PRICING AND VALUE

MEASUREMENT
Lesson 15
Pricing for Value
Elkana Ezekiel

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PLANNING A RESEARCH STUDY
 What are the key steps a Brand Manager would follow?
What is the problem
Research objectives
 Defined by the business problem
 define variables
Type of study?

EXPERT OPINION

https://www.youtube.com/watch?v=ofW2lJVoHUY
TYPES OF MEASUREMENT PROCEDURES

When measuring consumer perception of value delivered two

dimensions are in scope:
1.Conditions of measurement
2.Variable being measured

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TYPES OF MEASUREMENT PROCEDURES
Conditions of measurement Dependent variable is either actual
purchases or self stated purchase
UNCONTROLLED: preferences & intentions

◦ researcher is only an ◦ measurement of actual behaviour more

observer desirable e.g. in a real retail store, but
also more costly and time-consuming
CONTROLLED - generally
more accurate, but costly to
conduct
◦ researcher manipulates
important variables to see
effect on consumer
behaviour
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SOURCES OF DATA

Variable measured Conditions of measurement

Uncontrolled Experimentally controlled

• Historical sales data • In-store experiments

Actual purchases • Panel data • Lab purchase
• Store scanner data experiments

• Direct questioning
• Simulated purchase
Preferences & • Buy-response survey experiments
intentions • In-depth interviews
• Trade-off (conjoint)
analysis

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IN-STORE PRICING EXPERIMENT
STORE 1 STORE 2 STORE 1 STORE 2
BASE WEEKLY 100 100
SALES UNITS
AVERAGE PRICE PER 2.00 1.85
UNIT
NEW PRICE PER 1.80 1.85
UNIT
WEEK 1 108 101
WEEK 2 106 100
WEEK 3 112 108

- Any conclusions?
- Any questions that come to mind?
ANALYSING SALES HISTORY
YEAR SALES IN USD GROWTH % SALES IN GROWTH %
VOLUME
2015 100 100
2016 114 14% 104 4%
2017 131 15% 119.5 15%
2018 146 11.5% 136 13.8%
2019 158 8.2% 150 10%
2020 EST 155 (2%) 147 (2%)
2021 ?? ??

- What are some possible explanations for the trends in sales revenue and sales volume?
- How reliable will the 2020 Estimate prove to be?
- Can we use some of these trends to forecast for 2021?
 TYPES OF UNCONTROLLED STUDIES OF
ACTUAL PURCHASES …1
HISTORICAL SALES DATA
◦ Cheap and easily available

◦ Normally allows estimation of price elasticity of the next level in the channel

◦ Some companies order booking systems linked to retail store inventories to

estimate actual off take

◦ Aggregating retail sales data over long periods could mask price variations
reducing accuracy of estimations

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TYPES OF UNCONTROLLED STUDIES OF
ACTUAL PURCHASES …2

Regression analysis on historical data to estimate the impact of different

variables on sales including price

CHALLENGES
◦ Price may not be the only variable

◦ No guarantee that the past will mirror the future

◦ Some variables like changes in economic policy or political landscape

are difficult to factor into the model

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TYPES OF UNCONTROLLED STUDIES OF
ACTUAL PURCHASES …3
PANEL DATA
◦ Panel of households with actual purchase data recorded daily
◦ Actual purchase prices recorded (including use of coupons)
◦ Correlation of price sensitivity possible with demographic
segments
◦ Sales and prices of competing products obtained

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TYPES OF UNCONTROLLED STUDIES OF
ACTUAL PURCHASES …4
ISSUES WITH PANELS
◦ Representativeness

◦ Recording prices makes consumers price conscious

◦ Only one individual’s purchases recorded, while multiple family members

may be purchasing products

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 - 81,200 households – (66,100 homes in Urban and 15,100 homes in
Rural)

- Covering 94% of the Indian population

- Paper Diary

Insert Picture Here

- Monthly data reporting
- Data representation possible by :
- Zones
- Urban & Rural
- States
- Town Classes
- Village Classes

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 What We Do | Detailed Methodology – How do we collect data?

Field Visit Wrappers are collected

Field Briefing
Experienced
Monthly session to interviewers visit around Housewives are taken
brief interviewers 7 households each day through the dairy
about new launches from 25th to the 5th of
or extensions & any each month. They Products in use are
pick up issues verify/complete the marked to avoid double
needing specific filling of the diaries with counting for the next
attention the housewives collection

Data Release Data Processing

At the end of each month, the data from Once the data is collected, it goes through
the previous month is released & made regular checks & then processed by our
available to clients specialized team of data analytics

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What We Do | What consumer measures can we report?

Value Volume Frequency of

Penetration
(what % of a given Purchase
population buys my brand) (# of months in which my
brand was purchased)

Loyalty # of Occasions Average

# of Packs (% of a category (how many times a brand consumption
bought spend/volume going to your was purchased during a (how much households
brand) given period) bought of the brand during a
given period)

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TYPES OF UNCONTROLLED STUDIES OF
ACTUAL PURCHASES …5
STORE SCANNER DATA

◦ Availability of daily sales and price data

◦ Combining with loyalty programs, data allows correlation with

demographics

◦ Much cheaper than panel data – mutually beneficial to retailer &

brand marketer

◦ Can be combined with panel data to get strong insights into shopping
behavior & price-sensitivity

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TYPES OF UNCONTROLLED STUDIES OF
ACTUAL PURCHASES …6
Difficult in B2B markets as the number of transactions is fewer
and data availability is an issue
◦ But firms can create their own internal database
e.g. a record of tender bids with outcomes and estimated
competitive prices. Could then develop a model of price
sensitivity

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 EXPERIMENTALLY CONTROLLED STUDIES OF ACTUAL
PURCHASES

IN STORE PURCHASE EXPERIMENTS

◦ Easier to conduct for controlled direct-retail methods like mail-order
catalogues
◦ In B2B, different prices to different representative customer samples

HISTORICAL PRICE VS. NEW PRICE

◦ Simplest design, but does not control for external factors e.g. economic
conditions
◦ Can be tackled by adding a control store with historical behavior similar
to the experimental store

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TECHNOLOGY IN RETAIL
RESEARCH
https://www.youtube.com/watch?v=7_WguRgyn74
 EXPERIMENTALLY CONTROLLED STUDIES OF ACTUAL
PURCHASES
Major benefit of in-store experimentation is the ability to test for interactions
between price & various marketing variables
◦ But this is costly as each additional factor will need more stores added

High cost of monitoring, analysis of sales data & securing retailer cooperation is
the biggest issue with in-store experiments
Other negatives
◦ Loss of consumer goodwill – feeling manipulated, may actually switch brands

◦ Discovery and retaliation by competition

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LABORATORY PURCHASE EXPERIMENTS
Duplicate realism of in-store experimentation without the high cost
or risk of exposure to competitors
◦ These tests can control all variables – consumer profile, product
price levels, shelf-location, displays
◦ Allows for inferences from far fewer purchases in much less time
compared to in-store tests
Research facilities can range from the simple to very sophisticated

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LABORATORY PURCHASE EXPERIMENTS
Simple set-ups are quick and cheap
◦ Consumer's behavior could be impacted
- pay more attention to prices, more attentive when selecting brands,
self-conscious i.e. perception of being too thrifty
Highly sophisticated research facilities overcome these issues
◦ Create a simulated store almost mimics a typical convenience store
◦ Consumers may watch TV programs with ads, or read magazines before
starting shopping
Now internet testing is very convenient, fast and cheap

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UNCONTROLLED STUDIES OF PREFERENCES &
INTENTIONS

Companies prefer to measure intentions or preferences

vs. monitor actual purchases
◦ Lower cost
◦ Feasible even for high value durables
◦ Surveys can be at any stage – even before first prototype
◦ Speed

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 UNCONTROLLED STUDIES OF PREFERENCES &
INTENTIONS
DIRECT QUESTIONING Buy-Response surveys

◦ Less than ideal methodology ◦ Showing pre-selected prices yields more

plausible answers
◦ Bargaining behavior or “please the
researcher” behavior or simply cursory ◦ Cultural differences lead to significant
answers variations in accuracy

◦ Useful to set a range of acceptable prices for a

new product

◦ Researchers learn to calibrate over / under

statement – build calibration norms

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 UNCONTROLLED STUDIES OF PREFERENCES
& INTENTIONS
ATTRIBUTE RATING
◦ Price is among many variables rated
◦ In real life, Consumers do not evaluate
products in such fine detail
IN-DEPTH INTERVIEWS
◦ Help understand which product features & benefits are
important – Allows for exploration in-depth
◦ Understanding the monetary & psychological benefits of
using the product/service
◦ Assessing roughly how much the customer may be
willing to pay to obtain these features and benefits
◦ May be valuable when studying complex business-to-
business pricing – multiple stakeholders, differing
deliverables across departments
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 EXPERIMENTALLY CONTROLLED STUDIES OF
PREFERENCES & INTENTIONS
SIMULATED PURCHASE EXPERIMENTS
◦ Closest to reality
◦ Researcher asks consumers to imagine that
they are on a shopping trip, and want to buy
products from a certain category
◦ Show pictures, descriptions, or actual samples
of brands & ask them to choose given various
prices
ADVANTAGES
◦ Since it is structured as a choice task between
alternative brands, the consumer’s thought process
may more closely approximate real-life shopping
◦ Since consumers don’t know which brand is of
interest to the researcher, both bargaining as well as
pleasing the researcher is eliminated
Overall, as quick and acceptable way to gain info on
buying behavior
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 CONJOINT ANALYSIS
https://www.youtube.com/watch?v=Su2qIrTmv1c

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 CONJOINT ANALYSIS
Closer to real-life choices as it gets respondents to evaluate a product in its
entirety vs. more abstract individual attributes
◦ Example - When MBA graduates were asked about individual job attributes, #1 -
people & company culture, but when asked to choose while given various job
descriptions, salary, region & location came higher

Can give the most useful information for strategy formulation

◦ Identify consumer segments with different price sensitivities + specific product
attributes that evoke price sensitivity differences

◦ Use this to describe the combination of attributes that most profitably skim or
penetrate a market

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THE IMPORTANCE OF MANAGERIAL JUDGEMENT
Understanding price sensitivity comes later – First get a broader & deeper
understanding of consumers as real people

Integrating soft managerial judgement about buyers & purchase behavior with
numerical estimates is critical to successful pricing

“Precision does not necessarily mean accuracy”

◦ price sensitivity measurements are precise because they exclude all factors that
are not conveniently measurable

◦ an estimate of price sensitivity is only a point estimate of something that we can

never predict with 100% accuracy

Results of pricing tests should always be compared with a manager's own

expectations, based on his knowledge of his customers

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THE IMPORTANCE OF MANAGERIAL
JUDGEMENT
Managers can improve price sensitivity estimates by using their knowledge of
their buyers to

1. Select a sample of consumers that accurately represent the product’s market

◦ e.g. if 80% buyers are working women, then recruitment has to happen in the
right locations and at the right time

2. Identify & explain extraneous changes in historical sales that may

camouflage an effect

◦ shifting dates of Diwali every year that impact product sales in different
months

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THE IMPORTANCE OF MANAGERIAL
JUDGEMENT
Managers can improve price sensitivity estimates by using their knowledge of
their buyers to

1. Provide information to sort out the effects of price from other variables that
tend to change with it

2. Identify an appropriate equation or experimental structure:

◦ e.g. using knowledge of the purchase cycle & inventory holding to decide
length of experiment

3. Properly describe the product for survey research:

◦ e.g. using the word “knob” on a radio vs. “control”; time for 0-60kmph is not
important to describe a family car

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Thank You

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