CUSTOMER

PERCEPTION-
DRIVEN
PRICING
 LEARNING OBJECTIVES
•Understand how consumer perception is used in setting prices.
• Compare conjoint analysis to other methods of pricing.
• Discuss the matching of prices-setting approach to the market stage.
 REVOLUTIONARY MARKETS
•Both executives and their customers lack sufficient critical information
required to use most methods of price setting.
•Rare and unique.
•Created by the introduction of the first product into a new market, such as
the first electric-powered car, the first personal computer, the first railroad
line, or the first mobile phone network.
•Truly revolutionary products are breakthrough initiatives that redefine the
status quo, delivering dramatically different or totally new benefits to
customers in a manner that had never before been considered.
 EVOLUTIONARY MARKETS
•Evolutionary markets are common.
•They are markets in which products currently exist, customers currently
purchase, and products are evolving.
•By evolutionary, we mean products that make improvements to the status quo
rather than disrupt the current evolution of products.
•The improvements in evolutionary markets typically derive from adding new
features or benefits to existing products, whereas new products in
revolutionary markets address customer needs in an entirely new manner.
•Customers have experience with the product category.
MATURE MARKETS
•There is little product differentiation in commodity markets
•Customers may unable to differentiate between the values of competing
commodity products.
CONJOINT ANALYSIS
•It is a survey-based statistical technique used in market research that helps
determine how people value different attributes (feature, function, benefits)
that make up an individual product or service.
•Products are treated as a bundle of attributes, features and benefits, where
price can be one of those features in a conjoint analysis study.
•In identifying the value that customers place on specific product attributes,
features, and benefits, conjoint analysis creates a part-worth utility function.
•By decomposing a product value into its part-worth utilities, executives can
ask “what if” questions
 USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
Consider a hypothetical 32-ounce container of mango juice. The producer can either offer
pure mango juice or a mango fruit blend, and the product can be sold under a well-known
national brand or a new premium niche brand. The executives would like to know the
potential prices of the different formulations of mango juices marketed under different
brand names.
 USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
◦ In the conjoint analysis study, participants are asked to rank the potential
products in order of preference.
◦ Continuing to rank the products, from 1 being the most preferred to 8 being
the least preferred, the participant exhausts the potential product
formulations.
◦ The researcher can use this to prepare the data collected from this participant
for evaluation by scoring it from 0 to 7, where the lowest score is that which
yields the lowest utility and the highest score yields the highest utility.
USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
These product scores can be used to evaluate the part-worth utility function of
this participant. The part-worth utility of a specific attribute level is found by
averaging the scores of the products that have that particular attribute level. For
simplicity, we will measure part-worth utilities with a metric called utils, an
economist’s unit of utility.
 USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
These product scores can be used to evaluate the part-worth utility function of this
participant. The part-worth utility of a specific attribute level is found by averaging the
scores of the products that have that particular attribute level. For simplicity, we will
measure part-worth utilities with a metric called utils, an economist’s unit of utility.
USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
Because price was one of the attributes being measured in the conjoint analysis,
we can place a monetary value on the unit of utils. Specifically, the ratio of price
disparity in the study design to util disparity between the two price points found
from the customer preferences reveals the dollar value per util. Because the
price ranged from $4 to $7 and the calculated part-worth utilities ranged from
5.5 to 1.5 utils, we find the valuation of $0.75/util.

$0.75 = ($7- $4) _

(5.5 utils – 1.5 utils)
USING CUSTOMER PREFERENCE
TO REVEAL PART-WORTH
UTILITIES
5 BASIC STEPS IN THE CONJOINT
ANALYSIS
1. Defining the attributes and attribute levels
2. Presenting the stimulus
3. Measuring the response
4. Setting the evaluation criterion
5. Analyzing the data