How to conduct pricing research

Setting prices for goods and services is one of the biggest challenges a business faces. You need a pricing strategy that identifies an optimal price — one your customers see as fair value and that still returns a profit. Intuition alone can't solve this problem. You need pricing research.

Pricing research is the process of gathering direct customer data to determine the optimal price point for a product or service. It combines survey-based methods, like the Van Westendorp Price Sensitivity Meter, with market and competitor analysis to reveal what customers will actually pay, before you set a price.

You conduct pricing research by defining your purpose, choosing a proven method (such as Van Westendorp or Gabor-Granger), surveying your target market to learn how they perceive your price, and analyzing the results to identify an acceptable price range before you set or adjust your price.

It's critical to find the right price for your product because overpricing may limit your market share, and underpricing can prompt customers to question product quality. Performing pricing research helps you:

The only way to fully understand what your product should cost is to do your research. 

Now that we've established why pricing research matters, here's how to conduct it, and a practical path for putting each step into action.

The first step in any type of research, including pricing, is to define its purpose. Are you pricing a new product, optimizing an existing price, testing a price increase, or defending against a competitor's move? Getting specific here — a launch price versus a price increase, for instance — keeps the rest of your research focused.

There are a variety of methods for researching price. Choose yours based on your stated purpose and whether you're looking for a specific price point or a range: Van Westendorp for a price range, Gabor-Granger for elasticity, conjoint analysis for feature-price trade-offs, or competitor benchmarking for market positioning.

How do customers view price in the context of purchasing products like yours? For example, does a high price signal quality, or does it feel unreasonable? This context shapes how you interpret everything you collect in the steps that follow.

Field the study to your own customer list or a panel audience that matches your target buyer profile, so the data reflects the people who will actually decide whether to pay your price.

Conduct research based on the method you've chosen to meet your goals, and gather enough responses for statistical confidence. Filter out low-quality or outlier data before you draw any conclusions. SurveyMonkey has a variety of research features to meet any pricing research need.

Evaluate the data you collect — SurveyMonkey has various features to assist with analysis. Plot your price sensitivity data, identify your acceptable price range, and choose the best price for your product with evidence instead of guesswork.

You don't have to build this process from scratch. The Price Optimization solution from SurveyMonkey LaunchPad automates steps 2 through 6: it's built on the Van Westendorp Price Sensitivity Meter methodology, with the four-question survey, guided setup, and best practices already in place.

As responses come in, it surfaces your optimal price point, acceptable price range, and price sensitivity, so you can move from customer feedback to a pricing decision faster.

There are several ways to find the right pricing structure for your product line. Here's how the most common pricing research techniques compare:

The Van Westendorp pricing model, developed in 1976 by Dutch economist Peter Van Westendorp, is used to develop a price range for your products. Van Westendorp’s Price Sensitivity Meter typically asks the target market questions similar to these four in survey form: 

The collected data is used to plot points on a price sensitivity map, where the x-axis is the price and the y-axis is the percentage of survey respondents who selected that price point. The intersections of the data points are what help you identify your price range and estimate your ideal price.

The intersection of questions one and two (too inexpensive, and good value) is your point of marginal cheapness (PMC), and the intersection of questions two and four (inexpensive/good value, too expensive) is the point of marginal expensiveness (PME). These two points represent the low and high price limits your customers are willing to pay—also known as the “range of acceptable pricing.”

Note: The Van Westendorp price sensitivity meter does not take competitive pricing into account.

In the 1960s, economists Andre Gabor and Clive Granger developed a pricing technique that used survey research to discover the price elasticity of products. The Gabor-Granger method of direct pricing research asks people in your target market questions like this example:

After considering all of the information about product X, how likely are you to purchase it at Y price?

Using skip logic, if the respondent answers with one of the bottom three (Somewhat likely, Not so likely, or Not at all likely), they would be presented with the same question with a lower price point. 

If they answered with one or two (Extremely likely or Very likely), the number of responses would be counted toward a top-2-box score. The percentages of these answers are added together to show the percentage of respondents who are likely to purchase your product.

For example, if 15% answered extremely likely and 25% answered very likely, your top-2-box score would be 40%. 40% of your target market would be likely to purchase your product at the price you listed.

Another way to administer Gabor-Granger price testing is to ask questions like this one:

Based on what you now know about product X, would you purchase this product at $200?

If the respondent answers yes, they are asked again for the price of $225. If the answer is yes, they are asked again for a price of $250. If the answer is no, the maximum price they are willing to pay is $225.

The data collected from the Gabor-Granger method is then used to determine demand at particular expected price points (price elasticity) using data-driven evidence. Just keep in mind that this pricing method does not consider your competition.

Yet another method of pricing research is found in conjoint analysis. Often considered the most reliable pricing strategy, conjoint analysis uses discrete choice modeling to determine the influence that price and product features have on willingness to pay. This is similar to the actual experience of making purchasing decisions while shopping.

Survey respondents are presented with prices and features from a group of similar products and asked to choose which item they would buy based on the comparison. The collected data can be analyzed to determine which price points have the most impact on shoppers.

An example might look like this:

If you were in the market for a new smartphone, which of the following would be most appealing to you?

This may be followed by an open-ended question asking why the respondent chose the answer they did.

As you can see, conjoint price analysis is also a measure of what features your customer base is willing to pay for in your product. The next question may look like this:

Again, respondents are asked to qualify their answers.

Question sets would continue with varied attributes and price tags to find what price and feature sets are most appealing to shoppers. Beware of overburdening your survey respondents with too many sets. This can lead to confusion and survey fatigue.

Unlike conjoint analysis, monadic price testing presents respondents with only one product in isolation rather than a group of similar products. Your test group is split into subgroups. Each subgroup is presented with the same product but at different prices. They’re either asked whether they would purchase the product at the given price, or they’re given a rating scale referring to the likelihood to buy at the given price.

The data from monadic price testing reveals how respondents react to price in the context of the product description. Pricing is tied to brand value, so this also puts a dollar value on your brand. 

However, monadic testing does not usually ask respondents to provide insights about the prices (why a price is too high or low). It also won’t help you determine if you could be charging more than the given price or how elastic or inelastic your pricing is.

A market research pricing strategy is a pricing decision backed by direct customer and market data, rather than intuition. It uses methods like Van Westendorp or Gabor-Granger to find a price range customers will accept before you set a final price.

Define your pricing question, choose a method suited to a new launch (Van Westendorp or conjoint analysis work well), survey your target audience, and analyze the results to find your acceptable price range before you set your launch price.

The terms are used interchangeably. Both describe the process of gathering customer data to determine the right price for a product or service, typically through survey-based methods.

The methods are the same — Van Westendorp, Gabor-Granger, conjoint analysis, and monadic testing all apply to both. The main difference is how you describe the stimulus: a product concept versus a service description.

With an automated, panel-integrated solution, you can get pricing feedback in as little as one hour once your study is live, compared to weeks with a traditional research agency.

There's no way to price your products or services for maximum revenue without pricing research. Whether you use Van Westendorp, Gabor-Granger, conjoint analysis, monadic testing, or a combination of methods, you need data.

The Price Optimization solution from SurveyMonkey LaunchPad, powered by the Van Westendorp Price Sensitivity Meter methodology, helps you obtain the data to set new prices, optimize existing prices, and personalize pricing by audience segment — no research background required.

Not sure where to start collecting price feedback? Try the price testing survey template as a quick way to gather early input before moving into a full pricing research study.