A guide to product pricing research methodologies

For 60 percent of internet users in the United States, a product’s price is more important than its brand name. 

Yet setting a price on a product or service is a high-wire act. Set a price too low and your business can lose profit. Set it too high and you won’t get enough sales. 

But picking the perfect price for a product is possible. 

How? 

With careful product pricing research. In this guide, you’ll learn what product pricing research is, why it’s important, and which methodologies you can choose from.

What is pricing research? 

Pricing research is a process that helps businesses understand what their consumers are willing to pay for a product or service. 

Price is a complicated, nuanced concept that carries a different meaning for manufacturers, sellers, and consumers. 

At its core, we can define price as the “the agreed value placed on [an] exchange by a buyer and a seller to acquire a product or service,” as researchers L. Smit and T. Van Niekerk put it in a paper titled, “Selecting a price strategy: a statistical approach.”

Think of pricing as a science, and pricing research as the methodology that leads you from a hypothesis to the final results.

These results help you:

• Maximize revenue: When you understand how much customers are willing to pay, you can set prices that meet those expectations while also driving revenue.

• Stay ahead of the competition: You can learn a lot about how to set your own prices—and stay a step ahead—when you study how competitors price their products. 

• Understand consumer perception: Pricing research is a type of market research. It helps you get a clear picture of how your customers perceive your brand. Do they think you offer cheap, you-get-what-you-pay-for goods? Or do they consider you a luxury brand they can only afford once a year? It pays to know.

• Position your product or service: Pricing research helps businesses position their products or services in the market. You can strategically price products based on quality, features, and the customers you’re targeting. When you understand where your products fit in, you can differentiate yourself from competitors—and position yourself to attract specific groups of customers.

• Forecast demand: Pricing research helps you forecast demand for your products. How? By analyzing how changes in price impact consumer behavior. When you know how customers react to these changes, you can anticipate fluctuations in demand before they happen. 

Why is pricing research important? 

Product pricing research gives businesses the tools they need to make informed pricing decisions.

Getting the price for a service or product right is critically important to your revenue. The goal of pricing research is to figure out a price point that works for both you and your customers. Not too high, not too low—just right, Goldilocks style. 

But for such a concrete, objective end result—a product is either $10.99 or it’s not—there are seemingly endless questions to answer when you tackle the task of naming a price. 

The job gets even more daunting when you look up something like, “How to determine product pricing” on Google only to find an overwhelming array of results.

You might feel tempted to ignore every sage piece of advice out there and just start using guesswork and intuition to assign prices.

Plenty of businesses do that—often with disastrous results. 

Don’t do it. Some of the product pricing methods on our list are super simple. Others take a little more work. The bottom line is there’s something here for everyone. 

So relegate the guesswork back where it belongs—to your morning habit of playing Wordle and all its spinoffs.

Below, you’ll find easy-to-understand explanations of six popular pricing models. 

Types of pricing research methodologies 

Van Westendorp Price Sensitivity Meter

The Van Westendorp Price Sensitivity Meter uses four core questions to find out what customers will pay for a product. It gets its name from the person who invented it in 1976—Peter Van Westendorp.

This simple method involves showing your customers a product and asking them four specific questions about the product’s hypothetical price: 

• What price would be so low that you’d question the product quality (too cheap)?

• At what price would the product be a bargain (valuable but cheap)?

• At what price would you consider the product expensive, but not too expensive for you to consider buying (not a bargain)?

• What price would be too outrageously high for you to even consider buying it (too expensive)? 

Once you have the answers, use the responses to create a graph. Price should be on the x-axis, with the number of respondents (represented as the cumulative proportion of respondents) on the y-axis. 

With these results, you can visualize two important points: 

• Point of Marginal Cheapness (PMC): the lowest price at which a product can be offered before consumers start to question its quality. Found at the intersection between too cheap and not a bargain.

• Point of Marginal Expensiveness (PME): the highest price at which a product can be offered before a significant number of consumers start to view it as too expensive. Found at the intersection between valuable but cheap and too expensive.

All the prices in between those two points are considered within the Range of Acceptable Prices. In other words, your customers are likely to find the pricing fair and attractive. 

The Van Westendorp method is simple, but it uses the most powerful opinion of all—that of your customers—to find an ideal price range for a product. Use it when: 

• You're introducing new products to the market and don't have pricing data to compare potential prices to

• You're a small or mid-size company with limited resources for complex market research, and you need a trustworthy price range ASAP

Conjoint analysis 

Conjoint analysis aims to find out how much customers value the different features of a product or service. To do it, you’ll run through seven core steps. 

Here's an overview of each one:

• Step 1—Define the key attributes and levels: Identify the key features (attributes) of the product that you want to test. Each attribute will have different options (levels). For example, if you're studying smartphones, your key attributes would include things like battery life and screen size. Each attribute would also have various options, like 12 or 24 hours for battery life, and 5.5 or 6.5 inches for screen size.

• Step 2—Design the survey: Create a set of hypothetical products—known as profiles or concepts. These profiles and concepts are based on different combinations of the key features and the various options within each one. 

• Step 3—Collect data: Present survey participants with several different sets of product options. Ask them to choose the ones they would most likely buy. This forces them to consider all the different attributes and think through the benefits and trade-offs of each one. Just like we do in real life. 

• Step 4—Analyze the data: Look at your results and find the utility, or value, placed on each level of attribute. A higher utility value indicates a stronger consumer preference for that option. 

• Step 5—Calculate importance: Use utility values to calculate the importance of each attribute. Your goal is to look at the range of utility value scores across all the levels of each attribute. An attribute that causes a big jump in preference when it changes—like a leap in utility from a low price to a high price—is worth noting. More so than ones that cause little change in preference. 

• Step 6—Simulate market scenarios: Use the utility values to simulate different market scenarios. Here, you want to see how changes in product features affect consumer choices. This can help predict how a new product—or a change in an existing one—would perform in the market. 

The insights gained from a conjoint analysis survey can help you decide which features are worth including in a new or updated product. It also helps you avoid common blunders—like including too many expensive features that don’t add much value for customers. 

Cost-plus pricing

Also known as markup pricing, cost-plus pricing is a method where you add a fixed percentage to the cost it takes to produce one unit of a product. Unlike some of the other methods on our list, this one focuses solely on production costs—not on competitor pricing.

This straightforward method takes just a few steps to do: 

• Calculate total cost: Add up all the costs involved in producing a product. These usually include materials, labor, and overhead—things like rent, utilities, and other indirect costs.

• Determine the markup: The markup is a percentage that represents how much profit you want to make over the cost of production. Here’s how to calculate it:

• Figure out the difference between the unit cost and the desired selling price

• Divide this difference by the unit cost

• Multiply by 100 to convert this figure into a percentage

• Apply the markup to the total cost: Multiply the total cost by (1 + markup percentage) to find the selling price.

Here’s a quick example.

Imagine you own a clothing store and want to set a price for a blouse. Here’s how much it cost to make it, along with your desired markup:

• Material costs: $15

• Labor costs: $30

• Overhead costs: $15

• Total cost: $60

• Desired markup: 50%

Calculation:

Selling price = $60 (total cost) × (1+0.50) = $90

With cost-plus pricing, each blouse would cost $90, bringing you $30 in profits.

If you like to keep things transparent with your customers—and keep your budget in line—cost-plus pricing is a great way to do this. 

There’s nothing to hide: you tell your customers how much it costs to make something and how much profit you need to thrive as a business. When the cost of materials or labor go up, you can raise your prices—and tell your customers why. 

Gabor-Granger method

The Gabor-Granger method can help you determine your customers' willingness to buy a product at different price points. Developed in the 1960s by economists Clive Granger and André Gabor, this method is useful for figuring out how to price for maximum revenue. 

There are four key steps in the Gabor-Granger method:

• Design your survey: Pick several different potential prices for a single product or service. On a survey, present the product and ask consumers whether they'd purchase it at the named price. 

• Collect data: Make sure you only show one of the potential prices to each respondent. You can use a specific system to decide who sees what price, or you can randomize it.

• Analyze the responses: After running the survey, collect the responses and find out which percentage of your respondents would buy a product at each price level. 

• Find optimal pricing with the demand curve: Using the collected data, you can build a demand curve showing the relationship between price and the percentage of buyers. The curve helps you pinpoint the optimal price point—in other words, the price that maximizes revenue. To get this number, multiply the price by the percentage of customers willing to buy at that price. 

We asked ChatGPT to give us an example of what Gabor-Granger pricing looks like in action. Here’s the Gabor-Granger method for pricing a new type of gourmet coffee:

Step 1: Survey design

We design a survey where each respondent is asked if they would buy a bag of gourmet coffee at a specific price. We decide to test five different prices: $10, $12, $14, $16, and $18.

Step 2: Data collection

We survey a group of coffee drinkers, randomly assigning one of the five prices to each respondent. Here's an example of how the responses might look:

• 90% of respondents say they would buy the coffee if it cost $10.

• 85% of respondents say they would buy it at $12.

• 75% of respondents say they would buy it at $14.

• 60% of respondents say they would buy it at $16.

• 45% of respondents say they would buy it at $18.

Step 3: Analysis of Responses

Next, we calculate the potential revenue at each price point. We do this by multiplying the price by the percentage of respondents who would buy it at that price:

• $10 x 90% = $9.00 per respondent

• $12 x 85% = $10.20 per respondent

• $14 x 75% = $10.50 per respondent

• $16 x 60% = $9.60 per respondent

• $18 x 45% = $8.10 per respondent

Step 4: Demand curve and optimal pricing

From this, we can plot a demand curve and see that the optimal price—which maximizes revenue per respondent—is $14, generating $10.50 per respondent.

It’s helpful to use the Gabor-Granger method after you’ve already identified an ideal price range. 

Let’s say you use the Van Westendorp Pricing Sensitivity Meter to determine an ideal product range of $7 to $14 for a new type of snack. Instead of stressing about deciding which exact price to use from that range, you could run a Gabor-Granger survey on prices between $7 and $14. This would help you pinpoint the price that would return the most revenue.

Brand price trade-off

Brand price trade-off (BPTO) helps companies understand how customers choose products based on their brand and price. 

When you use the BPTO method, you’ll start by presenting consumers with a series of product scenarios that vary in brand and price—or both. 

You'll ask consumers to choose which one of these products they’d prefer to buy, and why. The goal is to understand how different brands and price points influence customer choices. 

Here's an example of how it works for three different, hypothetical tablet brands.

Step 1—Design different scenarios: Create several scenarios featuring your three tablet brands (Brand A, Brand B, Brand C) at four different price points ($200, $300, $400, $500). Each scenario presents a different combination of brand and price:

• Brand A at $200

• Brand B at $300

• Brand C at $400

• Brand A at $500

• Brand B at $200

Step 2: Consumer Survey: Run a survey where each participant gets to see a subset of these scenarios. Ask them which tablet they're most likely to buy from each subset presented to them. If you want some qualitative data with your quantitative data, ask them why. You can randomize the order and combinations to minimize bias. Use the data to see which combinations of brand and price are most attractive to your consumers.

Step 3: Analyze the data to identify patterns: For example, you might find that:

• Brand A is preferred at lower price points but loses favor as the price goes up.

• Brand C is rarely chosen at $300 but becomes the preferred choice at $500.

• Brand B has moderate appeal across all price points but is most competitive at $300.

These results give you insights into brand loyalty and the price points that give each brand the most competitive strength.

The BPTO method excels at helping companies launch a new product, tweak pricing, and analyze the competition. 

Monadic price tests

A monadic price test is a product pricing research method that aims to gather straightforward answers on pricing. The word monad means “one” or “unit.” A monadic test stays true to this meaning. In it, you’ll show each respondent just one product and price combo. 

There's no evaluating this combination alongside any other factors—like competitor products or the same product package at a different price. 

That’s because the goal is to gather detailed feedback on how consumers perceive the value and quality of the product. First, they’ll answer a yes or no question on whether they’d buy the product at the named price. Then, they’ll tell you why they said yes or no. 

You could be testing anywhere from five to ten potential prices. But each respondent must only see one. 

To run a monadic test, you’ll present each participant with a single product and price. They don’t get any comparative context with other products or prices, which helps isolate their reactions to just the product in question.

After studying the product and the price, participants will answer several questions about:

• Whether they’d purchase the product or not

• How much value the product has at the listed price 

• Their overall impression of the product quality 

Because each survey participant only gets exposed to one product-price point combination, you need a lot of responses to draw from. Aim for 50 to 100 responses for each price-product option. 

This method is ideal for gauging price sensitivity after you've solidified a product and its features.Your goal isn’t so much to decide which features to include, but to pin down the best price and the reasons why your customers support it. 

Monadic testing is also helpful for companies with mutliple audience segments to target. You can figure out what the optimal price point is for each segment based on their specific responses. 

Key takeaways

As you set out on your journey to find the best prices for your products, remember these key points:

• Pricing is a science, not a guesstimate. Instead of relying on your intuition, take the time to research the best possible prices for your products.

• Build a custom strategy with one or several product pricing methods. The six methodologies we've covered offer unique strengths. Use only the methodologies that you have time, energy, and resources for. Or, if you want to try two or three, start with a deep-dive into one methodology before working your way through the next. Take it slow and trust the process. The results will come in, and they will help you price your products.

• All six product pricing methodologies have one thing in common: They rely on feedback from survey respondents. Embrace this fact as a chance to get to know your customers better than ever before. 

Tremendous can help you compensate your respondents for their time. We make it easy to send digital gift cards and prepaid Visa cards almost anywhere in the world for free. We’ll even handle conversion rates and translation. 

And since you probably don’t want another thing to price right now, use our handy pricing research incentive calculator to figure out how much to pay your respondents. 

Sign up for a free account or take a demo with us to learn more.