How to increase the profit and stand the competition? Here, many companies first associate cost reduction and gain in efficiency. Thereby, improved pricing is an effective profit maximisation tool. Concerning the marketing tools pricing is even one of the strongest leveraging methods to company’s profit.

A good price analysis is able to calculate price-demand functions for several customer segments. It can also be used for new products’ development. In a diagram the price-demand function describes the correlation between the price and the saled products. In this artcicle, products with a negative price elasticity - i.e. the higher the price the lower the sales volume - are to be examined. The question is: How much less will I sell if I raise the price by x %?

If costumers react on the price in different ways a company has the possibility to offer the products at different prices (e.g a cheap trademark and an expensive premium mark). Applying this so-called price differentiation the company is able to find out the customer groups being similarly sensitive to price changes.

But what method allows to find out the price - close to reality - the consument is willing to pay? Direct price surveys rarely achieve coherent results due to the fact that the respondents overvalue the product requirements and undervalue the price.

Because of that fact the respondents should evaluate the products as a whole. After all, in everyday life, people decide between products e.g. the one or the other chocolate bar or buy none of them.

The Choice Based Comnjoint Analysis (CBC) allows the companies to query different product attributes and achieve results also concerning product developments. Originally, the method comes from the psychology. So, e.g. different design types of a car can be simulated and tested in a simulation tool by the target group. Or, the respondents have to choose from several products, e.g. LCD tv’s.

The several possible applications for a simulation tool are also advantageous. Companies are able to conduct their own individualized evaluations. The sense of the customer’s behaviour will increase. An example: Will the phone company’s customers rather react to a base rate’s change or does the minute price have prime importance? With the simulation tool, the competition environment can be described and each change in price or product can be tested in the forefront of a real modification. So, the risk of wrong decisions can be reduced enormously.

Next week we will explicate how this simulation tool works in the practice.

Source: http://www.markt-studie.de/studien/Preisanalysen.php
Author: Mag. Holger Sicking 

 Citation: brilliancy is 1% inspiration and 99% Marketing