Essential skills for maximizing your business strategy

Getting added value from conjoint analysis

The added value of conjoint analysis lies in the fact that values that aren’t measured can also be predicted. This is generally achieved by linking the values that one wants to measure in a linear fashion. Even though this normal adaptation of conjoint analysis has its advantages, conjoint remains a flawed tool because it simply ignores the fact that price assessment follows a step-by-step model rather than a linear pattern.

An important correction of the analysis is achieved by including the consumer’s not-so-rational decision-making process. Prices that are optimized on the basis of the consumer as homo oeconomicus will therefore mean that the conjoint analysis (in its normal adaptation) will not have a very major impact. The validity will be greatly increased if the analysis incorporates the irrationality associated with decisions made by consumers plus a more in-depth analysis of the psychological side of decision-making. (Dr. Bauer, Vocatus AG, 2006-2011)

To get more in-depth knowledge of this process, the European Pricing Platform is organizing a Master Class training on the Pricing Toolbox, given by Dr. Bauer on the 9th and 10th of May in Hamburg. In this training Dr. Bauer will introduce his expert view of the ‘Psychological Price Profile’ and take you into the world of financial risk-taking, rational decision-making, and how to set prices accordingly. This means gearing your pricing strategy towards existing consumer types that are based upon pricing psychology. By focusing on how to adapt existing tools that are dealt with during the training (such as BPTO and conjoint analysis), Dr. Bauer will show you how to get the best of both worlds. During the course of this two-day training, he will transfer his insights to the participants’ own pricing issues so that they can maximize their own organization’s business strategy.

Articles of Dr. Bauer can be found online at: http://www.vocatus.com/publications/feedback.php.
 
For more information on this training please visit: http://www.pricingplatform.eu/site/public/trainings_detail.asp?id=126.

Understanding The Willingness To Pay: The Key To Higher Margins ....

Understanding the value perception of the different value components for setting prices interpreted by the customer is very important information. Comprehending of this information leads without a doubt to many new insights into the willingness to pay.

Firstly, the main value components on which a customer evaluates a product or service needs to be traced. Subsequently, understanding the ‘utility’ per value for each component leads not only to understand the total value perception, but also into the proposition of its components by the value perception . This information is not only very important for optimizing a product concept, but also for putting the ‘right price’.

Alternative techniques to identify willingness to pay include the ‘Van Westendorp price meter BPTO (brand / price trade-off), expert interviews and market testing’. They all have their pro’s and con’s. Nevertheless, in most cases the conjoint analysis is been used. Conjoint analysis is an important technique to identify the willingness to pay. It is a methodology familiar for both marketers and market researchers because it’s also used for concept-testing. The enclosure of 'price', is relatively new in this method. Because ‘price’ isn’t actually a value component (there excist price and value. ...) this technique still leaves many question-marks.

Consequently, the issue has been arisen whether the conjoint analysis is a good technique to put into practice for achieving an optimal pricing.

Conjoint analysis is in fact a method used to measure consumer preferences: what are the important aspects of a product, and how important are these aspects in relation to preferences. In other words, what considerations are made when choosing a product? This technique is been used increasingly to find out, ‘how much one is willing to pay for a particular item?’. At this moment the customer is also asked for a value-proposition compared to a price review. For example, suppose a consumer must book a flight and can choose between ‘a flight with little room left for his/her legs, and a transitional flight for a price of € 200’ or ‘a flight with plenty room left for legs and a direct flight for € 500’. Herewith, conjoint will learn the importance of each value component: legroom, direct vs. non-direct flight and price. Moreover, assessing the price sensitivity is much more interesting to identify as well. For example, what happens when ‘the cheap flight with little room left for legs’ becomes 10% more expensive. Plus, how much more are consumers willing to pay for a direct flight. These insights can also be translated to a potential impact on revenues and profit margins.

Problem noted by critics is that price is not a real component value. Price is compared against value. Therefore, a conjoint analysis could be recognized as a good technique to measure price sensitivity and willingness to pay? The answer is yes, if the technique is correctly applied and the results are interpreted on a correct manner as well.

Do you want to find out more on how deterministic mining the right price for a product can help you to increase realizing profitability for your company? Then join us on the workshop: 'Value-based pricing' on the 21st of April at Blauw Research - Nuremberg. Language of the workshop will be German.

For more information:

http://www.pricingplatform.eu/site/public/workshops_detail.asp?id=70

Or feel free to contact Britt Dejager (britt.dejager @ pricingplatform.eu) when interested to attend on this interesting workshop.

The European Pricing Platform (EPP):

The first independent and 'Non-Profit' European network and platform to support focused pricing decision makers over a variety of industries and sectors. Our target is to update the pricing know-how of the business manager. Our mission is to be the on-and off-line place for international pricing / business decision makers in a wide range of industries. The interactive sharing, collecting and development of pricing knowledge are the key elements.

Source: Pol Vanaerde - ePP President