Stories
Is Your Price Right? Five Research Insights on Optimal Product Pricing
- •Nuanced measures for willingness to pay (WTP) are crucial, considering alternatives consumers evaluate, as a simple WTP question misses critical contextual information.
- •Dynamic pricing, despite concerns, is unlikely to lead to widespread surge pricing in grocery stores due to product volume, supplier contracts, and customer loyalty; digital labels may instead facilitate markdowns.
- •Gradual, incremental price increases are a common and effective strategy for firms to discover demand curves and drive long-term profits, especially for businesses with infrequent price changes.
- •The "pink tax" on products marketed to women often stems from differences in product components rather than pure price discrimination; an apples-to-apples comparison reveals price parity.
- •Offering a product for free isn't always the best strategy; a low, non-zero price can be more attractive to consumers when there are high incidental costs associated with obtaining the free item.
Key Questions Answered
The Comparative Method of Valuation is a customizable approach introduced by Kellogg professors that helps marketers determine customers' willingness to pay by keeping competitor alternatives in mind at all times. This accounts for critical contextual information that traditional direct surveys miss.
Research analyzing transaction data from over 100 grocers indicates that surge pricing in grocery aisles is highly unlikely. Stores manage too many products and supplier contracts while prioritizing repeat customer loyalty, meaning digital labels are more likely used for operational efficiency and markdowns on perishables.
A study of personal-care products in Walgreens stores found that while items marketed to women were more expensive, their ingredient makeup was substantially different. When making an apples-to-apples comparison accounting for ingredient variations, the price differences wash out across categories, though cultural expectations result in women purchasing a larger overall basket of goods.
