The Top 10 Mistakes in Pricing Research
As professionals in the business world, we recognize the paramount importance of understanding our customers' needs, desires, decision-making processes, and preferences. This comprehension, including the invaluable insights offered by pricing research, equips us to better tailor our offerings to meet their requirements, ultimately bolstering our prospects of acquiring them as clients and cultivating their loyalty. While this awareness is widely acknowledged, the depth of customer insights and intelligence varies significantly across companies. Some firms rely solely on intuition, while others prioritize cost reductions to such an extent that they neglect adequately serving their customer base.
Nevertheless, there exists a distinct category of businesses that acknowledges the inadequacy of guesswork and gut instincts in today's competitive and rapidly evolving marketplace. This group recognizes the significance of implementing data-driven processes to collect information about their customers and has initiated the development of comprehensive customer insight strategies. Yet, the mere existence of a process is insufficient. This article explores this specific category of companies, guided by pricing consultants. It delves into the most common missteps businesses make in their customer insight processes, underscoring the imperative need for a well-designed approach, exemplified by the willingness-to-pay pricing research developed by Sjofors & Partners.
Mistake #1: Simplification
When customers decide whether to make a purchase from your company, they take into account a multitude of factors. These factors encompass their perception of your company, the competitive landscape, convenience, brand image, willingness to pay, influencer input, promotional offers, and various other considerations. Often, we make these choices without consciously dissecting all these elements, yet they exert a substantial influence on our decisions.
Despite the complexity of these purchase decisions, there have been numerous efforts to streamline the process of comprehending customer insights. Many of us have come across brief and straightforward surveys, which can be encountered online, received through mail, offered at the point of purchase, or conducted via swift phone calls. These concise questionnaires tend to oversimplify the intricate decision-making processes, assessments, and judgments that customers form regarding your products and services, as well as those offered by your competitors. The resources that companies allocate to these simplistic initiatives are frequently squandered and often contribute little, if anything, to enhancing your ability to better serve your customers.
Mistake #2: Isolation
Secondly, we encounter the error of isolation in market research. The mistake of isolation happens when market research surveys fail to consider the substantial influence of pricing-related factors. It is imperative to assess how customers perceive value in connection with their willingness to pay, what aspects they deem worthy of their expenditure, the degree to which your pricing models and levels harmonize with their value expectations, and what alternatives competitors present at different price points. When price is isolated from considerations of value and perception, it results in a biased and insufficient comprehension of buying decision behaviors, customer satisfaction, loyalty, and the likelihood of continued patronage towards your company.
Mistake #3: Homogenization/Uniformity
Another undeniable fact is that the market landscape needs to be understood within the market segmentation framework. Segmentation profoundly influences the process in two significant ways.
Firstly, the diverse market segments you serve will exhibit variations in their perceptions and evaluations of your products and services. Developing an effective segmentation model and pinpointing significant variables is a skill in itself. In certain instances, these critical variables may pertain to personal attributes such as age, gender, weight, socio-economic status, and demographic characteristics. In other cases, they may relate to business-related factors like industry, job titles, company age or size, etc. Additionally, time-related variables can also play a role, distinguishing between morning and afternoon customers, various seasons, or weekdays versus weekends. Immense value is forfeited when data is homogenized and fails to accentuate these crucial distinctions.
The second impact can be even more substantial. Different market segments may base their purchase decisions and experience satisfaction or dissatisfaction on entirely distinct grounds. Yet, it is precisely these divergences and the underlying reasons that render the data actionable and meaningful.
Mistake #4: Evaporation
The mistake of evaporation occurs when market research data is collected, scrutinized, shared, reviewed, and then ultimately disregarded. Evaporation transpires when the amassed data lacks the potential for actionable insights. When data evaporates, it means that the findings might provide valuable insights but do not prompt meaningful improvements, changes, or progress. Among all the missteps, evaporation is particularly disheartening because it wastes valuable opportunities for executives to catalyze substantial enhancements in their business results.
Mistake #5: Competition
The error of competition is a highly significant one. This mistake arises when a survey exclusively concentrates on the relationship between a company and its existing customers, neglecting to account for the choices customers have and leading to a skewed assessment of the company's risk level. To avoid the competition mistake, it is imperative to broaden the scope of the survey to encompass a more extensive population beyond your existing customers. This entails soliciting feedback from potential customers, individuals who opted for a different business, and those who may not have any prior interactions with your company but align with the target audience profile. Their viewpoints concerning your company, value propositions, as well as those of your competitors, establish a context that should be factored in when interpreting your own findings.
It is only by comprehending the nuanced levels of willingness to pay within your target audience that you can effectively formulate pricing strategies and endeavor to increase your market share.
Mistake #6: Amateur
The availability of affordable survey software has lured even the most skeptical executives into believing they can design their own surveys and achieve effectiveness. However, the truth is that designing an effective survey is a challenging task if you want to generate consistent and actionable information. Even the most intelligent and experienced managers and executives can make the mistakes outlined in this document. Developing a valuable survey requires more than just intelligence and user-friendly software; it demands experience and expertise. Designing a useful willingness-to-pay pricing research survey is both a science and an art.
Moreover, many of the free survey software services available lack the advanced and complex features required to delve deeper into the minds of the marketplace. They cannot analyze how customers and non-customers weigh different factors, functions, services, satisfaction, and prices when comparing various vendors and alternatives. Even if the software possessed the necessary functions, the likelihood of an amateur effectively configuring the question sets and accurately interpreting the results is slim.
Mistake #7: Confidence
The mistake of Confidence occurs when the survey participant count does not meet the critical threshold for statistical significance. When conclusions are drawn from an inadequate number of respondents, they become not only highly dubious but often inaccurate. To derive meaningful insights, it's imperative to collect statistically valid data from both existing customers and non-customers, which includes former customers and individuals who may be unfamiliar with your company but fit the buyer profile. Only then can a pricing study in market research realize its full value. Achieving this goal requires dedicated efforts to obtain an adequate number of survey participants.
Mistake #8: Transparency
The mistake of Transparency occurs when respondents are made aware of the identity of the survey sponsor. Extensive experience and careful experimentation have demonstrated that customers tend to provide different responses when they are aware of the sponsor's identity. This introduces a significant source of error and bias in most pricing research surveys. When respondents are aware of the survey sponsor's identity, they:
Bias their satisfaction and value levels upwards as a gesture of "courtesy" to the sponsor.
Bias their answers towards what they believe the company wants to hear.
Understate the amounts they are willing to pay in an effort to receive a lower price.
Misrepresent the significance of individual elements of your offering, categorizing them as either "premium," "nice-to-have," or "absolutely essential.”
Therefore, maintaining transparency about the survey sponsor's identity can compromise the accuracy and reliability of the survey results.
Mistake #9: Commoditization
In a market where products and/or services are perceived to be highly similar, buyers primarily base their purchase decisions on price. The mistake of Commoditization arises during the survey design process when specific differentiating factors, which the company believes set it apart in the marketplace, are not adequately tested. Commoditization undermines the effectiveness of the pricing research survey when it fails to evaluate the extent to which the company's unique value drivers truly influence customer choices, satisfaction, and loyalty.
Mistake #10: Internal vs external
Every company holds perceptions regarding the factors that drive their position in the marketplace. These factors include what motivates customers to choose their company over competitors, why some customers opt for competitors instead, and what leads to customer satisfaction and retention. However, these factors are often undocumented and not widely shared within the company. They remain as a subjective "gut feel" that varies among different groups within the organization, such as executives, marketing, sales, product development, and customer support. Each group may possess a different perception, and it's possible that all of them are somewhat inaccurate. These perceptions are often lacking in detail, ranking, and qualification.
The existence of perception gaps, both between the company and the marketplace and among different groups within the company, hinders the organization's effectiveness. A company with significant gaps in perception is likely to fall short in delivering the superior customer experience necessary to differentiate itself from competitors and emerge as a true market leader.
In summary, the decision landscape represents the terrain that buyers must navigate when deciding whether to purchase a product or service. For B2B sales, it encompasses the approval and influence structures surrounding the buying decision within companies. For B2C sales, it comprises the various factors that influence individuals' purchasing choices, including the vendor selection, pricing considerations, product preferences, and brand loyalty. Pricing research plays a crucial role in understanding and optimizing the pricing aspect of the decision landscape, enabling businesses to plan actions that drive their success.
Unfortunately, many companies make the mistake of developing products or defining services based on internal factors rather than considering pricing research which finds out what truly customers’ are willing to pay for. As a result, they experience challenges such as lengthy sales cycles, decreased repeat business, diminished profitability, and limited growth.
