Price optimisation with Price Sensitivity Measurement
Research PMRed the perception of current prices and price optimisation for one of the main players in the convenience industry in three chains. For retailers who offer products with long shelf life (the main component of the range in convenience stores), price optimisation is particularly important. The information about customers’ reaction to changes was of key importance for our client. Price optimization was based on real consumer behaviour, and was additionally verified in the PSM model.
Price testing is an important element of product or service management. It allows to shape prices of products entering the market, in order to ensure highest possible probability of purchase. It also enables to modify price strategies for products already on the market.
When testing prices, the key is choosing a technique that takes into account whether the product exists on the market, and whether competitive environment is included. PMR recommends methods, but the choice is made together with the Client, in order to apply a solution that will ensure optimum range of information supporting the process of decision making.
The main method of data analysis for the study was PSM – Price Sensitivity Measurement. It aims to determine the acceptable price range, and within this range to indicate a specific value of optimal price for a given product. The project included 1,000 PAPI interviews in sales points. Respondents were asked four questions about the price of each of the analysed products:
- What price would you consider too high to purchase the product?
- What price would you consider so low that you would have doubts about purchasing the product?
- What price would you consider high, but you would still consider purchasing the product?
- What price would you consider a good purchase?
Value for the client
PMR prepared a report for the Client with key information on each of the products:
- IPP (Indifference Price Point)
- OPP (Optimal Price Point)
- PMC (Point of Marginal Cheapness)
- PME (Point of Marginal Expensiveness)
- RAI (Range of Acceptable Pricing).
The PSM analysis was completed by providing minimum and maximum price values acceptable for customers. This is of particular importance for studying the range of convenience stores, which by definitions offer higher prices in exchange for convenient opening times and excellent location (railway stations, airports, shopping centres). All the findings were also presented according to the demographic features of the respondents.
The findings of the study as well as recommendations allowed verifying and price optimization channels for every chain, taking into consideration the location of sales points.
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