Unique Challenges

About 80 to 90 percent of mispriced products are priced are too low. This was the case for the first portable readers. The innovative product turned the publishing industry upside down, permanently disrupting supply chains, inventory management, and delivery infrastructures. As the result of the low price point, the company could not keep up with demand. But what is more important, the company greatly underestimated the value of portable readers and missed out on substantial profits. In some estimates, their initial product pricing model stunted $1 billion of profits for the publishing industry as a whole.

It is extremely difficult to accurately gauge the full spectrum of benefits or even downsides to innovative products. Pricing objectives in the early stages of development should focus on closing these lapses of information, giving you an accurate market evaluation.

Figuring Out Your Value

The gap in knowledge for revolutionary products is wide. Closing this gap is a process that requires intensive research and investment. To assist clients with this perplexing problem we have developed “Value Navigator” – a five-step process for estimating value and pricing innovations.

1. Carve out a Sample

Deciding whom to include in your sample is an important first step. Unlike products launched into existing categories, the success of innovations usually depends on the first 3-5% of adopters. These early adopters not only put products through rigorous use but also stand to benefit from them the most. They have a stronger grasp on the technology and can ultimately influence the opinions of the entire market. Their views of value and price sensitivity for the product will have a greater impact than a truly random sample.

2. Prototyping and Clear Education

Educating customers is always an uphill battle. Sometimes the costs get out of control, at which point it may be best to re-evaluate the entire pricing model. If the cost of education becomes astronomical, then perhaps the product needs to be simplified or re-engineered. Whatever the case, it is imperative that your business provides the customer with an in-depth understanding of the product.

3. Determine Value Gaps

Through the interview process, ask customers to identify and rate the individual attributes of your innovation. Once you have completed that exercise, ask them to rate their level of satisfaction with the products/services they currently use. This is often an interesting and enlightening exercise. Innovations often replace several different products at one time. Understanding what those products are, their costs, and how customers use them is extremely important. These are ‘reference points’ that customers can use to assess the value of your innovation. The price of innovative products should reflect how much people value the problem you have solved. In other words, how much is bridging the value gap worth to potential clients?

4. Measure the Delivered Value

This is the trickiest part of the process. When clients make a buying decision, they purchase three things: size, speed, certainty. Of the three, certainty is the most important. Therefore, you must measure all three from the customer’s perspective to ensure that you price your product properly.

5. Working with a Pricing Model

Developing your pricing model should be a process of elimination. Narrow down the price spectrum and cross out unfeasible ranges. This will help you better understand the market as a whole, and the price sensitivities of it. Even though all research is hypothetical and the real results may not exactly match your expectations, the aforementioned methods would still provide you with a close approximation of the right price points.

Challenges to Customer Research in a Time of COVID-19 Crisis

Some challenges that could potentially impact the execution and outcomes of customer research during times of uncertainty include:

• Reductions in overall respondent response rates:  Less people may be willing to participate in research, which means that more time and effort could be required to achieve a certain customer sample target size.
• Respondent bias: People’s behaviour may be influenced by current events and could result in an overly pessimistic outlook towards the future.

It is extremely difficult to accurately gauge the full spectrum of benefits or even the downsides to innovative products. Pricing objectives in the early stages of development should focus on closing these lapses of information, giving you an accurate market evaluation.

Implementing a Strategic Approach to Customer Research During Times of Crisis

Knowing that different types of pricing research achieve different goals and provide various insights, it’s important to implement strategic research design and execution considerations to minimize the challenges mentioned above.

Jackie Lorch points out in her article “Research Continuity in the Time of COVID-19,” that “it is more vital than ever to keep in touch with [consumers] and not risk being left with a data ‘black hole’ as the world recovers.” With this advice in mind, our team recommends the following best practices:

• Be transparent about how and why you’re collecting data and address concerns about privacy and security.
• Be mindful of the respondent’s time.
  • Make the communication as concise and short as possible.
  • Clearly communicate the topic so respondents can decide if they want to participate or not.
  • Target the respondents as precisely as possible so that you are introducing a relevant and interesting topic to the right person. Lorch points out that it’s important to consider whether the respondent’s attention is needed elsewhere (i.e. front line health care workers). If so, then it will not be beneficial to ask these respondents to participate at this point in time.
• Set a positive tone by using a positive and engaging voice in all communications. Softer language is a good way to accomplish the right tone. For example, Lorch suggests asking respondents to share feedback “when you’re ready.”
• Strongly frame the context or mind-set you want the respondent to take. For example, ask respondents to answer as if the crisis is over and times are normal.
• Develop questions regarding the respondent’s future expectations for their own personal well-being and their community’s well-being. The data from this question can be used to segment respondents into pessimistic and optimistic groups, then an analysis can be conducted to understand if there is a difference in responses to key questions.
  • We conducted several surveys following the 2008 recession where we developed future expectation questions. We found no significant difference in behaviour between pessimistic and optimistic respondents relative to the new product concepts or the price levels we were testing.

Case Study: Products at Fair Prices with Value-Based Pricing Research

Problem:

• This new device would offer increased efficiency and cost savings for both hospitals and patients but the client was uncertain of the actual amount
• The client wanted to test out different price points and structures in order to understand which offer payers felt was the most fair and captured the value the device was delivering
• Because the launch date was set the entire project needed to be completed in 12 weeks

Solution:

Develop Value and Pricing Hypotheses

• Completed internal interviews with relevant management and executives to understand pricing culture and processes
• Conducted kick-off workshop to create value tools including Perceived Value Map, Pricing Power Assessment, Financial Value Model

Conduct Market Research

• Focused on 4 main customer segments, compiled data and insights from interviews (25 customers for each segment) into final report and managed in a final pricing model/dashboard

Develop New Product Pricing Strategy

• Combined pricing research, interviews and survey insights to inform pricing strategy recommendations
• Conducted final workshop to deliver results and achieve internal consensus and alignment for next phases

Above: the market research identified that the cost of the device is only the fourth important purchasing factor for the respondents

Results:

• Developed offer structure tailored to the various customer segments.
• Pricing research identified the optimal pricing range that would maximize adoption by core customer segments, while capturing value of the new product.
• Identified additional partnership opportunities for value-based contracts to share risk.

Insights into the Impact of COVID-19 on Customer Research

We partner with different global fielding and respondent panel agencies that recruit and survey consumers in both B2C and B2B spaces. We have casually polled many of these fielding market research partners, who agree that overall response rates have not significantly changed.

In some cases, customer rates have modestly improved as people suddenly have more free time on hand. Some feedback even suggests that participants are eager to participate in a topic that is not COVID-19 related. While this response is certainly dependent on the consumer or customer type and business vertical, recent research from M3 Global Research on the effect of COVID-19 on healthcare market research participation suggests that “for 99.7% of respondents (n=5,665) that are willing to continue to take part, market research is a welcome distraction from the immense pressure they’re under at work.”

Ultimately, key business strategy questions around a new product’s pricing and value proposition continue to develop and need to be addressed, despite the COVID-19 crisis. We believe that customer research during the COVID-19 crisis can still produce reliable results when carefully implemented. With this in mind, we recommend continuing to explore consumer perceptions of value and willingness-to-pay, while taking the recommendations of how to conduct customer research during a time of crisis into consideration with research design.