How to identify the optimal price point for your product or service

Setting an optimal price will maximize profits and improve your business. Learn how to find yours with Momentive solutions.

To succeed in today’s market, you need to price your product or service for maximum profitability. But how do you determine your ideal price? Let’s start by learning more about price points, their benefits, and how to set them.

What is price point setting?

Price point setting is the process of determining a retail price that keeps demand for a product or service high while generating the maximum profit for your business. It can be challenging and time-consuming, but your efforts will pay off.

Benefits of price point optimization

Setting a price point utilizes your market research to determine a retail price that balances value and profit. 

There are several benefits of price point optimization:

  1. Yields higher revenues

Low prices may mean a better value for your customers but a loss of revenue for your company. Even if you have a higher volume in sales, if the price is too low, your revenue suffers. If your price is too high, you can generate more profit, but sales numbers may go down if customers don’t perceive an increased value with the higher price. 

With careful analysis, you can find a price point that balances customer value and company profits.

  1. Yields higher volume of purchases

If you set prices that are outside of what your target market is willing to pay and they don’t perceive value in the same scale as the price point, consumers won’t be willing to buy the product.

Price optimization strikes the right balance between value and purchase volume. At the right price, you’ll see consistent and increasing sales volumes, improved customer satisfaction and loyalty, and company growth.

  1. Automation of processes

Determining price points can be tedious without the right tool to automate the process. Automation can help you avoid human error in A/B testing, sales forecasting, market segmentation, data analysis, and data tracking.

Your pricing process will be streamlined, easy to understand, and can evolve as your business grows. 

  1. Builds brand equity

By using feedback from your target market, you can be certain that your pricing model is based on the perceived value of your brand and the utility of your product or service. Your research also ensures that your pricing matches the perception of your brand.

With your strong pricing strategy, you’ll find an increase in brand awareness, brand perception, brand loyalty, and overall brand equity

How to set an optimal price for a product or service

Setting an optimal price takes several factors into consideration:

While it is possible to perform price optimization manually, a software solution makes the process faster, more efficient, and highly accurate. It can help you find your ideal price

Price setting using Van Westendorp Price Sensitivity Model

One of the most frequently used pricing methodologies is the Van Westendorp Price Sensitivity Model. It is a frequently used method for pricing optimization.

Developed by Peter Van Westendorp, a Dutch economist, in 1976, the tool helps businesses identify price points that are critical to their target markets. It is conducted in survey form and asks questions that reveal your customers’ thought processes, price sensitivities, and purchasing power. Results also indicate your customers’ reactions to price changes—so you can determine the optimal price for your product or service.

An example of a Van Westendorp survey question would be:

At what price would you consider the product to be so expensive you would not consider buying it?

Other methods of price setting 

Van Westendorp Price Sensitivity isn’t the only method to assist you in price optimization

Here are some other ways to find your optimal price:

  1. Conjoint analysis

This pricing research method handles multiple variations in products easily. Conjoint analysis studies mimic shopping trips, where respondents review products, features, attributes, and prices and then make purchase decisions. The analysis at the end of the study will reveal what consumers value most and how it drives purchasing behaviors.

Conjoint analysis is an extremely useful tool in price optimization. Momentive, maker of SurveyMonkey, offers conjoint analysis tools to help you find the price for your product or service.

An example of a conjoint analysis would be: 

If you were in the market for a new smartphone, which of the following would be most appealing to you:

ModelSamsung Galaxy A50iPhone 12 Pro MaxGoogle Pixel 4aNone
Price$140.99$1399$479I would not choose any
Screen6.2 in6.7 in6.2 in
Storage64 GB512 GB128 GB

Consider other factors

There are several factors to take into consideration when creating your pricing strategy:

  • Historical pricing: Examine previous pricing strategies, specifically closed deals, churn, or sold products with different strategies. Determine which strategy was most successful.
  • Competitor pricing: You will need to decide whether you will beat your competitor on price or value. Conduct a competitive analysis to gather the data necessary to make an informed decision.
  • Demographic/consumer data: Create a customer persona with your demographic and consumer data. Look for customer lifetime value, willingness to pay, and pain points.
  1. Price with a percentage markup

Also called the cost-plus pricing strategy, this method starts by taking the cost of the product or service, including materials, labor, etc., and adding a percentage markup to the product price. You would then apply this same percentage markup to your other products and services for consistency and ease. 

Find your optimal price point today

Setting price points is crucial to your business, but it doesn’t have to be difficult. There are several pricing methods available to help you price your product. Visit Momentive for pricing and product optimization solutions.

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