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According to common beliefs, customers deliberately decide to evaluate prices against a limited number of actively recalled price experiences and therefore price evaluation is seen as a result of a conscious, time-consuming and laborious intellectual effort. Current neuropsychological findings differ from this perspective: When encountering information about prices, most customers and consumers instantly and involuntarily experience them as belonging to a continuum ranging from “cheaper” to “more expensive” than expected. Such price expectations are the first and most basal stage in the evaluation of prices. An unexpected price elicits surprise which focuses attention and motivates a more elaborate evaluation of the price information. On the other hand, an expected price is likely to be ignored in the further purchase decision process. Up to now, pricing research struggled to assess price evaluation at this early but crucial stage. All traditional pricing research tools either directly request a deliberate and elaborate price evaluation or indirectly assess it as price-dependent purchase intention. In other words, traditional tools compel respondents to apperceive price information which might have been ignored in reality. This webinar presents a new pricing research tool developed and exclusively offered by Harris Interactive. The price.condenser approach combines a new query utilising the natural price evaluation process with an adaptive survey design. Unlike traditional pricing research tools, it does not enforce an artificially sophisticated price evaluation, but taps into the implicit price knowledge of consumers and customers. Listen as we demonstrate the functions of this new tool and discuss its added benefit compared against traditional tools.
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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
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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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Pricing – pros and cons of both approaches to pricing
+ Easy access to valid information! Market prices
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Pricing – pros and cons of both approaches to pricing
- 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
Implementing these findings in conventional survey research
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
201 € Very expensive
210 € 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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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)
Combinations Choice Lower bound Upper bound
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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