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The Price is Right...or is it?

Posted by Dr. Jay Weiner

Thu, Jan 28, 2021

Pricing Method and Strategy Blog Opener Jan 2021

An Overview on Pricing Research

Pricing a product or service correctly is critical to realizing profitability. Too often, pricing decisions are based on the cost to develop and produce the product or service. Price it too high, and no one will buy. Price it too low, and in addition to forgoing revenue, your buyers may question the quality.

One typical goal of pricing research is to understand price elasticity—the measure of the change in the quantity demanded of a product in relation to its price change. The typical micro-economics course presents the downward sloping demand curve.

price is right graphic

As the price is raised, the quantity demand drops, and total revenue falls. In fact, most products exhibit a range of inelasticity. That is, demand may fall, but total revenue increases. It is the range of inelasticity that is of interest in determining the optimal price to charge for the product of service. Consider the following question: if the price of gasoline was raised 5¢ per gallon, would you drive fewer miles? If the answer is no, then we might raise the price of gas such that the quantity demanded is unchanged, but total revenue increases.

The range of inelasticity begins at the point where the maximum number of people are willing to try the product/service and ends when total revenue begins to fall. Where the marketer chooses to price the product/service depends upon the pricing strategy. A company should have a strategy for pricing a product/service throughout its product lifecycle.

There are two basic pricing strategies:

  1. Price skimming sets the initial price high to maximize revenue. As the product moves through the product lifecycle, the price typically drops. This strategy is often used for technology or products protected by patents. Apple and Samsung, for example, price each new mobile phone high and as other competitors match performance characteristics, they lower price.
  2. Penetration pricing sets the initial price low to maximize trial. This pricing strategy tends to discourage competition, as economies of scale are often needed to make a profit. Understanding the goal, maximizing revenue versus maximizing share is part of the first step of pricing work.

The pricing researcher needs to understand this range of prices to make good strategic pricing decisions. There are many approaches to pricing research:

  • Blunt approach: You can simply ask, “how much would you be willing to pay for this product/service?” In this approach, you typically need a large number of respondents to understand purchase intent at a variety of price points.
  • Monadic concept: You can present the new product/service idea and ask, “how likely would you be to buy X product @ $2.99?” Monadic concept tests tend to over-estimate trial. This may be because prices given to respondents in a monadic concept test do not adequately reflect sales promotion activities. Respondents may think that the price given in the concept is the suggested retail price and that they are likely to buy on deal or with a coupon.
    Monadic concept tests also require a higher base size. A typical concept test would require 200 to 300 completes per cell. The number of cells required would depend on the prices tested, but from the results we often see, it appears that these cells tend to over-estimate the range of inelasticity. Providing a competitive price frame might improve the results of monadic concept tests.
  • van Westendorp’s Price Sensitivity Meter (PSM): The van Westendorp model is a good way to get at price elasticity and better understand the price consumers are willing to pay for a particular product or service. Developed by Dutch economist Peter van Westendorp, the underlying premise of this model is that there is a relationship between price and quality, and that consumers are willing to pay more for a higher quality product. The PSM requires 4 questions:
    • At what price would you consider the product to be getting expensive, but you would still consider buying it? (EXPENSIVE)
    • At what price would you consider the product too expensive and you would not consider buying it? (TOO EXPENSIVE)
    • At what price would you consider the product to be getting inexpensive, and you would consider it to be a bargain? (BARGAIN)
    • At what price would you consider the product to be so inexpensive that you would doubt its quality and would not consider buying it? (TOO CHEAP)
    The van Westendorp series does a reasonable job of predicting trial from a concept test without the need for multiple cells. This reduces the cost of pricing research and the likelihood that we do not test a price low enough. The prices given by respondents are believed to represent the actual out-of-pocket expenses. This permits the research some understanding of the effects of promotional activities (on shelf price discounts or coupons). The van Westendorp series will also permit the research to understand the potential trial at price points higher than those that might be tested in a monadic test.
  • Conjoint Analysis: Conjoint is often used in early product development to assess the value of including certain features into the product/service option. While this does provide some indication of what attributes or features consumers would pay more for, it does not do a good job capturing the true value of these features. To do that, we need to show consumers a competitive set of offers from which to choose.
  • Choice based conjoint and Discrete Choice allow us to test products in a competitive setting, and to get a truer read on price elasticity and willingness to pay for certain features.

Choosing the correct pricing methodology is often dependent on where you are in the new product development process. The closer to market launch, discrete choice models offer the best insight into the actual potential in the market. Early in the development process, the other techniques provide guidance on how to price the product and how to choose a pricing strategy. Whatever stage of development or pricing strategy the technique you choose should yield results that help you make smarter more confident marketing decisions.


Jay WeinerJay Weiner, Ph.D. is CMB's VP of Analytics & Data Management.

Follow CMB on FacebookInstagram, LinkedIn, and Twitter for the latest news and updates.

 

Topics: advanced analytics, methodology, product development, data collection, Dear Dr. Jay, predictive analytics, Market research, technology, Best Practices, pricing

Expanding Possibilities in Path to Purchase Research

Posted by Marty Murk

Thu, Jun 25, 2020

Marty Expand P2P Blog Opener (1)

With most of the country moving through stages of “reopening,” consumers’ path to purchase has been disrupted. New habits and behaviors are forming on the fly. It feels like now, and in the coming months, reassessing the “new path to purchase” will emerge as a priority for brands big and small.

Path to purchase/consumer journey research is about exploring what moves people towards the business outcome: a purchase. The framework is relatively similar across industries, categories, and products, and typically includes a heavy focus on the actions a consumer takes towards their final purchase. The words may differ however the research typically covers:

  • Trigger: A need or want emerges moving you to a more active state in the category
  • Discovery: Initial stages of research and learning performed
  • Evaluation: Options narrowed and evaluated in more depth
  • Purchase: A decision is made, and a product is purchased

At CMB, this approach is one of the subtle differences between thinking about path to purchase versus consumer journey research. The journey being broader, more inclusive and including pre-category engagement and later stage customer experiences. Prior to COVID-19, CMB ran self-funded consumer journey research on the gaming industry.  We designed the study to be broad and inclusive of “consumer journey” stages AND in a few other ways worthy of consideration in future consumer journey research.

We went BROAD, expanding categories beyond what would typically be included.  And we think you should too. Think industry not category. In gaming, a typical approach would look at a tightly defined category within the gaming industry, the “Games” category, for instance, might define the category into gaming genres (e.g., Role-Playing-Games, First-Person-Shooters, Sporting Games). While this category approach generally yields fantastic insights - one thing that has always stuck with me is how VERY FEW differences often exist between narrowly defined categories (e.g., RPGs paths aren’t all that different form FSP paths).

Cast a wide net—in our case covering Games, Consoles, Peripherals, Cloud Gaming, AR/VR Devices, and Gaming PC/Hardware—and the differences will JUMP off the page. Take the duration of the journey for instance, the time from Trigger to Purchase:

Gaming CJ Timeline Micrographic (2)

With broad context, it becomes obvious how quickly decisions are made in the Games category (Fast, System-1 Thinking). With an easy implication on the priority of the Evaluation and Purchase moments of the path, we discover that AR/VR Devices is a much harder, slower path (Slow, System-2 Thinking) requiring heavy touches in the Research moments of the path (e.g., Discovery, Consideration). Marketing tactics need to follow suit.

As an Insights professional, the context helps with interpretation. It also sets the research up to serve broader business objectives, rather than driving an action for a solo category. In a past life, I worked in athletic industry and led some similar work on athletic footwear. After a while, we thought it would have served the business well to think more broadly and capture athletic apparel, equipment, and accessories in the same initiative.

We were INCLUSIVE, expanding to include incomplete paths. We looked at products “considered but the purchase was not completed.” Doing so allowed us to model touchpoints that drive purchases. It also allowed insights to include the idea of friction and barriers hindering the path forward. For instance, in the AR/VR category, the consumer journey creates a lot of friction with consumers. Forgive the corny gaming analogy here, but the AR/VR category is making consumers slog through an “Oregon Trail” journey, and they’re dying of exhaustion (or dysentery, or measles or fever).

CJ Friction Micrographic

Expanding in these areas doesn’t have to mean a lack of “depth” either. It may mean you need more sample/participants to support the analysis, however the right questionnaire design can still grab the granular details needed to support key business decisions. In this study, there’s a clear consumer need for those interested in AR/VR to experience the product(s) more easily. In Cloud Gaming, consumers are asking for more trustworthy reviews that are less self-serving. By comparing these two categories, key business decision makers are provided context to their data, which helps in better defining where the needs are, and what you can learn from.

P2P Gaming Challenges Categories Micrographic

So, if you’re exploring path to purchase / consumer journey work, it’s worth a pause to ask yourself, “should I expand my world?” This experience shows that there may be more categories of the business that could be included that would lead to easier interpretation and would set the research up to serve the broader business. It also open opportunities to gain more clear actionable insights by including both completed and incomplete paths. These two ideas are great additions to traditional path to purchase work.

Please reach out if you’re interested in learning more about path to purchase/consumer journey work or seeing more of the great work with did in the gaming industry.


Marty MurkMarty Murk, Account Director, is an avid runner, and our resident path to purchase guru.

Follow CMB on Facebook, LinkedIn, and Twitter for the latest news and updates. Also, read "Fast-Moving, Slow-Thinking: How Friction, Challenges, and Barriers Derail Customer Journeys" to understand the consumer psychology behind decision-making.

Don't forget to immerse yourself in our latest gaming research: A Gamer's Journey | The Virtual Reality Edition. And stayed tuned for more of our findings--VR and beyond.

Explore A Gamer's Journey
Sample provided by Dynata

Topics: strategy consulting, methodology, path to purchase, consumer insights, marketing strategy, Market research, Gaming, consumer journey

Osmosis: What Happens BEFORE "The Path to Purchase?"

Posted by Marty Murk

Wed, May 20, 2020

Osmosis Blog Opener (1)

When I go hiking, when does my “hike” really start? Is it when my shoes hit the dirt path? When I pull out of my driveway? When I park at the trail head? Or...if we go really “deep” maybe it was when I was six, learning to play baseball, and ultimately built an affinity for exercise.

It can be similarly hard to understand when a buyer’s path to purchase truly begins. In a research-heavy category, like TVs for instance, it’s obvious that you need to measure, dig into, and understand the experiences along a consumer’s journey (the Trigger, Discovery, Evaluation, and Purchase phases)

What about a category like fashion?  In some categories... there are a LOT of ideas taking shape prior to that “foot hitting the dirt path.” In fashion, people absorb what’s on/off trend (colors, styles, shapes) well before they start looking for a new pair of pants. At CMB, this approach is one of the subtle differences between thinking about this as a path to purchase versus a consumer journey. The journey being broader and including pre-category engagement and later stage customer experiences.

Customer Journey Approach

At CMB, we think of this early stage as “Osmosis” (the process of gradual or unconscious assimilation of ideas, knowledge, etc.). In the context of consumer journey, it’s the part of a person’s journey, that includes the way they engage with a category prior to a conscious need emerging

Recently, CMB self-funded an online study on the consumer journey exploring the gaming industry.  There’s no silver bullet in measuring the idea of Osmosis, however it’s very easy to miss, ignore or skip during the design phase of consumer journey work.  For this reason, we were extra careful about embedding measurement indicators about the consumer’s background and experience in the category. This study lent itself nicely, given the breadth of gaming categories covered. A few categories that intuitively would rely heavily on Osmosis in the decision process, and few that would rely heavily on the Discovery and Evaluation process.

Below is an example of drivers of the final decision, comparing six gaming categories. You see Peripherals, AR/VR, PC/Hardware relying on traditional Evaluation criteria:  reviews, promotions, etc. However, categories like Games and Consoles, are putting a lot of weight on pieces that have been gathered prior to actively being in the market: trust, and love for instance.

Four Factors Influencing Final Decision

Prior to starting path to purchase or consumer journey work, thinking through internal hypotheses and the notion of Osmosis is critical. Without it, insights risk over-emphasizing parts of the consumer journey, and missing other parts all together. Here are two tips to consider:

  1. When you think about qual, while you are connecting with the consumer—through one-on-one quality time, shopping along, or reliving a purchase—spend some healthy time digging into their background in the category (e.g., the affinity for exercise, the introduction to health and fitness). This knowledge can be invaluable to understanding the consumer broader journey. 
  2. Design any quant to probe on their history in the category, experience with product/competitors, etc. At CMB, we dig into psychological motivations by understanding  the Emotional, Social, Identity, and Functional Benefits to the consumer as well as perceptions of a brand.

In short: be conscious of what happens BEFORE you THINK “the Path” begins.


Marty MurkMarty Murk, Account Director, is an avid runner, and our resident path to purchase guru.

Follow CMB on Facebook, LinkedIn, and Twitter for the latest news and updates.

Don't forget to immerse yourself in our latest gaming research: A Gamer's Journey | The Virtual Reality Edition. And stayed tuned for more of our findings--VR and beyond.

Explore A Gamer's Journey

Sample provided by Dynata

Topics: strategy consulting, methodology, path to purchase, consumer insights, marketing strategy, Consumer Pulse, customer journey, engagement strategy, Gaming, consumer journey, osmosis

Begin with the End—Lessons Learned

Posted by Caitlin Dailey

Fri, Feb 02, 2018

Dollarphotoclub_91556333.jpg

A former colleague of mine had a post-it note on his wall that read: You have as many hours in the day as Beyoncé. Inspiring words, but for those of us in professional services (rather than entertainment) it can feel like the to-do lists never end.

I recently watched a webinar on productivity given by MIT Sloan School of Management Senior Lecturer Robert Pozen. There was a lot of useful information in the webinar, but one piece of advice really resonated: begin with the end.

“Beginning with the end” means letting your desired outcome drive the planning and execution of your task. If you are cognizant of what your end-goal is, it will make tackling projects of any scope a lot easier—whether that’s writing an email or the final report of a multi-phased segmentation study.

At CMB, we always begin with the end in mind. When kicking off a project, we meet with key client stakeholders to align on business and research objectives. We leverage our proprietary Business Decision tools to identify what the desired business objectives are, and use that information to inform our research objectives and design. This preliminary decision-focused conversation ensures the research solution, story, and results are actionable and will deliver meaningful outcomes with true business impact.

Once the project is kicked off, no time should be wasted—consider building out a narrative and recording tentative conclusions as soon as data starts coming in. It can be tremendously helpful to have a mid-field check of the data to revise those conclusions, and then do a final revision once you have all the data. The story might not change much during this time, but writing and revising your conclusions prior to the close of an initiative can make delivering the final report less stressful.

Particularly in market research, there’s pressure to deliver results faster than ever. When you start with the end in mind, you can be building out the story in an iterative process, rather than scrambling to at the end. Since unearthing a clear and meaningful story is one of the most important pieces of a project, you’re only helping yourself (and your colleagues) by beginning with the end.

Other ways to improve productivity

As I mentioned, there were loads of other useful tips from Pozen’s webinar on how to increase productivity:

  • Write down your daily goals: Rome wasn’t built in a day, so jot down objectives you can realistically accomplish today.
  • Don’t exhaust your schedule: Avoid scheduling every minute of your day. Having a calendar filled with meetings may look productive, but it’s important to include “thinking time” for yourself.
  • Include work and non-work tasks: Your list should include routine essentials like going to the gym or having dinner with your family. This will help maintain a healthy work/life balance and will give you time to “recharge”.
  • Manage your inbox: If you’re in the zone, don’t feel pressured to stop and respond to each email immediately (unless it’s urgent, of course). Instead, set aside time a little later to respond to all emails.
  • Let go of perfectionism: Do you reread an email 5 times before you hit send? Scan through a deck repeatedly? Chances are, it were ready to go after the second review, so save your mental energy for something else and move on.
  • Quit procrastinating: One of the biggest hurdles to getting things done is simply starting them.

I’m now being mindful of how I can incorporate these practices into my life to maximize my productivity, and in turn, hope to tip the scale of my work/life balance in favor of a more stress-free work week. I hope you can too!

Caitlin Dailey is a Senior Project Manager on the Financial Services, Insurance, and Healthcare team at CMB and is looking forward to trying out these tactics to help get her out of the office a little earlier in 2018.

Topics: methodology, business decisions, research design

If you can’t trust your sample sources, you can’t trust your data

Posted by Jared Huizenga

Wed, Apr 19, 2017

people with word bubbles-2.jpgDuring a recent data collection orientation for new CMB employees, someone asked me how we select the online sample providers we work with on a regular basis. Each week, my Field Services team receives multiple requests from sample providers—some we know from conferences, others from what we’ve read in industry publications, and some that are entirely new to us.

When vetting new sample providers, a good place to start is the ESOMAR 28 Questions to Help Buyers of Online Samples. Per the site, these questions “help research buyers think about issues related to online samples.”

An online sample provider should be able to answer the ESOMAR 28 questions; consider red flagging any that won’t. If their answers are too brief and don’t provide much insight into their procedures, it’s okay to ask them for more information, or just move along to the next. 

While all 28 questions are valuable, here are a few that I pay close attention to:

Please describe and explain the type(s) of online sample sources from which you get respondents. Are these databases?  Actively managed research panels?  Direct marketing lists?  Social networks?  Web intercept (also known as river) samples?  

Many online sample providers use multiple methods, so these options aren’t always exclusive. I’m a firm believer in knowing where the sample is coming from, but there isn’t necessarily one “right” answer to this question. Depending on the project and the population you are looking for, different methods may need to be used to get the desired results.

Are your sample source(s) used solely for market research? If not, what other purposes are they used for? 

Beware of providers that use sample sources for non-research purposes. If a provider states that they are using their sample for something other than research, at the very least you should probe them for more details so that you feel comfortable in what those other purposes are. Otherwise, pass on the provider.

Do you employ a survey router? 

A survey router is software that directs potential respondents to a questionnaire for which they may qualify. There are pros and cons to survey routers, and they have become such a touchy subject that several of the ESOMAR 28 questions are devoted to the topic of routers. I’m not a big fan of survey routers, since they can be easily abused by dishonest respondents. If a company uses a survey router as part of their standard practice, be sure you have a very clear understanding of how the router is used as well as any restrictions they place on router usage.

You should also be wary of any sample provider who tells you that your quality control (QC) measures are too strict. This happened to me a few years ago and, needless to say, it ended our relationship with the company. This is not to say that QC measures can’t be too restrictive, and in those cases you can actually be throwing out good data.

At CMB, we did a lot of research prior to implementing our QC standards.  We consulted peers and sample providers to get a good understanding of what was fair and reasonable in the market. We investigated speeding criteria, red herring options, and how to look at open-ended responses. We revisit these standards on a regular basis to make sure they are still relevant. 

Since each of our tried and true providers support our QC standards, when a new (to us) sample provider tells us we’re rejecting too many of their panelists due to poor quality, you can understand how that raises a red flag. Legitimate sample providers will appreciate the feedback on “bad” respondents because it helps them to improve the quality of their sample.

There are tons of online sample providers in the marketplace, but not every partner is a good fit for everyone. While I won’t make specific recommendations, I urge you to consider the three questions I referenced above when selecting your partner.

At Chadwick Martin Bailey, we’ve worked hard to establish trusted relationships with a handful of online sample providers. They’re dedicated to delivering high quality sample and have a true “partnership” mentality. 

In my world of data collection, recommending the best sample providers to my internal clients is extremely important. This is key to providing our clients with sound insights and recommendations that support confident, strategic decision-making. 

Jared Huizenga is CMB’s Field Services Director, and has been in market research industry for nineteen years. When he isn’t enjoying the exciting world of data collection, he can be found competing at barbecue contests as the pitmaster of the team Insane Swine BBQ.

 

 

Topics: methodology, data collection