The Price is Right… Or is it?
Step aside Bob Barker (you too Drew Carey). “The Price is Right” could potentially be the top four words that dominate the mindshare of business managers, product marketers, and aspiring entrepreneurs within business. Why you ask? Is it game-show infatuation or is it because so many lose sleep wondering about a variation of those four words: “Is the Price Right?”
The Marketing Lab understands just how difficult it can be to price a product. Warren Buffet stated that a “pricing strategy has always been more of a poker game than a science,” which is frightening. Additionally, with over 8.5 billion search results on how to price a product, we understand that there are many potential answers to this question. Taking this all into account, we recommend two methods to help those non-gamblers who prefer a strategic approach rather than Google’s dark chasm of search results.
Method 1: BDM or “What Would You Pay” Test
Now, you may not have heard of Becker-DeGroot-Marschak (BDM), but the concept is less complicated than the name. It’s all about determining a consumer’s willingness to pay. A similar method is the Gabor-Granger method.
Here are the basic steps:
Step 1: Begin by creating a list of increasing monetary values and place this list next to your non-priced product.
Step 2: The consumers viewing the list then choose if they would rather have the money or your product.
Step 3: Repeat until the subject reaches the point when they would like the money over your product, which means you have found your price point.
Make sure to get a good sample size, because as we all know, some people will pay anything for a tortilla blanket. Once enough people take part in this survey, you should have a decent idea of what people would be willing to pay for the product.
Method 2: Conjoint Analysis
The second method is to create and distribute a Conjoint Analysis Survey. This type of survey presents your product to a group of survey respondents at different price points. The survey respondents then select at which price point they would purchase the product, but also includes questions about other elements of the product.
For example, conjoint analysis gives you insight into product attributes consumers value most (such as product color, product services, etc.). It also can test which attribute types are most preferred (e.g. red is most preferred color), and give insights into differences across consumer segments.
Example conjoint outputs:
