Stay tuned – Receive JSM-news !

Join the JSM mailing list to receive our latest updates.
Email address
ABOUT
All too often companies have only the vaguest idea about what kind of data they’re holding; because such data is very often hidden deeply away in a variety of databases and fragmented across different departments. We identify this data and bring it to light, making it visible, cohesive, comparable and easy to understand so that it really does support YOU in making the right decisions. And if need be, we can also identify any lacking data and define a concept to fill in the gap.

Determining the right price of a product using Price Sensitivity Measurement (PSM) Analysis

Posted by on Nov 8, 2017 in Case Studies | No Comments

OBJECTIVE

Getting the price of a product right is one of the most challenging issues faced by a B2B marketer. Price Sensitivity Measurement (PSM) Analysis is one of the marketing techniques for determining consumer price preferences by assessing different price-levels to provide recommendation on the most optimal price of a product. The aim of the research was to determine the Optimum-Price-Point (OPP) that supports the quality of a brand by differentiating the OPP for the common sample in optimal prices as assessed by consumers.

APPROACH

A traditional PSM exercise includes a series of unaided pricing questions for the product under study and generally, take the following form:

  • At what price do you consider ‘Product X’ to be a bargain? (a great deal for the money)
  • At what price do you consider ‘Product X’ to start getting expensive but still worth considering? (expensive/on the higher side)
  • At what price do you consider ‘Product X’ to be too expensive and would not even consider it? (too expensive)
  • At what price do you consider ‘Product X’ to be too cheap that you would doubt its quality? (too cheap)

The four questions which have been presented above will yield four cumulative distributions. Please note that the standard method requires that two of the four cumulative frequencies must be inverted when plotted in order to have the possibility of four intersecting points. Finally, the intersection of the “too cheap” and “too expensive” lines represents an “optimal price point”. This is the point at which an equal number of respondents describe the price as exceeding either their upper or lower limits.

The other intersecting points are:

PMC=Point of Marginal Cheapness: The price point where more sales would be lost because of the questionable quality than gained from those seeking a bargain (intersection of “too cheap” and “expensive”) and is the lower bound of an acceptable price range.

PME=Point of Marginal Expensiveness: The price point above which the cost of the product outweighs the perceived value derived from it (intersection of the “too expensive” and “cheap”) and is the upper bound of an acceptable price range.

IPP=Indifference Price Point: The point at which the same proportion of customers feel the product is becoming too expensive as those who feel it is cheap, that is, where most are indifferent to the price (intersection of “expensive” and “cheap”).

OUTCOME

PSM claims to capture the extent to which a product has an inherent value denoted by price. The  implications  of  the  study  suggest  that  the  price  should  be  set  in  accordance to the opinion of the consumers that incorporates their estimation of the brand value into their optimal price which is based on the data that was analysed to obtain Optimal Price Band (OPB). From the PSM graphs, one can get useful information about the price-reductions one has to offer to make a “psychological impression” on the consumers.

Sravika Pratapa

A postgraduate in Statistics from Osmania University. I have 8+ years of hands-on experience in Market Research. I have strong skills in team building and communication. When not in the shoes of a professional, I am a passionate dancer.

More Posts

Leave a Reply