Pricing Strategies: Optimizing Your Product Line

Pricing Strategies: Optimizing Your Product Line

Hi, I'm Beth Horon, SVP of Advanced Analytics at Decision Analyst. Today, we're diving into pricing strategy and methods used to assess them.

Common Pricing Strategies

1. Maximize Profit:

   • Most common strategy focusing on maximizing profit, revenue, or profit line.

2. Customer Perceived Value:

   • Set prices based on the perceived value of the product. Higher prices for high-value products and lower prices for less valuable ones.

3. Customized Pricing Based on Customer Segments:

   • Charge different prices to different customer segments willing to pay more or less. Must be used with caution, ensuring legal and compelling reasons.

4. Channel-Based Pricing:

   • Set prices based on the purchase channel. For example, mass merchandisers might sell an organic product for less than a specialty organic store.

5. New Product Pricing:

   • Optimizing price for a new product is challenging due to the lack of competitive benchmarks.

Research Methods for Assessing Pricing Strategies

1. Econometrics and Modeling:

   • Uses historical data to model a price elasticity curve. Robust and reliable but limited by historical data and rapidly changing market conditions.

2. Choice Modeling:

   • Relies on primary research by presenting several screens of current and future market scenarios to respondents. Better for predicting consumer reactions to new market realities.

3. Stated Preference Techniques:

   • Includes methods like the Gabor-Granger technique, which uses purchase intent questions at predefined price points. Simple, low-cost, and suitable when budget and timing are constraints.

Keywords

• Pricing strategy
• Maximize profit
• Perceived value
• Customized pricing
• Channel-based pricing
• Econometrics
• Choice modeling
• Stated preference techniques
• Gabor-Granger

FAQ

1. What is the most common pricing strategy?

   • The most common strategy is to maximize profit, revenue, or the profit line.

2. What is the customer perceived value strategy?

   • This strategy sets prices based on the perceived value of the product, with higher prices for high-value products and lower prices for less valuable ones.

3. How can customized pricing be used?

   • Customized pricing charges different prices to different customer segments willing to pay more or less but must be used with legal and compelling reasons.

4. What is channel-based pricing?

   • Channel-based pricing sets different prices based on the purchase channel, such as selling an organic product for less at a mass merchandiser compared to a specialty organic store.

5. What is econometrics and modeling?

   • Econometrics and modeling use historical data to create a price elasticity curve, but it may be limited by outdated data and changing market conditions.

6. What is choice modeling?

   • Choice modeling predicts consumer reactions to new market realities by presenting several screens of current and future market scenarios to respondents.

7. What are stated preference techniques?

   • Stated preference techniques, such as the Gabor-Granger technique, use predefined price points and purchase intent questions to create a demand curve. This method is simple, low-cost, and suitable when budget and timing are constraints.