When Pricing Research Meets Net Promotor Score

There’s no such thing as a pricing laboratory. There’s only the real world to test prices in.

So why bother with pricing research at all then? The simple answer is ‘because it’s better than nothing’.

Pricing research can cost you a packet, or it can be dirt cheap.

One of the easiest and cheapest methodologies to use is Peter Van Westendorp’s Price Sensitivity Meter (PSM).

This approach involves asking four simple questions: at what price does a product’s price seem cheap / expensive / too cheap / too expensive?

In their book “Monetizing Innovation”, Ramanujam and Tacke abbreviate Van Westedorp’s PSM down to three questions: what price is acceptable / expensive / prohibitively expensive?

I recently used this abbreviated version of the PSM, but drawing on Net Promotor Score, evolved it a step further.

By subtracting the percentage of respondents that found a price point expensive or prohibitively expensive from those who found the price acceptable, I arrived at what I called the “Net Acceptable Price”.

The research yielded a series of take-up values (percentages) along a price curve, for example, between $200 & $400. At every price point along that curve, you can calculate the net acceptable price using the above formula. The price point with the highest (and positive) net acceptable price, is the price that should yield the highest take up.

What made the research even more exciting was that the research revealed a high willingness to pay by one side of a two sided market that was thought to have no willingness to pay.

Here’s two lessons:

Pricing research can be cheap, quick and affordable, and

Sometimes people will pay for product and services we never expected they would. Just ask them.

Of course, research is research, and what customers say they will do and what they actually do can be two completely different things.

Hopefully a future post will reveal what actually happens. Stay tuned…