Figure 2 documents the value contribution of each level of each attribute. If we look at the first attribute – graphics – as an example, we can see that including graphics in the overall product results in an average value of 5 with a range from 3.3 up to 6.2. Charging $1,000 for graphics results in an average value of just over 4 with a range from 2.8 to 5.8.

Looking more broadly, the conjoint analysis suggests that by including graphics and not charging for print changes creates enough value to offset the jump in price from $6,000 to $7,000. So, offering a product that has these two elements at $7,000 would provide the customer the same value as a product without either element priced at $6,000.

Since conjoint analysis is valid at the individual level, results can be aggregated to form segment and market profiles that can be used to estimate market share under various circumstances and to test response to new product concepts.

Van Westendorp Price Sensitivity Analysis

A second powerful pricing tool is van Westendorp Price Sensitivity Analysis (PSA). Van West, as it is sometimes abbreviated, determines a range of acceptable prices and an optimal price point based on an analysis of price/value ratings. The analysis is based on responses to four questions:

  • At what price do you think this job would be a good value?
  • At what price do you think this job is expensive, but still worth considering?
  • At what price do you think this job is so expensive you would not consider buying it?
  • At what price do you think this job is priced so low that you would think the quality couldn’t be very good?

Plotting response profiles to these questions provides high/low price thresholds as well as the price point considered optimal. Highlighted in Figure 3 below is the intersection of line graphs of responses to each of these four questions. The common area – bounded by each of four points of intersection – will form a diamond shape profiling target price points. The four price points are:

  • PMC: Point of Marginal Cheapness,
  • OPP: Optimal Price Point,
  • IPP: Indifference Price Point,
  • PME: Point of Marginal Expensiveness.

Different users interpret the chart differently. However, it is generally agreed that either the OPP or IPP (or something in between the two) represent the ideal price point.

In this example the optimal price point for the described product and service is $3,750, while the acceptable price range of the same product and service is between $3,300 and $5,300.  

Figure 3 – van Westendorp Pricing Analysis

 


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