Price testing: monadic purchase intent test

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This is the tenth post in my Customer Research series.

Today I read a fantastic post on the Vovici Blog by Jeffrey Henning on monadic price testing.  You can read it here.   In fact this is such a fantastic blog that if you are interested in customer research at all, you should subscribe to the feed – I haven’t found any post that’s not insightful and educational on this blog yet.

The post on monadic testing was particularly apropos for today since we had some new team members come on board, and we reviewed the methodology and outcome of a purchase intent at price study we did early last year that used this methodology. In a nutshell, here’s what you do:

• Come up with a screening questionnaire that will only let in the respondents you care about (e.g. you will want to screen for people that fit your primary buyer persona.)
• Come up with a “product concept” that describes your product or service’s key value proposition. This tends to be a two page text and image based presentation in an on-line survey.
• Pick the price points you want to test.
• Send out the survey to several groups of respondents, each of which will see the exact same product concept, at one of the prices you want to test.  Respondents are asked to rate their likelihood to purchase on a 5 point scale.
• Keep collecting completed surveys until you have at least 100 samples per price point (Best practice suggests collecting 100-400 samples per cell).
• Now tally the results and see if the top-two-box scores (percentage of people who respond with “very likely” or “completely likely” purchase intents) show any kind of a trend as you vary the price.

A lot of times people assume adoption will rise as price drops. In reality that’s true only if the product or service is not valued by the target respondents or if there is an obvious comparable product that has a low price.  If a monadic study like this shows no obvious trend when you vary the price for the exact same product concept, that is a clear cue to product management to hold the price and not cave in to channel pressure to drop the price.

The reality is that retail and other channels will always pressure a business to drop the price – but that’s not always going to result in an uplift in customer acquisition.  If the customer has substantial pricing elasticity, then dropping the price only serves to reduce your margin, and doesn’t necessarily buy you additional market share.  Something to keep in mind when thinking about how to price your products and services.

Customer research series

I am doing a bunch of product discovery and product usage research at work.  This is what I love most: getting out of the office and talking to customers.   I decided to start a series on this topic since it is so much fun and so strategic.

For this series, I am using the word “customer” broadly – to include prospects as well as existing customers who have already purchased a product, and to include both buyers and end users.  This is because there is no common definition of the word “customer” and this series addresses all of the above constituencies.  I will clarify where necessary in specific posts.

Here is a tentative menu of posts.  It’s a work in progress.  Any suggestions would be greatly appreciated!

1. Why do qualitative research?
2. From personas to functional specifications
3. Asking the right questions of the right people
4. Common ethnographic techniques
5. Using detailed interviews to build personas
6. Focus groups vs. roundtable discussions
7. Usability research in the lab
8. Beta Programs
9. On-line surveys
10. Customer Advisory Boards