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Advanced  Quant  Techniques  July  14,  2011  

DIY  Survey-­‐Based  Pricing  Research  Techniques  

Jeffrey  Henning,  Affinnova  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

DIY Survey-Based Pricing Research Techniques

Jeffrey Henning

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Your Half-Human, Half-Vulcan Customers

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Your Half-Human, Half-Vulcan Customers

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Careful Research…

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

…Kicked to the Curb

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Look to Behavior…

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

But Sometimes Surveys Have to Do…

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

6 DIY Pricing Techniques

Stated  Willingness  to  

Pay  

Monadic  with  Compe=tors  

Van  Westendorp  

PSM  

Newton,  Miller  &  

Smith’s  VW  

Sequen=al  Monadic  

Gabor  Granger  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Stated Willingness to Pay

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

80%  

90%  

100%  

$10     $20     $30     $40     $50     $60     $70     $80     $90     $100    

“How  much  would  you  be  willing  to  pay  for  this?”  

“What  is  the  very  most  you  would  pay  for  this?”  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

How Much…?

•  How much would you be willing to pay for a trip to outer space? – $1,000 – $2,000 – $3,000 – $4,000

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Monadic with Competitors Space Adventures Destination: ISS Duration: 7 days Price: $40 million How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Monadic with Competitors Virgin Galactic Destination: 110 km up Duration: 2.5 hours Price: $300,000 How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Monadic with Competitors Virgin Galactic Destination: 110 km up Duration: 2.5 hours Price: $200,000 How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Van Westendorp Price Sensitivity Meter •  At what price on this scale would you consider the

product a good value? [“Cheap”] •  At what price would you say the product is beginning to

get expensive, but you would still consider buying it? [“Expensive”]

•  At what price on this scale would the product be so expensive that you would never consider it? [“Too Expensive”]

•  At what price on this scale would the product be so cheap that you would doubt its quality? [“Too Cheap”]

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Van Westendorp Price Sensitivity Meter

Source:  Maritz  Research  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Newton, Miller and Smith’s Extension to Van Westendorp At [price just named as “cheap”], what is the likelihood that you would actually buy the product? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

At [price just named as “expensive”], what is the likelihood that you would actually buy the product? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Sequential Monadic Virgin Galactic Destination: 110 km up Duration: 2.5 hours Price: $200,000 How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Sequential Monadic Virgin Galactic Destination: 110 km up Duration: 2.5 hours Price: $200,000 How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

How likely would you be to purchase this service if it cost $250,000?

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Sequential Monadic Virgin Galactic Destination: 110 km up Duration: 2.5 hours Price: $200,000 How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

How likely would you be to purchase this service if it cost $250,000? How likely would you be to purchase this service if it cost $300,000?

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Sequential Monadic Virgin Galactic Destination: 110 km up Duration: 2.5 hours Price: $200,000 How likely would you to be purchase this service? •  Not at all likely •  Slightly likely •  Moderately likely •  Very likely •  Completely likely

How likely would you be to purchase this service if it cost $250,000? How likely would you be to purchase this service if it cost $300,000? How likely would you be to purchase this service if it cost $350,000?

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Gabor Granger Virgin Galactic Destination: 110 km up Duration: 2.5 hours

Would you buy this service if it cost $250,000? •  Yes •  No

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Gabor Granger Virgin Galactic Destination: 110 km up Duration: 2.5 hours

Would you buy this service if it cost $250,000? Would you buy this service if it cost $150,000?

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Gabor Granger Virgin Galactic Destination: 110 km up Duration: 2.5 hours

Would you buy this service if it cost $250,000? Would you buy this service if it cost $150,000? Would you buy this service if it cost $100,000?

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Gabor Granger Virgin Galactic Destination: 110 km up Duration: 2.5 hours

Would you buy this service if it cost $250,000? Would you buy this service if it cost $150,000? Would you buy this service if it cost $100,000? Would you buy this service if it cost $200,000?

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Revenue Index Curves

0%  5%  10%  15%  20%  25%  30%  35%  40%  45%  

$100    

$200    

$300    

$400    

$500    

$600    

$700    

$800    

$900    

$1,000    

Purchase  Likelihood  by  Price  

0%  10%  20%  30%  40%  50%  60%  70%  80%  90%  

100%  

$100    

$200    

$300    

$400    

$500    

$600    

$700    

$800    

$900    

$1,000    

Revenue  Index  by  Price  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Error by Technique

3%  5%  

16%  

20%   21%  

0%  

5%  

10%  

15%  

20%  

25%  

Stated  Willingness  

to  Pay  

Monadic  with  Compe=tors  

Van  Westendorp  

PSM  

Monadic  without  

Compe=tors  

Gabor  Granger  

MAE  

Source: Martin, Beau and Bob Rayner. “An Empirical Test of Pricing Techniques.” 19th Annual ART Conference, July 2008.

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Psychological Pricing Effects

•  Price  Awareness  

•  Framing/  Anchoring  

•  Price  Signaling  

•  Overvaluing  Free  

•  Innumeracy  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

DIY Pricing Techniques Requires  Large  Sample  Size  

Works  Well  with  Small  Sample  Size  

Well  Understood  Market   New  Market  

Gabor  Granger  

Van  Westendorp  

PSM  

Stated  Willingness  

to  Pay  

Monadic  with  

Compe=tors  

Monadic  without  

Compe=tors  

Sequen=al  Monadic  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Many Other Survey Pricing Methods to Choose From

*Martin, Beau and Bob Rayner. “An Empirical Test of Pricing Techniques.” 19th Annual ART Conference, July 2008.

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Price right and prosper!

Jeffrey Henning Affinnova

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Q & A

Jeffrey  Henning  Affinnova  

Andrew  Jeavons  Survey  Analy=cs  

Jeffrey Henning, Affinnova, USA NewMR Advanced Quant Techniques, July 14, 2011

Jeffrey Henning

Read  Jeffrey’s  blog  @  h>p://www.affinnova.com/blog/    Follow  Jeffrey’s  tweets  at  @  h>p://twi>er.com/#!/jhenning    Do  that  old-­‐fashioned  email  thing  @  jhenning@affinnova.com