How to do pricing research
People do unpredictable and flat-out irrational things – especially when it comes to making purchase decisions. These two tenets of human behavior are often overlooked by product teams when conducting user and buyer research. Customers will pay for thousands of dollars on luxury items they know nothing about while refusing to pay one dollar for a 3-month long trial membership on a useful platform.
If you believe what buyers say they will do you will build the wrong company
In general, buyers don’t have a willingness to pay for things that are new to them especially if they have never experienced their benefits before. When asked about their willingness to pay for a new product, most people come up with a price point by thinking of other comparable products or experiences. The value of these anchors may or may not be relevant to the new value you created by your offering, particularly when we speak of new-to-the-world solutions.
In such an environment, you simply can’t rely on what customers say they’ll do to understand the motivations and triggers that drive customer adoption. While you can’t rely on what people say they do, you can rely on what they indeed do. Better yet, you can rely on what they already know which we call a reference value.
How do we uncover the reference value?
Reference value is about uncovering how much value buyers trade-off in exchange for your offering. Questions to derive the reference value could be formulated as follows:
“What would you trade me to solve for [the pain point in the way your solution solves it] right now?”
“On a scale of 1-10 what’s the importance of [solving for the pain point in the way your solution solves it]?”
“Which of the [features & attributes below] provide the most and the least value to you?”
And have your buyers go through the trade-off exercise progressively, and until you have a clear understanding what is of value and what is merely nice-to-have. This way of formulation encourages your buyers to really consider the value that they will realize by acquiring your solution in relation to what they already have an experience with.
Value-based pricing is the only win-win scenario for both you and your customer
Valuating the benefits perceived by a certain type of buyer is in the core of value-based pricing. Value-based pricing ensures that your pricing is aligned with the value that your customer is getting. Pricing per the value your customer sees in your offering prevents you from leaving money on the table while you keep your customers around as you continue to meet their expectations.
Value-based pricing ensures that your pricing is aligned with the value that your customer is getting.
Consider this example from the trendy spinning studios that have taken the country by a storm. When asked how much they would pay for a new spin studio, most customers would anchor themselves on what they currently pay or in the past paid for their gym membership. They may even want to pay less than what they pay for a full gym membership since spinning could be just one of the classes offered, in their gym, among many other training options. So had the entrepreneurs of the trendy, new spinning experiences priced their newly curated spinning experience based on customer research they would most likely have to price their experiences somewhere between $39 and $99. However, in many metros areas of the United States these spinning classes sell for as much as $45 per one class while spinners may pay hundreds of dollars per month for unlimited spinning packages. This story in the making is a great example of strategic pricing established by a very strong differentiation of an athletic experience that takes place in a highly challenging, social, competitive, and technology-rich studio which immerses its residents in a curated musical and physical environment.
The goal of product marketing is to elevate the perceived value
The results of customer pricing research for new products and solutions may in general undervalue your offering simply because the buyers have not experienced the benefits of your solution yet. This causes a fun dilemma for product marketers as they launch new offerings, because the essential goal of their go-to-market strategy now becomes increasing their prospective buyers’ willingness to pay. Raising the willingness-to-pay of potential buyers gets increasingly easier as product marketers focus on the value of the differentiated benefits and translating the benefits that were realized by the early adopters into segment wide statements. Therefore, the pricing interviews you conduct must be designed to address both. And, as always, we’re here to help with that.
Bonus Download: Profitable Pricing Guide: How to Conduct Pricing Interviews