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The Price Truth-Telling Game PTG: A Qualitative Pricing Research Methodology

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The Price Truth-Telling Game PTG: A Qualitative Pricing Research Methodology

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    1. 1 The Price Truth-Telling Game (PTG): A Qualitative Pricing Research Methodology

    2. 2 Let the Games Begin…

    3. 3 Overview of this Presentation Pricing strategy requires effective research on customer’s willingness-to-pay and price expectations (or “reference prices”). Research participants do not always report their own price preferences/perceptions accurately. The PTG methodology provides participant incentives to produce high-quality data relevant to the the client’s pricing strategies.

    4. 4 Primary research on price sensitivity and maximum-willing-to-pay has proved to be one of the most problematic areas in the field of marketing. Self-reported willing-to-pay measures have been shown to produce biased estimates. Jedidi et al. (JMR, 2003) confirms this. Research participants are not always able to report their price preferences accurately – especially for low-involvement products. Some participants even try to “fool the system” about pricing, trying to send a contrived message to retailers and manufacturers about prices. Challenges in Pricing Research

    5. 5 Key Strengths of the Price Truth-Telling Game Current methods, such as willing-to-pay ratings, anchored responses, and others mistakenly assume that participants report accurately about their: Price sensitivity/elasticity. Maximum-willing-to-pay. Price expectations. Traditional choice (and conjoint) models can assess price sensitivity, but not maximum-willing-to-pay* or price expectations. PTG delivers at least three advantages over traditional methods. Promotes a higher level of motivation and effort, which is especially important if the survey task is boring, difficult, or fatiguing. Communicates clearly what information is being solicited and rewards more accurate responses. Produces measures of both maximum-willing-to-pay and price expectations.

    6. 6 Overview of the PTG A cooperative game-theory approach to pricing research, inspired by the “Information Pump” methodology created by Professor Drazen Prelec (MIT’s Virtual Customer Initiative). PTG gives the participant incentives to provide less biased price evaluations, compared to those produced by traditional research methods. This is accomplished by pairing each participant with another who is matched by demographics and geography. Together, the two game partners produce less biased estimates, in anticipation of receiving an incentive if their estimates are “close” to each other. In a technical paper, Dr. Morgan proves that the structure of PTG maximizes objectivity and clarity in participants’ reports of their price evaluations.

    7. 7 Structure of the PTG A participant receives a description of an SKU/product (without price) and then reports: How much he or she would be willing to pay for the product. The amount he or she would expect to pay without a price discount. The amount he or she would expect to pay with a price discount. Another participant, with whom the first participant is matched demographically, produces the same information about the SKU – willing to pay and expected price estimates. The reported estimates provided by each participant are shown to each participant in the participant-pair. Both participants are rewarded with: X dollars, if they are within A cents of each other on willing-to-pay. Y dollars, if they are within B cents of each other on non-discount expected price. Z dollars, if they are within C cents of each other on discount expected price. The game is repeated four more times, for similar but not identical SKUs. Sets of similar SKUs can be rotated across participants. Estimated interview time = 15 seconds per SKU

    8. 8 How does PTG work? The game has an element of challenge and participants accumulate a dollar amount for “superior performance.” “Superior performance” means guessing accurately about what a similar customer would report for a given SKU. This helps eliminate participants’ tendency to over- or under-estimate price levels, since there is a reward for thinking on a more global level. The game is very engaging and extracts more mental resources and effort than the typical survey or focus group. The thought process that goes into the game is: What have I paid in the past for this product? (deal/non-deal) What is the most reasonable maximum price any customer, like myself, would pay for this product? What can I learn about my partner participant from his/her price estimates in each previous game?

    9. 9 How does PTG work? (cont.) The participant: Produces the best possible recollection of his or her expected price, on-deal and off-deal. Discards any intention to report selfish or self-centered responses, since he/she needs to match another participant to win money. Adjusts his or her own price sensitivity to take into account the sensitivity of others – puts himself “into the place” of the typical consumer. Since the two partner participants “communicate” with each other at each similar-SKU game play: They tend to “negotiate” to provide the most reasonable responses. Over- or under-estimates on a previous game play are corrected as more similar SKUs are evaluated. The last SKU evaluated in each of the 10 game plays should provide the best “agreement” between the two participants.

    10. 10 Case Study Instructions and Product Stimulus

    11. 11 Player Instructions - Introduction You are about to participate in a pricing game, along with another player whom we have chosen for you. Your partner in the game has been selected to match (approximately) your: Age and Gender Household income level Marital status If you have children at home, the number of children who are about the same age as yours The type of residence you live in (house, apartment, etc.) The type of geographic area you live in On a page to follow, you will find some descriptions of new snack bars. After reading each description, you will be asked to write three statements about the product. These statements are: The most you believe that a consumer like yourself would pay for the product at a convenience store, such as 7-11. What a consumer like yourself would expect to pay, assuming there are no discounts at a convenience store. What a consumer like yourself would expect to pay after a discount at a convenience store. Both you and your game partner will then be shown the price guesses that each of you has made on the three items above. If both you and your game partner, on at least one of the three items above, within 10 cents of each other, you each win $1.00. If you within 10 cents on two items, you each win $2.00. And, if you are within 10 cents on all three items, you each win $3.00. You will get to repeat this game five times – once for each of five different product descriptions.

    12. 12 Player Instructions – The Goal of the Game The goal of the game, then, is for you to guess accurately about what your game partner will state for the three prices. He or she, of course, will also be trying to guess what you will state. Since you will play the game five times, each time you may get a better idea of how price-sensitive your partner is, and what kinds of prices he or she expects to pay.

    13. 13 Product Stimulus

    14. 14 Price Estimates Now, state below the highest price that a consumer like you would be willing to pay for the product in a convenience store Most one is willing to pay: _______________________ What would a consumer like you expect to pay for this product, without any discounts, in a convenience store? Expect to pay without any discount: _______________ What would a consumer like you expect to pay for this product, without any discounts, in a convenience store? Expect to pay with a discount: ____________________

    15. 15 Analysis of Data Collected from the Information Pump Game

    16. 16 Assessing the Product Price Responses Let’s assume 50 game participants have reviewed the product description and provided the three price estimates. This produces a total of 150 data points – 50 for maximum willing to pay, 50 for non-discount expected price, and 50 for discount expected price. For each of the five products, the ratings of participants are averaged: In total. By geo-demographic segment. By any other target market criteria.

    17. 17 Scoring The averages for each of the five products can be used to estimate price sensitivity and price expectations. Geo-demographic factors can be used to assess the impact of pricing differently in different stores. The variances of the price data can also be used: Higher variances indicate more uncertainty among consumers about the product’s value. This can help identify products about which consumers should receive more advertising.

    18. 18 Summary Individual consumers can report biased estimates of how much they will pay and what their price expectations are. Collecting data in the context of a cooperative game, however, gives the consumer an incentive to report as accurately as possible. The PTG can be administered easily in focus groups or through an interactive, online interview process. Additional costs to implement PTG within a focus group are less than $1,000. Online interviews – priced by spec.

    19. 19 Contact Information Morgan Analytics, Inc. Phone: 972.816.1603 E-Mail: msmrgn01@aol.com

    20. 20 Mike Morgan – President

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