It is never easy to set the right price and in a price-sensitive society like ours, if you don’t do it right, your business will be in some trouble. This is the key reason why you need to always carry out price testing, before jumping to any conclusions. We understand that this is not a simple task, so we prepared a guide containing the most common price testing methods explained as well as some deeper insights and explanations of the price testing, in order to prepare you comprehensively for this important step.
As we said, price testing is very important for numerous reasons.
The question we are all here for is “How do you do price testing?” but there is no unique answer to it. First of all, we will propose some factors and steps you need to consider before even starting the price test – a sort of a testing framework. When we cover that part, we will get to answering what are the methods of determining the price, by giving you an analysis of the most commonly used price testing methods.
In order to make it easier to understand, we separated all the price testing methods into two bigger categories – experiments and surveys.
AB Testing is one of the most well-known price testing methods. As the name suggests, you should set two different prices for the same product and see which of the prices performs better for your product. Although this price testing method has its place, it shouldn’t be your primary way of testing prices.
For example, A/B testing can be used for testing landing pages to see how small changes affect the conversion rate, but you shouldn’t use it to test different price points. There are more reasons for this:
A/B testing is not the only price testing method that includes experimenting with the price. You can overcome some of its downsides by taking a different approach to the experiment. For example, you can offer some special discount instead of simply putting two different prices for the same product. However, while this will overcome some of the downsides, the others will remain. So, a better alternative for price testing might actually be the surveys.
Compared to the experiments, surveys are better because you are just asking questions instead of offering the option to purchase, so, you are not promising anything, and therefore, the chances of making your customers angry are much smaller. Furthermore, when conducting a survey, you can carefully plan and choose the demographic and the test sample, which is not possible when doing the A/B test for example. So, if you do the preparation and set everything right, you can expect much more precise results compared to experimenting.
This price testing method is appropriate for already developed products and when you already have an idea of what price range to market. In this method, multiple price points of the product are tested using a split cell test. You offer a product with its description and ask how likely is it for the customer to buy it for a certain price, giving the respondent options to choose from Extremely likely to Extremely unlikely on a scale of 1 to 7. After that, you repeat the question, just offering another price. You can repeat this process more than two times, to get more comprehensive results. The goal is to build the price sensitivity curve and gather purchase intent at different price points.
The price laddering (or the sequential monadic price test) has the same goal as the monadic price test. In this scenario, the respondents are shown a series of prices (usually from higher to lower) and asked to choose how likely are they to purchase for that price. If they don’t pick one of the top two options (most likely to purchase), they are shown the next, lower price, and the process repeats until they get to the price point they will likely purchase at. The main advantage is that this method requires a smaller sample size compared to the previous one.
However, this method also has its disadvantages – for example, asking the same question over different price points can tax the respondent, and previously shown prices can bias the response for the next shown price.
In this price testing method, respondents are required to choose between a different set of product profiles. This means that you are offering different features for a certain price – so the respondents need to make tradeoffs between them. This is a great method to use if your product is not launched yet, and you don’t have a very clear image of the price range and the exact features you should offer. It is also good for products that can have more than one version, for example, a regular and a pro version of a smartphone.
NOTE – conducting surveys and gathering and analyzing data from them is very demanding. We always suggest consulting with experienced statisticians and data scientists in order to get the best results and avoid potential errors in your final results.
If you don’t sell a unique product, and other retailers are also offering the same product as you do, your price testing will be a bit easier, on one hand, but more complicated on the other. This is because you can’t simply put some price on your product, you need to take into account the prices your competitors set for it. So, while you will have an idea where to start, first you will need to gather this information. The best way to do this is by using a price monitoring tool. This way, you will avoid setting a price that is far from what your competitors are asking for a product. To put it simply, you will avoid creating your price strategy in the dark.
Once you do the price testing and analyze your results, the job is not over. The most important part is yet to come. You need to make use of the conclusions you got from your research, by setting your pricing strategy. When you do this, the next step is to monitor how your prices are doing compared to your competitors’ prices. This way, you will be able to see if you did your price testing correctly.
Price2Spy is one of the best price monitoring software on the market. Furthermore, if you don’t have time to conduct the whole price testing process at the moment, Price2Spy offers a solution – the software will analyze your prices compared to your competitor’s prices and let you know if there is any room for improvement. You can also enable it to do the repricing automatically, according to your criteria.
Price testing is a demanding process that takes a lot of resources, including your time and money. You need to pay attention to a lot of different factors and choose the best price testing method that fits your needs. This is why you should consider using some automated tools to save your time, wherever it is possible. Try Price2Spy free for 30 days, and see all the benefits you can get from it.