Previously, we’ve talked about the steps of determining a price post concept testing, and while we mentioned the importance of making sure the concept is ready before fully implementing pricing analysis, it’s still important to incorporate in early stages of the product development lifecycle. Doing so helps product teams more accurately meet revenue requirements and project profit targets.
When Pricing Analysis Should Take Place
More often than not, there are three different areas along the new product development (NPD) timeline in which pricing analysis should take place. Depending on the product in question and how often concept testing occurs, the number of times pricing analysis can take place in each of those stages can vary. There are are also two types of pricing analysis approaches that can be taken at varying stages:
- Direct Elicitation: consumers are asked to provide the price they’d be willing to pay for a product in an open-ended format
- Indirect Elicitation: consumers are asked how likely they would be to purchase the product at a particular price
What stage of the NPD timeline the product is in drives which approach product managers should take. For example, in early stage testing, when features have yet to be confirmed and the concept is still taking shape, it’s likely direct elicitation will be utilized, at least until a more formalized concept is developed and a price is assigned. Then, depending on how many concepts there are to be evaluated and changed before moving into product testing drives how many iterations of early stage pricing research should be conducted.
Why Early Is Critical
Conducting pricing analysis early is important for many reasons, but most important for new products. Getting the price right the first time around on a new product sets the stage for the success of that product and all future iterations thereafter— because the price you set the first time around heavily influences the price fluctuations you can take in the future, often regardless of any innovation.
Testing the price early on also helps product teams understand the value of their concepts and particular features. For example, a feature the team may believe justifies a particular price, consumers may not agree with. Understanding what features or aspects of a product drive price guides many aspects of product development and marketing communication strategies. So not only does conducting early-stage pricing research help prevent product failures, it also helps prioritize what’s most important to consumers. You can ask if consumers like a concept, but asking them if they like it for a certain price makes a big difference.
Still not convinced? Understanding how much consumers are willing to pay or would like to pay early on also allows brands to understand the potential profitability of a product before development. This means product teams can make changes to a product to improve the pricing outlook while the cost and risk of making changes is low— helping management set revenue objectives the whole team can be confident in.
Getting Ready to Incorporate Early Stage Pricing Analysis
If a brand is already conducting regular ideation and concept testing of products, then it should be an easy transition into incorporating pricing research early on. Pricing analysis in some instances can be as simple as adding in a purchase intent metric to concept testing research. Alternatively, brands that are introducing new products or are looking to hone their pricing strategies a bit more can look at Van Westendorp or monadic pricing methodologies. To see an example of a monadic pricing analysis in action with a new product, check out the executive summary below.