Price testing in theory allows us to find the optimal price to charge for a product. While other factors like manufacturing, marketing, and wholesale costs also factor into this equation, it’s critical to maximize profit on a product to ensure funds for future endeavors and general expansions for the business can occur. One way to ensure that is by testing prices over different periods of time and seeing how their price impacts sales.
Price testing allows you to use your customer insights to help decide the price of your products. Companies can use various testing methods to determine the best price for the products and services they offer.
The first way that you can conduct price testing is by utilizing various discounts. This tactic can provide better data that measures how discounts and price reductions can impact your business model.
Another way that you can conduct price testing is to change your product prices over a specified amount of time. As time continues, you’ll be able to monitor your products’ sales at each price range.
Although price testing is useful, there are some disadvantages of using it to choose the right products.
Disadvantages of Price Testing
One of the main disadvantages that companies face when conducting consumer market research is the possibility of inaccurate results. The results are often inaccurate because you’re unable to control the number of subjects in each of your test groups.
When you’re unable to control the number of test subjects in each focus group, it can negatively affect your numbers. Another negative aspect that you’ll face when conducting price testing is unsatisfied customers. Measuring customer experience is essential at every step. Customers could become irritated with constant product price changes.
Once you decide that the benefits outweigh any disadvantages, all that’s left to do at this point is to begin the price testing.
How To Effectively Price Test Your Products
The first thing you need to do is decide what products to test and set your testing goals. Your testing goals should be realistic, and whenever possible based on previous results or expectations. Previous data might be surveys, online community discussions, virtual and in-person focus groups, essentially any previous research that has gone into developing your current price should be considered in developing your goals.
Once you’ve set your goals, you will want to come up with an initial hypothesis. After this, you and your team will need to figure out how you can change the pricing without affecting the company brand. One way to help manage the effects of price changing is to offer other discounts and promotions to allow unhappy customers the opportunity to purchase at a lower price. Providing these to your customer service team can help retain brand loyalty.
During this stage, you need to decide how long you will monitor the price change before changing it again, as well as how you’re going to measure your results. When thinking about how long to run your test you’ll have to think about how big you want your sample size to be. Ideally, the lower the time will be better for the business image, but will obviously lower the sample size. The way in which you measure collected data should be simple to understand because that data will determine the best product prices or the next best time to price test.
Understanding Price Testing
When it comes to price testing, you must first understand all of its components and disadvantages. When you understand these things, you can then move forward with testing and product development. If you find that you need help when it comes to price testing, or are working on other components in your product development, reach out to us. We have the tools businesses need to successfully develop product plans, through leveraging insights from real customers.