Pricing comes to be the basic point of scaling the business. Now, we all understand the significance of the pricing strategy. Furthermore, most businesses struggle with setting the right price point for their product. It can be tricky as pricing the products too high will make your customers shift to your competitors. You must be able to analyze the demand and understand price sensitivity to come up with the price point that will actually help in profiting. Price matters a lot to the customers and that’s why you need to determine the right price. It will help in growing your business and market share. It can be done with the help of a competitor price tracking . Now, in today’s blog, we will shed some light on the varied benefits of price testing and competitor price tracking.
So, let us dive in.
About Price Testing
Price testing is not a complex concept. The business conducts a test for determining the ideal price for its goods and services. Price testing offers insight into what price you should charge the customers. It will show you how customers respond at different price points. Price testing can help in measuring demand elasticity as well.
To elaborate, price testing helps you scale the pricing strategy you want for your product and understand the needs of the consumers. This further helps you in making the right decision regarding product pricing. Knowing what the customer perceives and delivering the same can be very difficult. For that, you must have the relevant data on hand to work towards a better pricing model. That makes better sense than just blindly pricing your product without any market research or competition study. Basically, every aspect plays a vital role in making your company the market leader. So, let us understand the deeper concepts that help in price testing.
What Is Demand Elasticity?
Demand elasticity measures how product consumption can change when the price changes. Demand elasticity can help in understanding how the demand and supply of any product/ service can change with price changes.
What Is The Need For a Product Pricing Test?
Price testing enables you in setting an accurate price that optimizes profit without losing the majority of the customers. It can be all the more helpful when you are pricing a new product for which you don’t have any sales data.
With the increase in price, the demand decreases. But you should not price your product the cheapest. You need to find the perfect spot for your product which can be done with the help of price testing.
Conducting A Pricing Test
Before you perform the price test for your product/ service, you must determine the following things first:
- Decide your goals. Do you want to grow the profit margins or wish to gain market share for a new product?
- Which product category do you wish to run the test in?
- What specific product/ service do you wish to run the test on?
- You also need to determine the product pricing method you will be using.
Price Testing Methods
1. A/ B Test
In this type of testing method, the test is run with two different prices to find out which one drives the better results. It’s usually suggested not to run the A/B price test with a similar product as it is ethically not fair to offer the same product to one person at a lesser price than you offer to another. This type of strategy can hamper your brand reputation in the long run.
Now, for instance, you select a small group for the price testing. The group will be obviously from your segmented audience. Here, every individual will be given product X at $50 and the same product at $47 to another customer. Then study their reactions and get the relevant feedback from them. Finally, you might reveal the actual product brand with its price that you wish to sell. To get another final feedback from the audience. As explained, this exercise will help engage the individuals. Moreover, you can get great insights from them.
2. Cost-Plus Pricing
This method is for people who wish to run the price test but are not sure about what amount to test on. The cost-plus method is straightforward. You need to calculate the fixed and variable costs that incur during the manufacturing process. Now add a markup percentage to the cost for coming up with the asking price. Several e-commerce companies as well as retailers use this type of pricing strategy to make sure that they price their goods/ services at a point that will assure a profit.
3. Pricing Research
The direct price research method consists of surveying a specific group of consumers and asking them directly about the price that they are willing to pay for the goods and services. It measures the value consumers perceive of your product/ service. The price will be changed many times throughout the survey to ask the consumers if they will be purchasing the product at that price.
Now, this method works only if the customer is honest and gives you feedback without any kind of bias. As you are having a direct approach, it may happen that the consumer is nodding yes to a different price than he/she would have nodded yes to if not asked directly, say for instance, by a friend. So, this helps if you can let the customer be at ease and free to give you the honest answer needed.
Creating A Price Testing Framework
Once you are well acquainted with the core elements of the pricing test, it is time to build the framework which will help in planning the price test. The significance of the framework is that it prepares the exact guidelines of the outcome you want and the roadmap to reach there with the help of competitor price tracking. Let us understand each point in detail.
1. Setting The Goals
You need to first decide what you want to accomplish with the price test. Also, you need to ensure that the stakeholders are on board with the plan. The goals need to meet the bottom line i.e., profits. Additionally, the goals should be clear and not vague. As that will help the company work towards pricing that can be helpful in growth and building a concrete customer base.
2. Choosing A Product Category
If you deal with multiple products from various categories you need to first select a category that you will be testing first. Then choose the product you will test in the category. Many products may be priced differently due to the costs incurred to make that product. Furthermore, customers might have a different perceived value for every product. So, choose a category which is easy to be tested and go for it.
3. Choose A Testing Method
You have decided to run the price test but you also need to decide the method that you will pick for the test. You can choose any of the above-mentioned three methods. It need not be said that the methods should be implemented on the targeted audience only as if you do otherwise, the results might not be relevant.
4. Collection Of Data
Make sure that you collect enough data with the help of a competitor price tracking. You need a lot of data to analyze ad decide what price point should be used for your product/ service. Automated data extraction will be very helpful in such a scenario. WebDataGuru is one of the leading web data extraction companies delivering the best quality services. The methods you use for data extraction should be according to the quantity of the data to be scanned.
5. Analysis Of The Results
You need to evaluate if your profit or revenue has increased or decreased after the implementation of the price change. Observe the changes that you found and compare the sales and revenue before and after the implementation of the price change.
Mistakes To Avoid While Price Testing
1. You must isolate the variable when testing the price. For example, don’t run a marketing campaign simultaneously as you won’t be able to make out if the revenue came from price change or marketing campaign.
2. When you use the A/B testing method, determine the winner on the basis of overall revenue and not the conversion. This is because even if your sales drop with the price increase, the overall revenue might remain high.
3. You should choose a huge sample size for collecting enough data. If you don’t have a significant sample size, the results won’t be meaningful. You should not make any changes based on these results.
4. Competitor price tracking is an important aspect of your price testing. You don’t always need to begin from the scratch. Find out what prices your competitors are offering and if you can match up to these prices. Find out if the competitor will steal your customers if you increase the price point for your product.
Test to Score High on Success Board
Price testing is everything that you need to have a very strong pricing strategy. For a successful price test, you need consistent competitor price tracking. With some experimentation on a regular basis, you will be able to find the right price point. WebDataGuru can help you get there without any doubt. Learn more information!