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Topic: Other

Estimating Price Premium (2)

Posted by Anonymous on 9/3/2004 at 2:02 AM ET 1000 Points
I am trying to quantify the price premium consumers are willing to pay due to the sole influence of brand. In other words, my goal is to measure the price premium that a brand A can command over brand B when selling two products that are perceived as having the same functional characteristics by end-consumers. For the sake of simplicity, let’s assume we are able to identify such two products.

I would be very interested in knowing the state-of-the-art methodology (including conjoint analysis) that leads to this measurement. References to books, articles, papers, or web sites are all very welcome as I think the space available puts a limit on the complexity of the answers.
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  • Posted by Deremiah *CPE on 9/3/2004 at 5:09 PM Member
    Mvocale,

    I read a great book that helped me to appreciate pricing premium. It also helped me to discern the advantages of one item over another equally similar product or service. The book was by a virtually unknown gentleman named Jay Abraham. It's called "GETTING EVERYTHING YOU CAN OUT OF ALL YOU'VE GOT". You can purchase it here.

    www.amazon.com/exec/obidos/tg/detail/-/0312204655/002-0331666-1860027?v=gla...

    Premium pricing is contrived when a company or person understands the true value of the brand benefit. There is also an appreciation for the working knowledge of how valuable that product or service is to the end user (the customer). That's the best I can do for right now. I'll give it some more thought later. Is there anything else I can do for you?

    Your Servant, Deremiah, *CPE, (Customer Passion Evangelist)

  • Posted by Chris Blackman on 9/4/2004 at 9:43 AM Member
    As with most things there are both simple and complex ways to find the answer.

    The simplest solution is probably to arrange the competing brands in a display and ask survey participants to suggest what they would pay for them (and why).

    The more complex ways involve software, double-blind testing and great expense.

    Try the simple way. If not satisfied you can always try the more complicated, more expensive ways.

    Hope this helps.

    ChrisB

  • Posted by mgoodman on 9/4/2004 at 9:27 PM Member
    Depending on the category/industry, I've had very good success with a price elasticity estimating technique that draws on people close to (and intimately familiar with) the distribution channel and marketplace involved.

    I've developed a kind of questionnaire for them that asks what sales/share level a brand could achieve at various price points (among other things). Then I take the responses (usually 10-15 respondents) and run it through a model, comparing results to some known products/categories that are similar, and drawing conclusions based on the analysis.

    It doesn't give a definitive answer, but it brackets the likely options and identifies the issues pretty well. Of course the quality of the answer is directly proportional to the knowledge/expertise of the experts used for input.

    Price elasticity, for all the mathematical underpinnings, is still not a perfect science. If you do a lot of it, though, you refine your intuition and it can guide you through the process.

    If you need/want more detail, contact me directly. I've done more than my fair share of pricing strategy projects over the years -- all kinds of categories and industries.
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