The Science of Pricing DifferentialsIf a brand can charge a few pennies more per box of cereal or jar of peanut butter than competitive brands, or charge a few dollars/euros more per chainsaw or lawn mower, the long-range profit implications are enormous. The brand with the highest profit margin enjoys a tremendous advantage because it has more money to throw into the competitive battle.
Pricing Does Not Live Alone
Pricing is one variable in a complex set of variables that make up a brand’s overall strategy. These variables include product features and quality levels, pace of innovation, speed of delivery, strategic positioning, advertising messaging, advertising spending levels, package design, and distribution channels. The central question is: what combination of variables enables a brand to consistently maximize its pricing vis-à-vis the pricing of competitive products and services?
Protection Against Competition
An optimal pricing strategy can protect a brand against price competition. Unrestrained, head- to-head pricing competition tends to be a no-win dilemma for any brand. It’s so easy to reduce a brand’s price and watch sales soar, but then the counterattack comes in the form of competitive price reductions—and all brands lose sales revenue.
There is no limit to the number of unique pricing strategies, and the search for the right strategy begins with qualitative investigations: focus groups, depth interviews, and/or ethnography. Qualitative research helps identify the emotions, motivations, and perceptions that underlie how brand choice interacts with price. Qualitative research helps pinpoint the attitudinal levers and gears that might grant a brand the freedom to inch its price higher without losing sales volume or market share. It also provides a road map to the quantitative research methods and analytics most likely to lead to an optimal pricing strategy.
Types of Research
Decision Analyst uses an array of research techniques and analytic methods to optimize pricing:
- Hierarchical Bayes Choice Modeling With Competitive Set
- Joint Stated-Revealed Preference (JSRP) Modeling
- Artificial Intelligence and Machine-Learning Models
- Sales Analysis and Modeling
- Strategic Positioning Studies
- Advertising Spending-Level Tests
- Competitive Benchmarking Tests
- Strategic Tracking Surveys
- Product Testing and Optimization
- Advertising Copy and Campaign Testing
- Marketing Mix Modeling
- Gabor-Granger Technique
- Geoanalytics and GIS Analyses
Some businesses and brands are very responsive to price changes (these are referred to as “elastic” or “highly elastic”). Other brands see little variation in sales as prices change (these are described as “inelastic”). The goal of all marketing is to move brands toward inelastic pricing power. That’s why Decision Analyst approaches pricing strategy from a holistic, all-inclusive perspective. How do we manipulate all of the non-price variables so that a given brand becomes more inelastic in response to price changes?
The results of Sales Modeling, Choice Modeling, or Marketing Mix Modeling can be translated into an interactive DecisionSimulator™ with a simple point-and-click interface that allows “what if” scenarios to be explored. By changing inputs (pricing, promotion, product features, competitive variables, etc.), a full range of pricing decisions, pricing alternatives, and likely competitive responses can be explored.
Pricing Research Services
Decision Analyst is a global marketing research and analytical consulting firm with more than four decades of experience in state-of-the-art modeling and simulation. Decision Analyst models how different marketing variables interact with pricing, so that a pricing strategy can be created to simultaneously optimize all of the marketing variables.
If you would like more information or would like to discuss a possible project, please contact contact Jerry W. Thomas, President/CEO (email@example.com), or Elizabeth Horn, Senior Vice President of Advanced Analytics (firstname.lastname@example.org), or call 1-800-ANALYSIS (262-5974) or 1-817-640-6166.