with every day. Each time
we get this question we try to recommend an approach that fits the environment that our clients are
active in, their desired level of understanding, their budget and their available time. The five
methods that we most frequently recommend are: Gabor Granger, Van Westendorp Price Sensitivity
Meter, Brand vs. Price Trade-off (BPTO), Expert Sessions, and Conjoint Based Pricing.
During the summer of 2010 an international study
was organized to assess the value and
satisfaction of the 5 most frequently used
methods for pricing research. As a professional
market research and consulting firm we wanted to
assess the value of each of these methods in order
to augment the strength of our recommendations
in the future. The study was done via an online
survey that was distributed among our clients, the
European Pricing Platform and several online
communities such as the Professional Pricing
Society (PPS).
175 pricing people completed the study (see
chart 1: Overview of study participants). 56% of
the participants are active in a B2B
environment. 12% are active in a B2C
environment and 32% are active in a mixed
environment with both B2B and B2C customers.
(see chart 2: split between B2B and B2C)
Chart 1: Overview of study participants
Chart 2: Split between B2B and B2C
White paper: assessing the value of pricing research methods Page: 3
A study performed by suAzio® consulting in participation with the European Pricing Platform
Results
Usage and awareness of pricing methods
Not surprisingly Conjoint Based Pricing is the most
frequently used methodology for pricing research.
44% of the study participants rely on conjoint
based methods.
Green1 – who is generally accepted as the person
who introduced conjoint methods in marketing –
claims that since conjoint methods were applied in
market research, the approach has been improved
continuously.
The prediction errors have been minimized, collecting conjoint data has become easier, a larger
amount of parameters can be included in the market simulations (including competitive dynamics),
more product attributes can be included and so on.
In terms of usage, Van Westendorp (28%) comes in second place, closely followed by Expert Sessions
(27%). Gabor Granger (20%) and BPTO (16%) are less frequently used.
Chart 3: Awareness and usage of pricing methods
Almost 70% of the study participants are aware of Conjoint Based Pricing followed by Expert
Sessions (61%) and Van Westendorp (50%).
“For any pricing study that we perform,
we always rely on Conjoint Based Pricing.
It is the only methodology that gives valid
results. It is a pity that it is so expensive
to perform.“
Pricing Manager on Conjoint Based
Pricing
White paper: assessing the value of pricing research methods Page: 4
A study performed by suAzio® consulting in participation with the European Pricing Platform
Although we believe that usage and awareness rates are an interesting indicator, a stronger indicator
of the success of a methodology is the ratio between usage and awareness. The following table
illustrates the ratio between awareness and usage.
Again, Conjoint Based Pricing appears to have the best penetration within the pricing community.
64% of all participants that are aware of it also use of this methodology. Although BPTO has a
relative low amount of pricing people aware of it, 55% of those who are aware of this methodology
also rely on it.
Methodology Ratio Usage vs. Awareness
Conjoint Based Pricing 64%
Van Westendorp 56%
Brand vs. Price Trade-off 55%
Gabor Granger 51%
Expert Sessions 44%
Although a large portion of the study participants are aware of
the Expert Sessions methodology, it has the lowest ratio in terms
of usage. An explanation might be that the Expert Sessions
outcome does not provide a detailed or quantified understanding
of price sensitivity nor does it allow the determination of the
optimal price setting.
Expert Sessions should only be used to understand the pricing
psychology of the customer or to prepare a larger, more quantified
study. In that case Expert Sessions can be used to predefine the
overall framework for quantitative evaluation.
For example when launching a new product launch, the Expert Sessions can be used to understand
the acceptable pricing range, whereas other methods can be used to determine the optimum price
setting. Or more generally, the Expert Session can be used to understand what drives price sensitivity
and other methods could be used to quantify the exact price sensitivity.
Looking at the working environment of the study participants, there are some significant differences
between B2B and B2C application of methods. Conjoint based pricing methods and BPTO are
significantly more used in a B2C environment. Among respondents active in an environment with
both B2C and B2B customers, Van Westendorp is well established.
White paper: assessing the value of pricing research methods Page: 5
A study performed by suAzio® consulting in participation with the European Pricing Platform
Chart 4: Differences in the usage of pricing methods between B2B and B2C
There is little difference in awareness of Conjoint Based Pricing between B2B and B2C environments.
Gabor Granger and Van Westendorp are significantly better known within the B2C group.
Chart 5: Differences in the awareness of pricing methods between B2B and B2C
White paper: assessing the value of pricing research methods Page: 6
A study performed by suAzio® consulting in participation with the European Pricing Platform
The 5 tested pricing research methods are better known and more frequently used by the B2C
community. This finding is illustrated by chart 6
Chart 6: Differences in the amount of pricing methods known and used between B2B and B2C
Current satisfaction with pricing methods
Asked on a scale from 0 – 10 (with 0 being not
satisfied at all and 10 being extremely satisfied) how
satisfied the pricing community is with the currently
available pricing methods, we found a rather low
satisfaction level: 5.7.
Looking at how the satisfaction levels are distributed,
we see that a small portion of the study participants
are extremely satisfied with the currently available pricing research methods. Moreover, 40% are
truly not satisfied with the currently available techniques.
Satisfaction level Amount of participants
High satisfaction (score 9-10) 4%
Moderate satisfaction (score 6-8) 56%
Low satisfaction (score 0-5) 40%
“[Gabor Granger’s] main advantage is its
simplicity, It is a pragmatic and very
direct technique but it provides nothing
more than a first impression about price
sensitivity.” Pricing Manager about
Gabor Granger
White paper: assessing the value of pricing research methods Page: 7
A study performed by suAzio® consulting in participation with the European Pricing Platform
Ranked in order of satisfaction we see that Conjoint Based Pricing ensures the highest satisfaction
levels followed by BPTO and Van Westendorp. Expert Sessions and Gabor Granger have lower
satisfaction levels. Close to 1 out of 2 pricing people are not satisfied with Gabor Granger. Conjoint
Based Pricing is likely to have the most promoters, 1 out of 5 pricing people are extremely satisfied
with this methodology.
Conjoint Based Pricing
BPTO Van Westendorp
Expert Sessions
Gabor Granger
Average satisfaction score (0-10)
7.0 6.7 6.2 6.0 5.1
High satisfaction (score 9-10)
20% 8% 4% 11% 0%
Moderate satisfaction (score 6-8)
66% 73% 67% 52% 53%
Low satisfaction (score 0-5)
14% 19% 29% 31% 47%
The satisfaction with Conjoint Based Pricing is lower in B2C environments. We found surprising as it is
more frequently used in B2C. Another finding is that in the consumer world (B2C) the satisfaction
with Expert Sessions is significantly higher compared to B2B. Gabor Granger is valued higher in B2B
environments.
Chart 7: Differences in satisfaction levels between B2B and B2C
White paper: assessing the value of pricing research methods Page: 8
A study performed by suAzio® consulting in participation with the European Pricing Platform
All pricing methods included in this study were also evaluated on 4 parameters: usefulness, ease of
use, accuracy of the outcome and overall credibility of the method.
Conjoint Based Pricing scored best on 3 parameters, but is perceived as the most difficult method to
rely on. Gabor Granger scores worst overall. But here again we found differences between B2B and
B2C. In B2B Gabor Granger is valued higher and Van Westendorp appears to be the strongest
alternative for Conjoint Based Pricing. We also found that BPTO is perceived as the easiest method.
This is surprising as its questioning and the analysis of the data can be challenging and comes close to
a conjoint analysis.
Conjoint Based Pricing
Van Westendorp
BPTO Expert
Sessions Gabor
Granger
RA
NK
ING
Overall 1 2 3 4 5
Usefulness 1 2 3 4 5
Easiness 5 3 1 4 2
Accuracy 1 2 3 4 5
Credibility 1 2 3 4 5
Sharing information
Most pricing research knowledge is shared via conversations with peers, followed by trainings,
internet searches and reading books. Reading pricing journals seems to have least appeal to the
pricing community. Online communities attract 38% of the pricing people to share knowledge.
Chart 8: Sharing knowledge between pricing professionals
White paper: assessing the value of pricing research methods Page: 9
A study performed by suAzio® consulting in participation with the European Pricing Platform
Reading books accounts for 45% of the sources of pricing
methods. But what books are the best sellers?
The overall number one is: ‘The Strategy and Tactics of
Pricing’ written by Nagle and Hogan, followed by ‘Power
Pricing’ from Dolan, Simon et al..
The Top 3 is completed by ‘Value-Based Marketing’ a book
written by Doyle that explains the relationship between
pricing and product/service value.
Other frequently read books are: ‘Handbook of pricing
research in marketing’ (4), ‘How to sell at margins higher
than your competitors’ (5), ‘The price is wrong’ (6), ‘Six
sigma pricing’ (7), ‘The price advantage’ (8), ‘Why popcorn
costs so much at the movies’ (9) and ‘Pricing with
confidence’ (10).
White paper: assessing the value of pricing research methods Page: 10
A study performed by suAzio® consulting in participation with the European Pricing Platform
Recommendations
So, what is next? How should we look at
this information? All of the 5 evaluated
pricing research methods appear to have
pros and cons. Moreover the outcome of
the 5 methods is also very different. We
recommend to take into account 3
parameters when selecting a pricing
research methodology. The first one would
be the objective of your study. Given the
low levels of satisfaction with the current
pricing methods, we would like to have all pricing managers and market researchers consider the
objectives of a study thoroughly. Think about it. Are you looking for a quick scan of price sensitivity?
Do you want to fine tune the pricing of an existing product or are you looking to set to price for a
product launch?
Do you wish to understand the monetary value of specific product attributes or experience how your
customers make trade-offs between your offering and its cost? Clearly defining the objective of your
study is THE first key element of a successful market study. Trash in is trash out. If the objective is
not clearly defined your project is likely to fail from the start.
The second parameter is project cost. There are a number of
elements that determine the cost of your pricing study. Probably the
most important one is sample size. Interviewing 20 people is likely to
be cheaper than interviewing 100 people. The question that you
need to ask yourself is:
“How much sample do you need, to make you feel confident when you are presenting the results
of your study to your senior management?”
Of course there are some statistics that you need to take into account. So to make sure that you are
never fooled by anyone, we’ll give you a rule of thumb.
First ask yourself: “How many customers do I have?” If you have more than 20.000 customers –
which is likely in a B2C environment but also can be the case in many B2B environments – you will
3 Questions to ask:
1. What is the objective of your
study?
2. What budget do you have available
to perform your study?
3. By when do you need the study
results?
White paper: assessing the value of pricing research methods Page: 11
A study performed by suAzio® consulting in participation with the European Pricing Platform
need about 250 respondents for a study where you can be 95% certain about the validity of your
results.
When you have less than 20.000 customers it
becomes a completely different ball game. For
instance if you only have 100 customers (or even
key accounts that you want to question) you will
need 80 of them to participate in your study. From a
relative point of view that can become quite
expensive. Our recommendation here would be to
have your market research partner illustrate what
the validity is of each sample size compared to its
cost. But remember if you only ask 30 customers
out of a total population of 20.000 or more, you’re
not going to get valid results.
Obviously, sample size is also affected by the preferred methodology. If you select Expert Sessions, 2
groups of 6-8 people might do the trick. Conjoint Based Pricing will require larger sample sizes if you
wish to understand all the different relationships between the product attributes that you want to
test. The best known example is the blue jeep, red limo case (note that there are many variants of
this example). Thus, your cost for such an exercise would be significantly higher.
With a sample of 50 you can measure what is preferred a jeep or a limo, or the color blue or red. This
is called ‘one-way interactions’. But, it is not because the color red and a limo is preferred that you
respondents will prefer a red limo over a blue jeep. Measuring how strongly the red limo is preferred
over the blue jeep would be measuring ‘two-way interactions’. To do this effectively you can easily
need a sample of 600.
The target group can have an impact on the desired remuneration to participate. Consumers might
be fine to participate in a study without – or with a limited - incentive, CEOs of the Top 10 hospitals in
China might require a ‘more convincing’ incentive. In addition, it is important to understand that the
longer the participation time of your respondents the higher the incentive they will expect. The
research medium that you are using will also affect your project cost. Online research with panels is
typically cheaper than expert sessions at several locations.
The amount of customers that you can include in your
study will affect your ideal sample size, the project cost,
the project timing and the methodology.
White paper: assessing the value of pricing research methods Page: 12
A study performed by suAzio® consulting in participation with the European Pricing Platform
The third parameter is timing. How fast do you need your results? Setting up a value based pricing
study in 3 continents, relying on a Conjoint Based Pricing can be time consuming. Whereas a Gabor
Granger Analysis in a single country could be done rather quickly.
The following table can help as a guideline to select the methodology that fits your project needs
most.
Desired outcome
Project cost
(assuming
comparable sample
sizes)
Estimated project
lead time
(from project kick-
off to reporting)
Minimal sample
size*
(less would be a
waste of money)
Maximal
required
sample size*
(more would be a
waste of money)
Time spent by
the
participants
Gabor
Granger
Directional
understanding of
price sensitivity
Lowest Intermediate 30 or more
respondents
250
respondents 2 minutes
Van
Westendorp
Identification of the
optimal price range
+ evaluation of
product value
Lowest Intermediate 30 or more
respondents
250
respondents 5 minutes
Conjoint
Based Pricing
Detailed
understanding of
the relationship
between product
attributes and
willingness to pay
Highest Longest
50 or more
respondents (for
one-way
interactions)
600-1150
respondents
(for two-way
interactions)
15 minutes
BPTO
Understanding the
monetary value of a
brand (brand
equity)
Lower than
conjoint based
pricing
Intermediate 30 or more
respondents
250
respondents 10 minutes
Expert
Sessions
Qualitative
understanding of
the drivers of
willingness to pay
Depending on
locations and
participant
profiles
Shortest
6-8 or more
respondents per
group
6-8 or more
respondents
per group
2 hours
* The suggested sample sizes are per customer segment that needs to be tested, e.g. all customers using product x.
Sources
Green P., Srinivasan, V. (1990) Conjoint analysis in marketing: new developments with implications
for research and practice. Journal of Marketing.
White paper: assessing the value of pricing research methods Page: 13
A study performed by suAzio® consulting in participation with the European Pricing Platform
Information about the authors and organizers of this study
suAzio consulting
HQ: Dianalaan 151, 2600 Antwerp, Belgium
Tel: + 32 3 242 80 60
E-mail: info@suazio.com
Visit: www.suazio.com
Introduction:
We are suAzio, a seasoned team of strategic
marketing specialists with a broad range of
capabilities. We are passionate and pragmatic in our
work, and possess global reach.
We focus entirely on life science, in all disciplines
and categories. Our expertise is grounded in top-
notch market research and strategic execution.
These elements, unique in the industry, fuel our
market-driven, facts-based approach to complex
marketing decisions.
European Pricing Platform
HQ: Izegemsestraat 7a bus 3, 8860 Lendelede, Belgium
Tel: +32 51 32 03 72
E-mail: britt.dejager@pricingplatform.eu
Visit: www.pricingplatform.eu
Introduction:
The ePP is a ‘Not-for-Profit’ knowledge sharing place
focused to support pricing/business decision makers
over a variety of industries and sectors.
Our target is to update the pricing know-how of the
business manager. Our mission is to be the on- and
offline pricing media for international decision makers in
a wide range of industries. The interactive sharing,
collecting and development of pricing knowledge are the
key elements of our platform.