An understanding of how
price affects demand forms the basis for taking pricing decisions. Typically,
this understanding is derived from various research techniques that reveal the
sensitivity of demand to price, i.e., the price elasticity of
demand.
One might wonder why not simply ask consumers how
much they are willing to pay for a product.
A direct question such as this, does not elicit useful information because
consumers tend to give cursory answers, engage in bargaining behaviour, or feel pressured
to please the researcher or not appear stingy, resulting in answers that do not reflect
their true behaviour during a purchase occasion. What consumers claim they are willing to
pay for a product differs from what they actually pay during a purchase occasion.
Taking an indirect approach, asking consumers
whether they would buy a product at a pre-selected price, yields answers that
are potentially useful. By asking them to select a brand from choice sets
in a manner that reflects the real world more closely, will yield responses
that are more likely to reflect their true behaviour.
