Product Price Testing: What Is It and How to Do It

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Although pricing a product might seem easy at first glance, the reality is different. A wrong price could break down a fully standing business in weeks. On the contrary, it could help a product take off to dominate the market despite robust competition.

Many business owners and entrepreneurs concentrate only on product development, but what about price testing? Determining a product price is a complex process that requires following an accurate scientific manner. It impacts market demand, commercial reputation, quality perception, and overall business success.

As a result of recurring economic and political crises in a world where wars might spark in a moment, pricing is not random. It depends on many factors, including the manufacturer, target customer, and market environment. This article will introduce the different stages of product price testing and its practical methods in detail. 

What Is Product Price Testing?

The price test is a company’s method to determine ideal product prices for their goods. Many factors affect the price testing process, including profit margins, purchasing power, consumer behavior, competitor prices, and shareholder restrictions. 

Although every business aims for high revenue, the optimal pricing should balance generating profits with demand persistence.

Companies should never ignore the benefits of price testing:

• Elaborate the price customers are willing to pay for a specific product.
• Measure the percentage change in demand based on the percentage change in price.
• Determine market demand elasticity against a particular product price.

Pricing is one of the most common problems entrepreneurs and small business owners face. It is confusing because they often have no clue about pricing products correctly. Many price their products without studying the market or learning about the competition or the target customers. 

For example, pricing the product significantly low to attract buyers might end up leaving an impression of a low quality product. Low prices can also result in tiny, if any, profit margins and simply bankrupt a business.

Similarly, setting high prices to earn more money might result in a total failure if the competition offers better prices and a more established reputation.

The famous American investor Warren Buffet says, “Price is what you pay, value is what you get.” As simple as it sounds, it indicates that customers pay for the value they’ll get from the purchase. Therefore, the relationship between pricing and value is dynamic and flexible.

A successful company analyzes the added value its product is bringing to the table, then prices it accordingly. However, other factors have to be reviewed, like the competition. 

Price testing helps locate the sweet spot between what the company wants and what the customers are willing to pay.

Testing Product Pricing

Testing product price has to go through multiple stages to ensure accurate results. Companies looking for long-term success have to follow these steps. Once everything is ready, they can utilize the proper price testing method to get the final result.

1. Defining the Goal of Testing

The first step in price testing is identifying the endpoint or objective for the pricing of the product. There are several goals companies generally share:

• Enter the competition baldly and become popular in the market.
• Finding out the reasonable price range customers would pay for a product.
• Obtaining the largest possible market share during a specific time.
• Increasing company revenue by increasing capital cash flow.
• Testing the market flexibility before launching other products.

1. Choosing a Right Testing Time

There is no reasonable answer to how to determine pricing for a product without setting the appropriate time for the price testing. It’s crucial to take into account the economic situation, market condition, and sales activity.

For example, an unsettled economic situation could result in a general rise in exchange rates. It would force companies to update the profit continuously to achieve a profit rate commensurate with the consumer’s income. 

Similarly, the market condition controls the competitor pricing and consumer buying power which are key factors in price testing.

1. Choosing Competing Products for Reference

After defining the price testing group, and the right time for it, you might be asking yourself, how do I price my product? You’re pretty close, but first, you should analyze the market to determine your competitors.

• Choose products that fall within the same category as yours. Moreover, they have to share the same basic features with your product.
• Analyze what distinguishes each product of the same category from the others, and note that down for future reference.
• For an accurate assessment, compare the prices and features simultaneously.
• The final list of products you’ll get is your competitors’ list.

1. Data Collection

Now you should think about how to determine the price of your product, and the answer lies in the data collection process. Assuming you don’t have previous sales data to guide you, here’s what’s important to take into account: 

• The company’s profit margin for the product.
• The production cost of a single unit, including all direct and indirect expenses.
• Monthly and annual taxes and tariffs.
• Local and international market prices for competitor products.
• Market research and target consumer behavior analysis and statistics.

1. Analyzing Results

Pricing analysis evaluates the current pricing strategy to help identify opportunities for any price changes and potential improvements. Since pricing is not only related to new product launches, price testing could occur at any point in a product’s lifecycle. 

Companies might conduct a pricing analysis periodically to evaluate their prices compared to competitors and discover consumer expectations. 

Pricing in these cases is a preventive measure to protect the company from deterioration in sales and profits. For new products, it’s the first step of ensuring your product succeeds.

Pricing analysis requires:

• Using the data collected in the previous step to determine the actual product cost.
• Understanding how the target market and customer base respond to the pricing structure, including price, discounts, offers, etc.
• Competitor analysis, including products and prices.
• Examine legal and ethical restrictions that may affect cost and price.

Price Testing Methods 

There are multiple price testing methods to calculate the optimal pricing for physical goods. Several methods differ in application and circumstances. However, all aim to reach a price suitable for the current market situation, cover production expenses, and achieve profits.

A/B Testing

A/B testing is a marketing method commonly used to test how a customer interacts with two changing options. As the name indicates, it is about suggesting two prices to determine the most appropriate one.

A/B testing is based on trying two different prices simultaneously and making a decision based on the better-performing version. 

There are some counter-arguments to the practice of A/B testing for pricing. The biggest one on the list is that it’s unfair to offer the same product to two groups of people at varying price points. Second, it’s impossible to completely prevent this information from reaching the audiences and backfiring.

Surveys

Surveying is the process of systematic collection of information used to obtain insights about the market, quality of product, and its price. Surveys use several tools to collect information, including questionnaires or interviews. 

You can use surveys to directly ask potential customers how much they would be willing to pay for your product. You could also give them price ranges, ensuring a bit more wiggle room for you. Most of all, surveys will help you understand what value users place in your offer, which will help you decide on the final price.

Monadic Price Test

It is another marketing research technique that is used to evaluate price sensitivity. It is called monadic because respondents examine only one price. There should be a large number of respondents like 100 respondents, for every price point. 

This method is used by introducing one price to a group of respondents via an online survey or questionnaire, and the prices are randomly exposed to each group of participants. 

For example, suppose a company is going to test a price for wireless earphones, they shall choose a range of prices and show each one to a group of participants, but each price should cover the profit margin. When the monadic price test is done, if the results are as follows:

• 40$: 23%
• 50$: 27%
• 55$: 35%
• 60%: 29%
• 65%: 24% 

After randomly measuring the respondents’ purchase intentions, the company shall analyze the result and decide to price the wireless earphones at 55$ price. It easily helps to determine the selling price of a product. 

Prelaunch.com Price Tester

While most of the price testing options are research methodologies, Prelaunch.com is a platform designed specifically to help creators test and find the best pricing strategy.

Prelaunch is a testing tool that uses the behavior of real future customers as the foundation for decision-making. You create a landing page for your product and run a test on a big enough sample size with an initial price. Visitors are asked to place a small deposit towards securing your product at that price. 

Once you’ve gathered enough data on the first price point, set a new price and repeat the test. Make sure the sample size and period of testing are the same so that information on both is reliable.

Repeat this process as many times as you need until you land on the version with the highest reservation rates. This is the closest you’re going to get in understanding realistic purchase intent and obtaining customer feedback before launching.

Conclusion

Regardless of the product type, the price will directly impact the business’s success. Product pricing is not static, and it requires a constant effort to adapt to changing market and customer requirements. 

Due to e-commerce and technology development growth, analyzing competitor prices and products is easier than before. 

Whether you’re considering testing the price on your real future customers with Prelaunch or going for a survey with focus groups, there’s no doubt that you should do price testing. Although product pricing models can be complex, the basic rules are straightforward. They all help businesses find out how much a customer is willing to pay for a specific product. 

However, remember that before setting a price for your product, you need to know the costs of running your business. If the price of your product or service does not cover costs, your cash flow will be cumulatively negative, your finances will be exhausted, and your business will eventually fail. 

We hope by now you know we were not serious about charging $50K for this article!

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