International Pricing Research Methodology Study

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.



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



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



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.

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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



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



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



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



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).




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?



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.



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


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


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.



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: [email protected]

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: [email protected]

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.

mailto:[email protected]


International Pricing Research Methodology Study

Documents

conjoint based

european pricing

pricing research

pricing research

conjoint analysis

expert sessions

sample size

pricing community