When you’re stuck in the early stages of concept and product development, it can feel pretty hard to put a price on an idea. But as you get closer and closer to making your new product or service a reality, the need to put a price on it becomes more real as well. Suddenly you’re trying to determine the value of what you’ve created—a challenge that’s almost impossible to tackle objectively, even when you have competition to compare it to. A simple and effective way to estimate a reasonable price for your product, and thereby determine its in-market value, is by asking the target audience you hope will one day purchase it.
The Importance of Price Evaluation
The importance of accurately and reasonably pricing your product cannot be understated. If you price your product correctly from the get-go, you enhance your chances of a stellar launch and lay the foundation for consistent market performance. Sure, you can probably think of other ways to spend your time and resources: maybe budget is getting tight, or maybe your product is similar enough to a competitor’s that testing doesn’t seem necessary. When deciding is tough, remember why you test in the first place: to make the end result the absolute best it can be. Don’t sacrifice all your hard work, research, and refinements just because you didn’t think you had time to check if the price met consumer expectations.
And How to Do It
By asking consumers what they expect to pay, you can better fit your product into your target audience’s lifestyle and budget. But you can’t just come out and ask what they want to pay (your answers will likely be a resounding $0). So how do you properly evaluate your product to determine a fair price? Through a pricing analysis study—and answers can be attained even quicker by leveraging online market research. Below are a couple effective methods for price testing your latest product.
Van Westendorp Method
Use When: The product is entering a new or emerging market where pricing is largely unestablished.
How It Works: Respondents are presented with a product description and asked to report the four prices: (1) at which it’s so inexpensive they doubt the quality; (2) at which it’s a good value; (3) at which it’s getting expensive but they would consider it; and (4) at which it’s so expensive they wouldn’t even consider it.
Benefit: This pricing approach helps balance out consumers’ tendency to overstate or understate the price they’re willing to pay. It offers a distribution of perceptions on an acceptable price for the product, giving you a confident range to work within.
Pro Tip: If applicable, segment non-rejectors of the product from rejectors for the cleanest read.
Monadic Pricing Study
Use When: The product is entering a defined category and you have some price points in mind.
How It Works: In monadic price testing, each respondent is shown one concept. Across the study, respondents will see the same concept, but each group of respondents will see a different price point on the concept. Respondents are asked to assess the concept according to a set of metrics, including ones designed to evaluate pricing like purchase intent, value and quality.
Benefit: This is a pricing test that the respondent doesn’t know is a pricing test; they think they are just evaluating a concept. Since the only variable between concepts is the price, we can compare the metrics to determine how price impacted respondents’ perception of the concept. From there you can choose which price would be best received in the marketplace.
Pro Tip: Take the time to define key metrics that reflect your research objectives.
No matter the methodology you choose, taking action towards understanding what your customers expect to pay for your product will help ensure a warm welcome when it’s finally on the shelf. Beyond price point, factors like bundling, warranties, and rebates all impact perceptions of value, so testing all combinations will help solidify promotion planning as well as shopper marketing strategies. To learn more about a product category in need of better understanding around pricing and valuation, check out the executive summary below.