Price testing is a key source of information for companies and their market information systems (MkIS). However, price testing heavily relies on a number of premises which should be taken into account when analysing any research study findings.
Consumers in both the B2C and B2B markets are flooded with products prices on a daily basis. By gaining experience in a particular product category they gain knowledge of price ranges of various manufacturers from various price levels.
Price awareness among consumers varies between different market segments. Products we purchase every day (especially FMCGs) are easier to pin down in terms of price than the products we buy less often, e.g. once a year. On the other hand though, products that we buy often are so familiar to us, we hardly ever remember the exact price, whereas commodities we buy less often can become fixed in our memory.
There are many ways of price testing; most of them are based on price elasticity studies. The business objective of projects like these is to determine the price level the consumer desires – so that the client (manufacturer) is able to optimize prices.
Price awareness and the tendency to inflate prices
When organizing a study it’s worth checking the level of price awareness among consumers. We decided to find out how consumers rate their own level of price awareness, and what would be their idea of prices of non-existent, fictional products. For this purpose we organized two small studies on a representative sample of adult Poles, completed in a six month interval.
We asked two sets of questions. The first one was designed so that consumers could independently assess their grasp on prices; the second was a set of direct questions about prices of specific products. In those two sets (and in both stages of the study) we used three products. We chose three different product categories, and picked one particular commodity from each.
1. Łowickie milk carton, 3.2%, 1L, belonging to the FMCG category, purchased as part of a daily grocery shopping routine
2. 1L of unleaded 95 petrol – a product purchased by a select group of consumers; however, petrol prices are displayed publicly at petrol stations. Price is very important for these consumers and, as to be expected, is checked regularly by those interested in the subject.
3. A product from the culture and entertainment category, purchased much less frequently, and by a narrower group of consumers – a weekday cinema ticket
As the analysis shows, there is no correlation between the previously declared knowledge of prices and the price in none of the categories. After categorizing the consumers into less knowledgeable (answers 1 to 3 on a scale of 1 to 5) and more knowledgeable (answers 4 and 5), we can note that the average answers given differ very little in both of those categories.
Less aware consumers provide slightly higher prices in the case of milk and petrol, and slightly lower when it comes to the cinema ticket. The unweighted frequency column shows the number of people who answered the question, which indirectly gives us a picture of the degree of knowledge among consumers. The highest level of knowledge is seen in milk (the product bought most often). The lowest can be observed in the case of cinema tickets.
Comparing results between the two stages of the study (December and May), no significant differences between price perception was observed. The ratio of more aware to less aware persons was also similar in each of the product categories.
Perceived product price vs. real price
So how does consumer perception and awareness of prices compare with real prices? We deliberately chose products for which reference prices can be found. They are subject to a certain error of precision, which allows us to see the overall conclusions.
The following reference prices were chosen:
1. in the case of milk, two prices: average price of cow’s milk with a 3-3.5% fat content, according to the Central Statistical Office of Poland, December - May, so during the course of the study, and average price of Łowickie milk, 3,2%, 1L, according to
2. price of cinema ticket in Poland’s major cinema chains (no data here on average ticket price in many independent cinemas, where the prices are usually lower)
3. average price of petrol according to , December - May, so during the course of the study.
As we can see from the data, respondents tend to overestimate prices – in the case of products of daily use (such a milk), but also in the case of petrol. When it comes to cinema tickets, comparing results is problematic because of the range of reference prices. The mode, which is not a precise measure in the case of quantitative variables, here allows for an insight into the respondents’ way of thinking - respondents most often give full, rounded prices - such as 3 PLN, 20 PLN or 5 PLN.
A certain dilemma posed by price testing presents itself in the form of answers which go far beyond the range of most of the other answers – outliers. This is particularly relevant in PSM (Price Sensitivity Measurement) studies, where special graphs are created showing all observations, and where every extreme response determines the range of optimal prices. In this study, these kind of answers were most often given to the cinema ticket question; the smallest number was observed in the case of milk prices. A large number of greatly overestimated prices (e.g. 50 PLN for milk) also lets us observe the level of confusion of respondents in the price range.
The standard deviation shows that the greatest dispersion around the average price occurred with cinema tickets. This is consistent with the fact that they are the least popular product in this category. An acute awareness when it comes to petrol prices can be observed – this is consistent with the belief that consumers who are drivers are attuned to these prices.
So what is the takeaway from this research? Always consider adding a question which will allow you to check how knowledgeable respondents are on the subject of price ranges, so that you can verify their subsequent answers on desired price of the product in question. The degree of price awareness varies according to product categories and experience, both in using and purchasing the product.
PMR offers a large variety of price testing. Find out more at our website: price-testing
Examples of completed projects (case studies) can be found below:
This nationwide consumer survey was conducted by PMR in two stages: December and May, on a representative sample of 250 adult Poles in both cases, with a maximum estimation error of 6%.
Central Statistical Office of Poland (). Prices in the National Economy. June. Warsaw.