The Optimal Pricing Strategy

Another TSG Success Story































The Optimal Pricing Strategy















For more information:
Call: 1-973-809-

5700
Email: info@tsgonline.com

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Another TSG Success Story

The Situation

The market leader in a category of shelf-stable convenience foods was about to launch a major
packaging improvement and needed to determine how consumers would react to the
improvement if coupled with a concurrent price increase.

Our task was to measure price elasticities for both the current and improved version of the client
brand as well as for competitive offerings.

What We Did And How We Did It

Our recommendation was to use a Price Elasticity Measurement Model that predicts the
sensitivity of demand for a product or service to changes in that product's own price, as well as to
changes in the prices of competitive products.

Respondents are exposed to a series of pricing scenarios, where each product in the category is
assigned a specific price dictated by an experimental design. Your product and the competitor's
products are typically studied at three or four price levels:


• 10%
less
• Current
price
• 10%
more
• 20%
more







For more information:
Call: 1-973-809-

5700
Email: info@tsgonline.com

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Another TSG Success Story

The Results

An analysis of price elasticities relative to competition revealed that the client brand was currently
under priced. Simulations showed a gain in share by raising the price 10%. The brand was
apparently under priced in the mind of the consumer, a "high quality" product being offered at a
"reasonable" price.




If introduced at the current price the improved version would actually do worse than the current
line. Note the 6% decline in the chart above. This meant that making the packaging change
without a price increase, as had been originally intended, would create an even greater
price/quality disparity in the mind of the consumer.

The improvement becomes more credible to consumers when accompanied by a price increase
of 10% or more. At a 20% price increase, the package improvement is a substantial benefit in
reducing the volume loss that would otherwise occur.

The Price Elasticity Model used in this research represents a new class of conjoint analysis
models that have important advantages over more conventional methods of pricing research.
Knowledge of your brands price elasticity is vital to making the optimum decision regarding your
brands pricing strategy.
For more information:
Call: 1-973-809-

5700
Email: info@tsgonline.com

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