New Product Pricing

Key to the new product’s success, pricing warrants careful attention to marketing as well as financial considerations.

It is a marketing decision that relates to the brand’s positioning and marketing strategy. And in crafting that strategy, the brand manager must have a good understanding of the trade-off between price and sales of the product, and how that impacts on the brand’s profits.

Techniques discussed so far are not suitable for revealing the relationship between price and volume for new products. Van Westendorp’s Price Sensitivity Meter, which works for new products where no obvious benchmarks or competitor equivalents exist, provides a framework for determining the acceptable price range for such products. It does not, however, reveal the price-volume relationship.

Importantly, for FMCG products where repeat purchase is the norm, we need assessment not only of the trial purchases, but also the repeat purchases.

For consumer durables, we need to account for the perceived risk in buying an unknown product. (Since FMCG products cost less, the fear for later regret is less pronounced. Moreover it can be alleviated by launching smaller packs or by offering free samples).

Some of the abovementioned complexities can be addressed through simulated test markets (STM). These techniques described in Chapter Product Validation, if adapted, are better suited to capturing the relationship between price and volume for new FMCG products.

BASES Price Advisor

In a typical STM, the price is set prior to the study and included in the concept board. This is not of much use for price testing where we need responses over a price range.

One adaptation, adopted by BASES Price Advisor, exposes consumers to the new concept without the selling price, and asks them to suggest the price at which the product would be “very good value”, “average value”, and “somewhat poor value”.

Consumers are then interviewed on the BASES measures for each of these volunteered price points. Their response at each price point is modelled into a single volume-based measure at the respondent level, and aggregated across all price points to yield the relationship between price and volume.

This is expensive because a major portion of the STM exercise is repeated over three price points. Moreover, a larger sample would be required to ensure accuracy, especially if the price points vary substantially across respondent.

From a pricing research perspective, the approach is relatively weak in that the competing products are not taken into context.

STM-DCM approach

Exhibit 26.13   Indifference price point is the price where the number of respondents who regard the price as attractive is equal to the respondents who regard the price as expensive.

An alternative approach could be a blend of STM and DCM. More specifically:

  • STM concept phase to exclude price from the concept board, and amend the question on purchase intent to include the phrase “… if priced within your budget”.
  • Gauge price perceptions over fixed price points: “Select the closest price at which you would consider the product to be …
    • attractively priced (moving from maximum to minimum price),
    • expensive (moving from minimum to maximum price).”
  • All respondents, even those who indicates they will not try, are given the product for trial.
  • After the new product has been tried, purchase intent is gauged at the indifference price point or at the preferred selling price, if this has been set by the brand’s management team.
  • The indifference price (refer Exhibit 26.13) is the price where the number of respondents who regard the price as attractive is equal to the respondents who regard the price as expensive.
  • The discrete choice modelling price test is conducted after respondents have tried the product, and their purchase intent has been gauged.

Note: This approach has yet to be tried and tested. The advantage is that DCM is a rigorous, proven pricing test. However, it is likely to be expensive because this is essentially a two-in-one study.

Previous     Next

Note: To find content on MarketingMind type the acronym ‘MM’ followed by your query into the search bar. For example, if you enter ‘mm consumer analytics’ into Chrome’s search bar, relevant pages from MarketingMind will appear in Google’s result pages.