How to Price a Product Feature

Exhibit 26.11   Conjoint analysis reveals that Pantene priced USD 10 has the same utility as Pantene HFC priced USD 12.50.

Consider this scenario — a shampoo brand, Pantene, wants to launch a new variant with hair fall control (HFC) properties. How much premium may be charged for this additional feature?

Take another example — Kunst, a vacuum pump brand, has a unique advantage. Unlike other vacuum pumps, this brand does not require the user to change oil on a periodic basis. What is the perceived value of this product feature?

The second of the two scenarios is discussed in the section on Value Assessment (Exhibit 6.16), in Chapter Customer Satisfaction and Customer Value.

As for Pantene, according to the brand’s website, the Hair Fall Control variant contains keratin damage blockers that helps prevent hair breakage caused by damage, resulting in up to 98% less hair fall when used daily.

This sounds like something consumers might be willing to pay more for, and conjoint analysis can assess how much more.

According to the results shown in Exhibit 26.11, profile C with HFC, priced USD 12.50 has the same utility as profile A, Pantene sans HFC. We can infer that since price and HFC are the only two attributes that differ, the value an average consumer associates with HFC is USD 2.50.

In these examples, the price is determined by trading feature for price.


AttributesLevelsPart-WorthImportanceRelative Importance %
HFCNo-0.61.210
Yes0.6
Price (USD)18-2.44.840
82.4

Exhibit 26.12   Part-worth for price and hair fall control for shampoos.

Referring to Exhibit 26.12, the part-worth for price of shampoo varies from –2.4 at USD 18.00 to +2.4 at USD 8.00. The range (4.8) is 4 times larger (more important) than that for HFC (1.2).

Assuming a linear utility relationship for price, the perceived value of HFC is one-fourth the price difference (USD 18.00 – USD 8.00). This is equal to (18.00 – 8.00)/4 = USD 2.50.

When using conjoint analysis in this context, beware of the interaction effects. If for instance, Pantene was considering what to charge for an anti-dandruff variant, it would be prudent to exclude Head and Shoulder from the analysis, because of its strong association with anti-dandruff properties, might distort the results.

It is also important to remember that the market is heterogeneous, that not all consumers are interested in a shampoo with HFC properties. So if Exhibit 26.12 pertains to all respondents, the estimated value of USD 2.50 is an underestimate. The exercise should be repeated after filtering the data so that it only includes respondents who reveal a significant interest in the HFC variant. (Incidentally, adaptive conjoint, refer section Adaptive Conjoint Analysis, in Chapter 10, Product Design, is appropriately designed for this purpose.

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