This glossary provides clear and concise explanations of key pricing-related terms used in market research, aiding you with the understanding and application of these concepts:
C
Conjoint Analysis: Conjoint analysis is a survey-based statistical technique used in market research to understand how consumers value different attributes of a product or service. By presenting respondents with a series of choice scenarios, each featuring products or services with varying combinations of attributes (including price), researchers can determine the relative importance of each attribute and how they influence consumer preferences and purchasing decisions.
Consumer Price Perception: How consumers perceive the price of a product in terms of fairness, value, and quality.
Card Set: A collection of choice cards used in conjoint analysis or other survey-based market research methods. Each card in the set presents different combinations of product attributes, including price, to respondents, who then indicate their preferences or choices. This helps researchers understand how changes in attributes, including price, affect consumer preferences.
Choice Card: A tool used in choice-based conjoint analysis where respondents are presented with a set of options (products or services) that vary in attributes, including price. Respondents choose their preferred option from each set, allowing researchers to analyze trade-offs and determine the relative importance of each attribute, including price.
D
Demand Curve: A graph showing how the quantity demanded of a product varies with its price.
E
Elasticity of Demand: A measure of how sensitive consumer demand for a product is to changes in price, often used to predict the impact of pricing changes on sales volume.
G
Gabor Granger: Pricing research technique for determining a revenue and demand curve for a specific product or service. The method involves asking potential customers the likelihood of their purchasing a product or service at different price points. Respondents are shown different prices and asked about their likelihood of purchasing at each of the prices shown. This allows a revenue and demand curve to be plotted to determine the optimal price to generate maximum revenue.
H
Hierarchical Bayes (HB) methodology: Statistical approach that extends traditional Bayesian methods by incorporating a hierarchical structure in the modelling process. In a hierarchical Bayesian model, parameters are assumed to follow probability distributions, and these distributions themselves have hyperparameters that are estimated from the data. It provides a powerful framework for modelling and analysing complex relationships while accounting for uncertainty at different levels of the hierarchy.
M
MaxDiff (Maximum Difference Scaling): A survey technique used to determine the most and least important attributes or features to consumers.
N
Newton Miller Smith (N-M-S): The N-M-S methodology adds questions that ask purchase intent at the price in which a respondent noted the product as being expensive but acceptable, and the price in which a respondent would find the product a bargain. PriceBeam enhanced this methodology by adding and adapting the questions based on the respondents' responses.
P
Perceived Value: The worth that a product or service has in the mind of the consumer, which can affect their willingness to pay.
Preference Share: A metric derived from conjoint analysis or similar studies that represents the proportion of consumers who prefer a particular product or service configuration over others. It indicates the potential market share a product might capture based on consumer preferences for different attributes, including price.
Price Sensitivity: A measure of how responsive consumers are to changes in the price of a product or service. High price sensitivity means that a small change in price leads to a significant change in demand, while low price sensitivity indicates that demand is relatively unaffected by price changes. Understanding price sensitivity helps businesses set optimal prices.
Price Elasticity: A numerical measure of price sensitivity, defined as the percentage change in quantity demanded resulting from a one percent change in price. If the elasticity is greater than 1, demand is considered elastic (sensitive to price changes); if less than 1, demand is inelastic (insensitive to price changes). This metric helps in forecasting the impact of price changes on sales and revenue.
Psychological Price Points: Specific prices that have a psychological impact on consumers, often ending in .99 or .95 (e.g., $9.99 instead of $10.00). These price points can create the perception of a better deal and influence consumer purchasing decisions. Understanding psychological price points helps in setting prices that appeal to consumers' perceptions of value.
Price Cliff: A point at which a small increase in price leads to a sharp drop in demand. Identifying price cliffs helps businesses avoid setting prices at levels that significantly reduce sales volumes. This concept is crucial for understanding the limits of consumers' willingness to pay and maintaining optimal pricing strategies.
PPA (Perceived Price Acceptance) Analysis: A method used to determine the range of prices that consumers find acceptable for a product or service. This analysis helps identify the optimal price point by assessing consumer reactions to different price levels, thereby maximizing sales and profitability while maintaining customer satisfaction.
S
Statistical Significance: A determination that a result from data analysis is not likely to have occurred by chance. In pricing research, this means that the observed effects of different pricing strategies are likely reflective of real consumer behavior rather than random variation. Statistical significance is usually assessed using a p-value, with a common threshold being 0.05, meaning there is less than a 5% probability that the result occurred by chance.
V
Van Westendorp Price Sensitivity Meter: A method to identify optimal price points by analyzing consumers' price expectations and perceptions of value.
Value-Based Pricing: Setting prices based on the perceived value to the customer rather than solely on cost or competitor prices.
Van Westendorp: Price sensitivity meter is defined as a technique for market researchers to gauge consumer perceptions of the value of products or services. It usually means asking four specific questions to help uncover the best price for the product. This methodology has helped multinationals and small businesses alike to measure price sensitivity and to set up successful pricing strategies.
W
Willingness to Pay (WTP): The maximum amount a consumer is willing to pay for a product or service, often determined through surveys and market research.