Optimal Pricing and Sales Forecasting
Pricing and sales forecasting are two unique research issues -- each with a set of constraints -- but are from a business point of view they are heavily intertwined and quite often part of the same research project.
Determining an optimal price point is difficult simply because it is in the respondent's self-interest to be deceptive about the true price that they are willing to pay. They may even refuse to answer the question. The net result is that approaches that try to present multiple price points to any one respondent will tend to over-estimate the price-sensitivity of the population. Open-ended models or methods that start at the highest price point and systematically drop the price until price acceptance is achieved can produce a "race to the bottom" as respondents seek to find out just how low they can go. The net result is that a pricing study is something that must be approached very carefully in order to get actionable results that mean something.
Furthermore, the definition of "optimal" can be quite different depending on your business objectives. Is optimal:
Yes, these issues are related, but they are quite distinct in terms of the business objectives and marketing strategies that they entail.
All of these approaches require that we also assess likely sales volume, an issue that has its own problems. Most notably respondents dramatically over-estimate the probability that they will purchase a product, regardless of the purchase price of the product. We have developed proprietary calibration models that are customized for your customer base that allow us to accurately assess the sales potential of your products.
Determining an optimal price point is difficult simply because it is in the respondent's self-interest to be deceptive about the true price that they are willing to pay. They may even refuse to answer the question. The net result is that approaches that try to present multiple price points to any one respondent will tend to over-estimate the price-sensitivity of the population. Open-ended models or methods that start at the highest price point and systematically drop the price until price acceptance is achieved can produce a "race to the bottom" as respondents seek to find out just how low they can go. The net result is that a pricing study is something that must be approached very carefully in order to get actionable results that mean something.
Furthermore, the definition of "optimal" can be quite different depending on your business objectives. Is optimal:
- Maximizing revenue?
- Maximizing profit?
- Maximizing share?
Yes, these issues are related, but they are quite distinct in terms of the business objectives and marketing strategies that they entail.
All of these approaches require that we also assess likely sales volume, an issue that has its own problems. Most notably respondents dramatically over-estimate the probability that they will purchase a product, regardless of the purchase price of the product. We have developed proprietary calibration models that are customized for your customer base that allow us to accurately assess the sales potential of your products.