Esomar Webinar Pricing Research: Assessing Implicit Price Knowledge and Price Expectations of Consumers and Customers

Assessing Implicit Price Knowledge andPrice Expectations of Consumers and Customers

Dr. Thomas RodenhausenHarris Interactive AG

1© Harris Interactive 04/12/23

Pricing – a few simple introductory remarks

• Setting the price is a key decision in marketing• strong leverage on profit – increasing it by a few % can translate into a much

stronger profit increase• …but it can also make the product / service unattractive and can drive sales

down disproportionally…and the other way around

• There are two obvious ways of setting prices:- Knowing your cost and adding some profit margin – cost based (+) pricing- Knowing your competitors‘ prices and putting yourself in the middle of the

competition – market based pricing

© Harris Interactive

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Pricing – pros and cons of both approaches to pricing

+ Easy access to valid information! Cost of production


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+ Easy access to valid information! Market prices


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- market based pricing: Competing on a transparent market with decreasing margins over time.

=> You will try to evade the competition, for example by making your product more unique, less comparable. But as soon as you have achieved that the question appears anew: What to take for this new feature, the new benefit that you offer?

- cost based pricing (innovative product!): You never know what your customers are ready to pay for it.

=> origin of pricing research – to know the value of a new feature or a whole new product for the prospective customer -> value based pricing


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Pricing research – just asking respondents

• The obvious way of doing this is: Just ask you customer!

• And this is what market research does for more than half of a century: Giving customers a description of a product or a service with some novel feature and then asking what they would be ready to pay for it.


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Applied pricing research – Consumer as blackbox


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Verbal description of a „price threshold“

Corresponding„threshold“ price

Price Willingness to buy(at the price)

S(timulus) R(eaction)

O(rganism)?

Applied pricing research – Consumer as blackbox


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Van Westendorp Price Sensitivity

Verbally described price thresholds Respective price points

Gabor Granger Method

Varying price points Willingness to buy at these prices

Brand-Price-Trade-Off

Different brands at varying price points Willingness to pay for brands

Conjoint analysisProducts at varying prices with varying

featuresPreferences depending on price and product features

Choice-based conjoint analysisProducts at varying prices with varying

featuresChoices depending on price and product features

Motivation?Motivation?

Psychological pricing research – Mediating processes


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Cognition?Cognition? Emotion?Emotion? Volition?Volition?


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MotivationMotivationPsychological pricing research – Motivation


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CognitionCognitionPsychological pricing research – Cognition


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EmotionEmotionPsychological pricing research – Emotion


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„My children are disgusted.“

„My children are disgusted.“

VolitionVolitionPsychological pricing research – Volition

How accurate is consumers’ price knowledge?


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Eberhardt, T., Kenning, P., Schneider, H. Kennt der Kunde Ihre Preise? Projektbericht. Friedrichshafen 2009.

ProductEstimated

normal price (E)

Actualretail price

(A)Abs[(A-E)/A] (A-E)/A

Persil(Washing powder) €5.35 €5.45 33% 0%

Lenor(Fabric softener) €2.80 €1.45 95% -93%

Pril(Dishwashing liquid) €1.76 €1.35 39% -28%

Schauma Shampoo €1.81 €1.65 30% -10%

Drei-Wetter-Taft(Hairspray) €2.33 €1.75 40% -33%

Palmolive(Dishwashing liquid) €2.05 €1.25 66% -64%

Van Westendorp Analysis


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At what price would you begin to think product is so inexpensive that you would question the quality and not consider it?

At what price would you begin to think product is so inexpensive that you would question the quality and not consider it?

At what price would you begin to think product is a bargain – a great buy for the money?

At what price would you begin to think product is a bargain – a great buy for the money?

At what price would you begin to think product is too expensive to consider?

At what price would you begin to think product is too expensive to consider?

At what price would you begin to think product getting expensive but you still might consider it?

At what price would you begin to think product getting expensive but you still might consider it?

Valid results based on inaccurate price knowledge?

• Van Westendorp question: At what price would you begin to think the product is getting expensive but you still might consider it?

1) Considering lack of price knowledge – how valid will answers be at all?

2) VW suggests that each respondent has at least mild purchase intent.

In reality that is not a given – it has to be tested and accounted for!


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Long distance coach chosen at a ticket price of 14 Euro

No (n=103) Yes (n=106)

„Ticket price so cheap that I would doubt quality and safety“

Less than €15 60% 56%

€15or more 40% 44%


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44% of the respondents who would choose a long distance coach at a ticket price of 14 Euro would doubt its quality and safety at a ticket price of 15 Euro or more.

Van Westendorp – contradictions the technique can’t cope with

Price.Calibrator – segmenting for Price and Product knowledge


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Performance

Price

Price Calibrator: Assessing knowledge for price AND product

• List of 20 Items to assess price and product knowledge

• Example item for productI tend to notice changes in product characteristics of <category> only weeks later

• Example item for price I do not spend more than absolutely necessary on <category>


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Price Calibrator: How to use it

1) Calibration – applicable to all pricing research instruments• In general less weight for responses from people who do not care and do not

know about prices i.e.

• In general more weight for responses from people who do care and do know about prices

2) Know the composition of your customer base!


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Indifference Enthusiasm

Bargain hunting Experts

Segment shares – Mobile phone contracts (Smartphone users)


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Eigenstudie Harris Interactive AG, Januar 2013

Guiding motives – Implications for applied marketing


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ExpertiseEnthusiasmBargain huntingIndifference

T-mobile addresses two different guiding motives – best net quality (regardless of price) vs. undemanding decision process (market leader)

T-mobile addresses two different guiding motives – best net quality (regardless of price) vs. undemanding decision process (market leader)

Eigenstudie Harris Interactive AG, Januar 2013

Pricing for innovative products or intransparent markets

• For innovative products – you might not know your customers. It might even be difficult to describe them

• Particularly at early stages, when you are deciding whether to pursue the idea further and you do not know exactly what attributes will be characteristic for the product and what attribute levels reasonable / feasible.

• So – a conjoint approach will not be feasible

• Van Westendorp or Gabor Granger will possibly not be relevant – since many respondents will not be interested in buying the product at all – but you are suggesting it in your questions!


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Prices as numerical information – Neuropsychological findings


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Dehaene, S., Cohen, L., 1997. Cerebral pathways for calculation: double dissociation between rote verbal and quantitative knowledge of arithmetic. Cortex 33, 219– 250.

Magnitude comparisons –•Experienced as spontaneous, instantaneous, effortless, with fluent changes of reference frames•Based on actual experiences and normative beliefs „Expectations“

Analogue magnitude code – Example body height


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1.75 m

Male

Female

18-35

36-50

51+

18-35

36-50

51+

15th c

19th c

21st c

15th c

19th c

21st c

Analogue magnitude code – Implications for pricing research


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Expected prices and emotions – Surprise


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Optional

Optional

Optional

Traditional pricing

research tools!

Traditional pricing

research tools!

Price emotions – Behavioural functions


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Price expectations – Neuropsychological evidence


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Presentation of products and varying prices

Simultaneous measurement of cortical activity (EEG)

Identification of specific patterns of cortical activity depending on congruity between prices and expectations

Der Spiegel, 41/2013, p. 144

Implementing these findings in conventional survey research




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Basic task – Ordering three digits in a way best reflecting one‘s price expectation

The price.condenser query utilizes everyday heuristics forthe evaluation of price information thus being less (!) complex and difficult to answer than a query which prompts prices


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Why we bother respondents with this kind of query

12 € Very cheap

21 € Cheap CHOICE

102 € Expensive

120 € Very expensive




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• The expected price range is assessed by analysis of the neighbors (l, u) of the chosen prices (c)

First task: 0-1-2 – €12, €21 , €102, €120, €201, €210€21 (g)

€12 (u) €102 (o)

Second task: 2-0-3 – €23, €32, €203, €230, €302, €320

€32 (g)€23 (u)

Third task: 3-5-0 – €35, €53, €305, €350, €503, €530

€35 (g)€53 (o)

Estimating the range of expected prices

First task – Fixed (rough estimation)

Combinations Choice Lower bound Upper bound

15,900 59,100 Prior - -

19,500 91,500 15,900 0 19,500

51,900 95,100 Resulting 0 19,500

Second task – Fixed (rough estimation)


01,900 19,000 Prior 0 19,500

09,100 90,100 19,000 10,900 90,100

10,900 91,000 Resulting 10,900 19,500

Third task – Fixed (rough estimation)


02,800 28,000 Prior 10,900 19,500

08,200 80,200 20,800 08,200 28,000

20,800 82,000 Resulting 10,900 19,500

Fourth task – Fixed (rough estimation)


04,600 46,000 Prior 10,900 19,500

06,400 60,400 06,400 04,600 40,600

40,600 64,000 Resulting 10,900 19,500

Fifth task – Random (correction of rough estimation if necessary)


04,700 47,000 Prior 10,900 19,500

07,400 70,400 07,400 04,700 40,700

40,700 74,000 Resulting 10,900 19,500

Sixth task – Random (correction of rough estimation if necessary)


01,500 15,000 Prior 10,900 19,500

05,100 50,100 15,000 10,500 50,100

10,500 51,000 Resulting 10,900 19,500

Seventh task – Adaptive (fine tuning based on prior responses)


12,400 24,100 Prior 10,900 19,500

14,200 41,200 14,200 12,400 21,400

21,400 42,100 Resulting 12,400 19,500

Eigth task – Adaptive (fine tuning based on prior responses)


01,800 18,000 Prior 12,400 19,500

08,100 80,100 08,100 01,800 10,800

10,800 81,000 Resulting 12,400 19,500

Inconsistent responses will be ignored (10,800 and 18,000 would have been ok)

Inconsistent responses will be ignored (10,800 and 18,000 would have been ok)

Ninth task – Adaptive (fine tuning based on prior responses)


12,300 23,100 Prior 12,400 19,500

13,200 31,200 21,300 13,200 23,100

21,300 32,100 Resulting 13,200 19,500

Tenth task – Adaptive (fine tuning based on prior responses)


14,500 45,100 Prior 13,200 19,500

15,400 51,400 15,400 14,500 41,500

41,500 54,100 Resulting 14,500 19,500

Eleventh task – Adaptive (fine tuning based on prior responses)


12,800 28,100 Prior 14,500 19,500

18,200 81,200 18,200 12,800 21,800

21,800 82,100 Resulting 14,500 19,500

Twelth task – Adaptive (fine tuning based on prior responses)


12,500 25,100 Prior 14,500 19,500

15,200 51,200 15,200 12,500 21,500

21,500 52,100 Resulting 14,500 19,500

Thirteenth task – Adaptive (fine tuning based on prior responses)


13,600 36,100 Prior 14,500 19,500

16,300 61,300 13,600 0 16,300

31,600 63,100 Resulting 14,500 16,300

Fourteenth task – Adaptive (fine tuning based on prior responses)


12,600 26,100 Prior 14,500 16,300

16,200 61,200 16,200 12,600 21,600

21,600 62,100 Resulting 14,500 16,300

Test run output – Precise results on an individual level

A simple example: Sixpack Beck‘s Pils (0.33l)


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Average retail price: €3.75

Eigenstudie Harris Interactive AG

„Optimal price“: €3.02

„Normal price“: €3.28


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Average retail price: €3.75

A simple example: Sixpack Beck‘s Pils (0.33l)


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Conclusion – The …

Harris Interactive AG

Dr. Thomas Rodenhausen, PresidentHarris Interactive AGBeim Strohhause 3120097 Hamburg

56© Harris Interactive 04/12/23

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Esomar Webinar Pricing Research: Assessing Implicit Price Knowledge and Price Expectations of Consumers and Customers