Pricing Research -- not a complete fraud, not a complete answer

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  • The 3 most common barriers to understanding price and value – and how to overcome them
  • 6 mistakes that kill pricing research
  • Qualitative research for pricing, really?!
  • Quantitative pricing research techniques

A bazaar pricing encounter

Years ago I took a year off after university and did some travelling. After kicking around Europe, I decided to spend some time in North Africa. Shortly after my arrival in Morocco, the first non-European or American country I had ever visited, I found myself in a souk, or market, admiring some carpets and artwork. In particular, I was drawn to a Berber carpet, something that was quickly noticed by the vendor. After telling me about its origins and the significance of its patterns, the vendor asked me rather starkly “So, how much will you pay?”

I was taken aback, as no one had ever approached me with such a question. Of course, there was no price tag on the carpet. Or on anything in the stall, for that matter. And I had never purchased a carpet, let alone a rug in a Moroccan souk. I was out of my depth. After mumbling some lame excuses, I got flustered and left the stall before I became engaged in haggling with an obvious master.

Pricing research: fraud or friend?

The "How much will you pay" question is NOT the approach we recommend for pricing research. Yet sadly to say, you sometimes see pricing research done this badly: bald pricing questions asked without a reference point, with no hope of validity. Pricing research has such a bad reputation in some quarters that executives write it off. The thinking is, "There's no way to ask people about pricing, so we can only throw stuff at the market and see what sticks." Here are the complaints:

  1. Customers won't be honest. "Why should we go to the effort of doing formal customer research if customers aren’t going to tell us the truth? After all, it’s not in their interest to tell us what they would really pay!"
  2. Our product is brand new -- there are no reliable reference points. In other words, like me in the Moroccan market, customers won’t have a clue what something like this is worth.

But writing off pricing research is a mistake. In our experience, customers actually are honest about price in some situations if we ask the right questions. The key is to take the focus of the research off price and make it as much about value as possible. In the case of "no reference points," good pricing research will look at the potential value the solution brings in terms of saving time, costs or creating value or sales for customers.

At the same time, information you gather from customers about pricing is not going to be enough in and of itself to develop pricing strategy.  Costs, competition, and of course, overall marketing strategy will factor in to what you charge for a product or service. Pricing research needs to be seen in the broader context of an ongoing conversation with customers and prospects.  Pricing is about capturing value, and to do this effectively we need to understand what customers value and to what extent our products and services can deliver value to them. This can be understood through careful research, both qualitatively and quantitatively.

"No such thing as pricing research"

And that brings me to the other aspect of the "not a complete answer" from the title of this article. Pricing research is not a complete answer because, as Phase 5's customer experience group lead, Andreas Noe, is fond of saying, "There really should be no such thing as pricing research."

What he means by that is that even within just the marketing framework -- setting considerations of overall pricing strategy -- we still never look at price in isolation. Instead, we do "marketing mix" research, in which price plays a significant role.

The question of "What should we charge?" is certainly legitimate. But the answer always includes "to do what?" or "to get what?" You can't talk about value without getting into some aspects of the product itself, or service design and so forth, even in the most commoditized industry. And this is a good thing! It forces us to consider the question of price with our customer-centric goggles on, weighing price against the brand, the features, and other considerations -- just as a customer would.

 

Written by Michael Dolenko

Michael Dolenko, MA, is a partner at Phase 5 and the co-lead of the Innovation and Product Development practice. Michael is a sought-after moderator and survey researcher for clients in financial services, retail, technology, education and publishing. He and his team focus on product and service innovation and studies that support go-to-market initiatives.