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“Sweet Spot” Pricing Research: Too Much, Reasonable, Bargain and Steal.

Do you need to know the “best” price to charge for a product or service? Here is a practical way to get after this issue without spending a mint.

It is too simplified and misleading to list a series of attributes/pricings and ask for a rating on a scale of 1 to 7 as to which are most important. All items will likely skew towards the higher ratings, because the person doing the rating does not have to trade anything off, so she does not lose anything by rating all attributes high.

On the other hand going into advanced “conjoint analysis” or “max diff” analysis where trade-offs are analyzed ad infinitum to reach a price point about various product attribute mixes has its shortcomings as well. It is a costly research maneuver requiring specialists and research expertise that is beyond most clients. It can suck up all the time and energy of a survey and not allow for other types of important questions from this audience, and it can still be misleading.

More reasonably, if you can explain a product fairly simply with its main attributes, you can ask a question that tries NOT to find out which attributes are most desired, but what is the package price at which people “tune out”, “tune in”, are “attracted”, and are “smitten”. These are human dimensions that we all experience when we shop. These reactions send (or suppress sending) dopamines to the synapses (true). (See our “Brainy Decisions” blog.)

Buyers almost always consider “cost” as one of the most important considerations in a purchase. Based on our 20 years of research experience, they almost always do not consider cost to be the “most” important consideration. In our experience, it is usually ranked third or fourth most important, after other attributes like “quality”, “performance”, “style”, “durability”, “reliability”, “brand”, and so on.

Respondents in real buying situations can only seriously consider four or five key attributes of any product or service. After that, differences in attributes start to blend together or fade completely. So a way of keeping pricing questions real and keeping the respondent from low-balling a pricing question, is to ask the following type of questions.

1. For (product A), at what price would you consider this product…
a. To be too much or “overpriced” and would definitely not purchase this product $_____
b. To be a “reasonable” price and would likely consider purchasing this product $_____
c. To be a “bargain” price and would definitely consider purchasing this product $_____
d. To be a no-brainer “steal” at a price that is almost too good to be true $_____

2. For (product B), at what price would you consider this product…
a. To be too much or “overpriced” and would definitely not purchase this product $_____
b. To be a “reasonable” price and would likely consider purchasing this product $_____
c. To be a “bargain” price and would definitely consider purchasing this product $_____
d. To be a no-brainer “steal” at a price that is almost too good to be true $_____

This style of questioning for two or more combinations of attributes can provide a very accurate picture of what the audience values, and also fits into the respondent’s way of thinking about pricing, as most people think of these categories (overpriced, reasonably priced, bargain, steal) in almost all buying situations where they have done even the most minimal shopping.

Bottom Line:
In designing questions to understand the “sweet spot” in a market (not too much and not too little), we consider first how most people think when they purchase products or services. Although “price” is usually not the first or foremost attribute people consider (“quality”, “performance”, “reliability”, “durability”, “style” and “brand” are often higher rated attributes), when they do get down to the price (almost always ranked among the top four attributes) buyers get turned on or off by their own internal human measuring system of “too much, about right, bargain or steal.”

(See also our blog “Brainy Decisions”, our web page on Startups where we have actually used these techniques, and our page on the Data Robotics Drobo startup.)

For more information on pricing, tell us about your project , or email Larry@wilsonresearch.com for a complementary discussion of your pricing research needs.


Brainy Decisions

I just finished a book I highly recommend by Jonah Lehrer on “How We Decide”, something that market researchers, among others, should look into. There is good stuff in there on focus groups, how distressful situations need prefrontal-lobe concentration, how emotions can sometimes interfere and other times aid in making decisions, how complex decisions that might overload the prefrontal lobes are aided by “time outs” to allow the emotional brain time to “catch up” and provide support, how a world class gambler hones his intuitions in making betting decisions. So when you have a tough decision that is literally freezing you into decide-a-phobia, go take a shower, or a nap, or a walk and give it a rest, that is if you are not in a jet plane at 36,000 feet with no way to steer.

Sully glided his jet liner gently onto the Hudson River with great prefrontal lobe help taking over. A miracle in itself. Lehrer describes how years ago a DC-10 jumbo jet from Denver to Chicago suffered a broken disc in its tail engine, severing the three redundant hydraulic systems, and leaving the pilots with no means of steering the plane. Yet somehow they found a unique decision-making path through this unprecedented situation (nothing in the pilot’s manual about this, no phone help from expert pilots) and, although they unfortunately lost 126 lives, they also saved 186 lives almost certain to have perished were it not for the pilot’s decisions. The pilot was on his own as was Sully. His decisions led to new training of pilots to cope with this harrowing situation.

It turns out that focus group research for shows like Seinfeld, Hill Street Blues, and The Mary Tyler Moor Show all indicated flops in the making. How did this research go wrong? You have to understand what it is that is happening. Remember Bob Dylan’s “Ballad of a Thin Man”? He was talking about researchers (Mr Jones) when he said “You walk into a room and you know there’s something happening, but you don’t know what it is, DO YOU, Mr. Jo-o-o-ones?“ You really have to understand what exactly it is that you are asking, of whom, and if you are missing the point by asking someone to tell you why they like the taste of this better than that. When you start focusing on one trait or another, you can skew or muddle the overall experience, the big picture, the most important picture.

Nuf said. Related to this decision making is research on the Brain that is now illuminating all kinds of interesting things. Go to www.CharlieRose.com and watch the first four episodes (of what will be a total of 12 hour long segments when completed) of his Brain Series with Eric Kendel, Nobel Laureate for neurological work on memory. (Lehrer was a student in Kendel’s lab). This is truly a great use of the airwaves for educational advancement in understanding the neurological workings of our moods, social behavior, empathy towards others, visual fields, memory, facial recognition, and much more.

Here is a blog by Jonah Lehrer that I also highly recommend. Personal disclosure: None! I have no relation to Jonah whatsoever. He just does good stuff worth reading about and thinking about. http://scienceblogs.com/cortex/2009/12/free_will_and_ethics_1.php#more


Americans Are Giving Research Shows

As of January 18, 2010, two-thirds of U.S. adults (64 percent), and an even higher percentage of African-Americans (81 percent), have given or plan to give to relief efforts following the earthquake in Haiti, according to a survey conducted by Zogby Interactive, a Utica, N.Y., research company.

Interesting aside: Jonah Lehrer in “How We Decide” (see next blog) shows in the “ultimatum game” that decisions that researchers might think would be more “selfish” in nature are actually based on a kind of moral sense of fairness. Our brain synapses get boosts of dopamine when we receive rewards or gifts, but we also get almost as much of a dopamine boost when we give to charities and participate in altruistic causes. So we to some degree have a “hardwired” predisposition to give aid to others.

Don’t let this take away from your own personal decision and free will to give. It is just that biology and neurology help us to be what we really want to be anyway. Two of my year in and year out favorite charities who are always hard at work are: www.oxfam.org and www.doctorswithoutborders.org , but I am sure you have your own.