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Pricing plays an important role in business. If the price of a product or service is too high, a company risks losing market share, but if the price is too low, it might not be able to cover its costs. Indeed, there’s a fine line between the amount of money companies need in exchange for their products (in order to safeguard their profit margins) and what consumers will actually pay for those products. That’s why pricing research is so critical and should be the first step every business takes if it wants to build better business practices, increase consumer demand and, ultimately, turn a profit. Take a look:
Research indicates that there is a direct correlation between price and consumer demand, with demand following a downward curve as the price of a product or service increases and swelling as pricing declines. But while simple in theory, pinpointing the right price — the point at which consumers believe they are getting the best value for their money — is hardly ever a straightforward process. It’s not a matter of guessing well (except for the very, very lucky); on the contrary, businesses must spend time and energy analyzing market conditions if they want to find that sweet spot where pricing positively impacts consumer demand.
Pricing research provides insights into market conditions and consumer behaviors that companies can then use to bolster their own business strategies, augmenting their pricing strategies when needed so that they remain relevant, desirable and competitive. The benefit of good pricing research includes:
If pricing fluctuates according to demand, then it’s crucial that companies understand the extent. Many factors affect elasticity: of course, price, but also other considerations such as the availability of complementary and substitute goods (see next bullet point); the income level of consumers; whether or not the product is considered essential (like medications) or expendable (like cookies); and more! Pricing research can be used to measure just how much influence a company’s pricing has on consumer demand so that the company can respond in a way that improves demand.
Sometimes, the sale of one product is influenced by the sale of another. For example, when two products are often used in tandem, they are considered complements to one another (such as gas and cars; peanut butter and jelly; and smartphones and apps). On other occasions, one product (such as Skippy peanut butter) might be considered a replacement (or substitute) for another product (like JIF) should it become unavailable for some reason. In all of these cases, the demand for one product is often affected by the price of the other one. Companies can use pricing research, then, to identify pricing and demand conditions for their product’s complementary and substitute goods, using the data to rethink their own pricing and marketing strategies and hopefully boost consumer demand and sales of their own products.
Of course, many times there are conditions not related to price that end up affecting consumer demand for a product or service. (We see you, COVID-19!) In addition to pandemics, things like consumer preferences, market concentration and even the time of the year can impact consumer demand. Pricing research sheds light on these types of potential issues, allowing companies the opportunity to rework either their offerings or their marketing in response. The hopeful result: increased consumer demand!
Our team at Research America is skilled in providing powerful pricing research strategies for all types of businesses. We have helped countless clients uncover insights that not only improve their products and marketing efforts, but increase consumer demand in a variety of markets. Please contact us to learn more.
You may also review some examples of our work here.