Optimize your product pricing: Methodology

Advanis' approach to value based pricing uses
Customer Decision Analysis (Advanis' proprietary approach to choice-based conjoint studies) to model consumers' behavior. The crucial point about this methodology is that (unlike many alternative approaches to pricing) it allows us to forecast a pricing structure, even where no historical data exists. This is critically important if you are operating in new markets, or if your product or service 're-invents' its category - rendering conventional pricing schemes irrelevant. However, it is equally applicable to conventional markets.

Scope
The first step is to define the scope of the project. We will work with you to clarify your business problem so the results will be actionable. The goal is to build a demand model that predicts market share, uptake, revenue, and/or profit resulting from changes to pricing, product, line-up, channel, customer service, or the competitive landscape.

Design
Next, we construct choice experiments to include in a survey. This involves the design of hypothetical markets based on real (current) and possible (future) market scenarios.

We will ask customers to make choices in the hypothetical market among alternative market structures, products, competitors, channels, etc.

Data Collection
To ensure the integrity of the data, Advanis is a vertically integrated operation. We conduct the data collection ourselves with our in-house capabilities.

Trade-off surveys can involve complex experimental designs that in turn require complex programming if administered via telephone or the Web, and complex printing procedures for mail and central facility data collection.

Advanis conducts data collection so that we can exercise a high level of control to ensure that trade-off data is properly collected.

Modeling
Advanis uses advanced statistical/econometric techniques to model consumer behavior.

These techniques allow us to estimate demand models based on either ordered or unordered alternatives.

Market Simulator
The modeling phase allows Advanis to build a war-gaming tool called a market simulator. This can simulate any change in market conditions within the scope of the research.

• Calculates change in expected market share/take rate/revenue/profit given changes to products/services in the simulated marketplace.
• Calculates a variety of inferential measures such as:
  • marginal demand
  • price elasticities

Report Phase
Advanis' analysts interrogate the market simulator to explore a range of market scenarios. This allows us to transform the model into recommendations:

• How should products be designed to increase market share?
• What is the optimal price-point?
• What is the optimal product line-up?
• What is the price premium of your brand?

Typically, we will accompany our written report with a business planning workshop or a working session with your team to identify practical solutions.

Pricing Analysis Options

• Feature pricing
  • Estimating the 'maximal' price the market will bear on each feature, all else held equal
• Pricing of established products
  • Price leader strategies - "If you raise your price above market and nobody follows, do you win or lose?"
  • Price follower strategies - "If all competitors in market drop their price, do you follow?"
• Pricing new products for maximum profit
  • If you know marginal or average cost of launching a new product, what is net present value of launch and at what price is it optimal?
• Portfolio pricing
  • The market simulator can be used to rationalize or expand a line-up based on portfolio pricing strategies.