Developing an alternative and cost-effective model for measuring price sensitivity

Abstract

Pricing a product correctly requires knowledge of the underlying price sensitivity of the target customer base in addition to the value perceived by the customers. The most popular ways of measuring price sensitivity of demand are Conjoint Analysis and Price metering. Conjoint Analysis although accurate is very costly while Price metering being cheap is unreliable. Thus, small and medium sized companies, unable to undertake these market research methods, take sub-optimal pricing decisions. This project intends to develop a new model that calculates price sensitivity in a way that is more reliable than simple Price metering but is also cheaper than Conjoint Analysis. The model also provides Price Value Curve for the category and the target customer base. The model has been developed for consumer durable, and more specifically color televisions. However, the same methodology can be applied to any other category to obtain the value-price curve for that category.