What should be the best price for new products? This is always the most vexing problem in market development. Custom Decision Support, Inc. (CDSI) had developed an approach designed to give the maximum guidance while assuring results through simple field research procedures.

Keeping it Simple and Fault Tolerant

Unlike complex and contrived research procedures such as conjoint card sorts and discrete choice modeling, our approach captures customer's intention to purchase at fixed price points. The price points by the client to give a reasonable profit. This approach thereby assures an appropriate answer to the bottom-line question, "Will customers buy the product at a given price?" Furthermore, the simpicity of the method results in a reduced field costs and allows larger samples of potential customers.

Going Beyond Price Points!!

We are able to go beyond the demand at fixed prices by modeling customer decisions and that of the market. Individual responses are used to estimate the full range of customer demand. These individual demand functions are merged to give an estimate of the total market demand curve. The resulting curve is smoothed to provide an estimate of the total market.

What is the Best Price?

An optimum price yields either the maximum earnings or revenue. If average costs are available optimum prices based on earnings can be determined. Typically, without cost information optimum prices are based on maximum revenue. With the total market demand curve, an estimate of the optimum price can be obtained. Note that the optimum price may be far away from the initial suggested price points. This method allows exploration of possible marketing strategies beyond those originally considered.

What is the Market Value?

Market value is the price of the concepts which would yield the same estimated market share. These prices may again be far removed from the price points initially suggested. Notice, however, that market value of alternative concepts will change depending on the fraction of the market for which it is being considered. Value differences between concepts may become very small at high levels of penetration and large for the premium market at low levels of penetration.

Competition and Offering Mix -- What if?

Competition rules the market place. Market simulators can provide insight into the dynamics of these markets. They are designed to help optimally select the products and prices. CDSI provides user friendly simulators in these cases, allowing testing of competitive situations and estimate the impacts of changes. The example, below is a typical case where three alternative concepts are proposed. They may be offered at any of four prices or not offered at all. The threshold is the level of the likelihood of purchase indicated by the respondents in the survey and the awareness is a factor to capture the impact of promotion. Changes in prices, the threshold and the awareness are then seen in changes in the share.

Price 1 Price 2 Price 3 Price 4 Choice Share
Concept A $5.00 $5.50 $6.25 $8.00 Price 2 10%
Concept B $10.00 $11.00 $12.00 $14.00 Price 1 16%
Concept C $8.00 $9.00 $10.00 $11.00 Price 1 25%
Neither Threshold 70% 49%
Awareness 50%