What customers think about your prices
Our guest post is written by Joanna Jones, CEO of InterQ Research, a San Francisco based market research company and a Pricing Innovations partner.
Arriving at the ideal price of a product or service requires a complex, multi-layered process that, to be effective, needs to maximize a company’s profitability, while allowing the product to be competitive in the marketplace. Experts, like those at Pricing Innovations, understand how to create the modeling and pull in the innumerable factors that help point to the most effective pricing structure.
The market forces, balance sheets, and the competitive field are just some of the crucial influences that need to be taken into account when setting a product’s price. Once a company’s team has the appropriate range pinpointed, this next question then becomes the focus:
What do customers think about the price?
Even with the most sophisticated modeling and quantitative structure in place, if the customer thinks the price is not appropriate – either too low, making the product seem poor quality – or too high, then the product pricing consulting process is incomplete.
Enter qualitative research: The human side of price setting
Humans buy products and services. And, as we all know, we are complex creatures. Pricing, from a psychological perspective, is fascinating to study. For example, by presenting a product priced higher than it should be, one can set a “base number,” that then makes lower pricing seem like a bargain, even if the lower prices presented are actually high for the product. Similarly, the effect of cachet, exclusivity, and desirability all drive how much people will pay. And these principles hold true for software as well as for Gucci loafers.
Therefore, when arriving at the best price, we absolutely have to take into account the human factor.
At InterQ, we study the human side. This makes us an ideal partner with Pricing Innovations, as our expertise is learning what people think about prices and how much they’d be willing to pay. Using a combination of focus groups and individual interviews, we apply qualitative principles and social science to pricing.
Both sides of the same hand
The work that the team at Pricing Innovations does is instrumental in guiding what prices can be tested with people – the qualitative aspect of the research. Taken together, the quantitative aspect and qualitative research are two sides of the same hand, and this perspective helps your company understand how much to charge for your products or services.
Ready to begin your own pricing innovation?