Core Research Methodologies
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      1. Pricing Well - Pricing and Revenue Growth Insights
      2. Core Research Methodologies

      Gabor Granger

      What is the Gabor-Granger methodology and how is it used in market research.

      The Gabor-Granger methodology is a pricing research technique used to determine the optimal price point for a product or service by directly asking consumers their willingness to purchase at various price levels. Named after its developers, Andre Gabor and Clive Granger, this method helps businesses understand how demand varies with different prices and identifies the price that maximizes revenue.

      How is Gabor Granger applied in market research

      Survey Design:

        • Respondents are presented with a series of different price points for a product or service.
        • For each price point, respondents are asked if they would purchase the product at that price.

        Data Collection:

        • Responses are collected and used to create a demand curve, showing the relationship between price and the proportion of respondents willing to buy.

        Demand Curve Analysis:

        • The demand curve helps identify the optimal price point where the product's revenue potential is maximized.
        • By plotting the percentage of respondents willing to buy at each price point, businesses can estimate the price elasticity of demand.

          Output

          Gabor Granger Price Elasticity
          GG Price Elasticity

        Revenue vs Price

      2. GG Rev vs Price Chart

      3. Revenue Estimation:

        • By multiplying the number of potential buyers at each price by the price itself, the revenue for each price point can be calculated.
        • The price that generates the highest revenue can be identified as the optimal price.

      Limitations of the Gabor-Granger Methodology:

      • Hypothetical Bias:

      Respondents may not behave in real purchasing situations as they do in survey scenarios. Their stated willingness to pay may differ from their actual behaviour when faced with a real purchase decision.

      • Simplistic Assumptions:
      Assumes that the willingness to pay is static and does not change over time or due to external factors such as promotions, competitor actions, or market trends.
      • No Competitive Context:

      Does not take into account the pricing strategies of competitors. Consumers' willingness to pay can be highly influenced by the prices of alternative products available in the market.

      • Limited to Direct Purchase Intent:

      Focuses solely on direct purchase intent at specific price points without considering other factors that might influence purchasing decisions, such as features, quality, or service levels.

      • Ignores Psychological Pricing:
      The method does not account for psychological pricing factors, such as the impact of pricing just below a round number (e.g., $9.99 vs. $10.00).

      Conclusion

      The Gabor-Granger methodology is a straightforward and useful tool for determining optimal pricing by directly measuring consumer willingness to pay at different price points. However, its limitations include potential hypothetical bias, lack of consideration for contextual and competitive factors, and reliance on static assumptions about consumer behaviour. To enhance the reliability and validity of pricing decisions, it is often beneficial to use the Gabor-Granger method in conjunction with other pricing research techniques and market analysis.