Jeffrey henning advanced quant - 2011

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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


Your Half-Human, Half-Vulcan Customers


Careful Research…


…Kicked to the Curb


Look to Behavior…


But Sometimes Surveys Have to Do…


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


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?”


How Much…?

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


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


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


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


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”]


Van Westendorp Price Sensitivity Meter

Source: Maritz Research


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


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 $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 $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?


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

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



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 $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 $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?


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


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.


Psychological Pricing Effects

•  Price Awareness

•  Framing/ Anchoring

•  Price Signaling

•  Overvaluing Free

•  Innumeracy


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


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.


Price right and prosper!

Jeffrey Henning Affinnova


Q & A

Jeffrey Henning Affinnova

Andrew Jeavons Survey Analy=cs


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 @ [email protected]

Jeffrey henning advanced quant - 2011

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