Price it right the first time: How to use consumer insights to find the sweet spot for your product

Pricing can make or break a product launch—even when you have a great product and strong demand. 

One-third of consumers say price is the main factor in their purchasing decisions, making pricing a key determinant of whether or not consumers buy your product. 

Despite price being a leading influence in their buying decisions, cheaper doesn’t always mean better. 51% of consumers say quality is more important than price. And consumers often value the exclusivity of a more expensive branded product—often subconsciously associating a higher price with higher quality. 

Read on for advice on how to make pricing decisions based on real consumer data, rather than guesswork or intuition. 

TL;DR: 

• Consumers value price but not at the expense of quality. Sometimes consumers interpret a higher price point as a trust signal that indicates a higher-value product than competitor products. 

• As a brand, without the right consumer data to show you the best price for your product, you’re in a double bind—price too low and you leave money on the table; price too high and you lose the sale and limit your growth.

“We don’t know what price point consumers will accept”

Internal pricing targets aren’t always aligned with market expectations. The Pricing Blindspot reports that many businesses typically leave 15-30% of potential profit on the table due to poor pricing models. This is often the result of relying on "gut feel" pricing strategies over data-backed strategies. 

It’s essential to align pricing targets with market expectations, particularly if you’re in sectors like the CPG space, in which consumers are highly price elastic and have several competitor products to choose from. For many products, poorly-considered price hikes result in a direct drop in sales volume. For example, typically a 1% increase in the price of soda leads to a 0.79% decrease in demand. 

To reduce the risk of making the wrong move on pricing, you need real-time consumer data on how price affects purchase intent.

💡 Zappi in action: Use Zappi’s Pricing Research to uncover consumer expectations and find out the best prices for your product. Use pricing studies to model willingness to pay and uncover price sensitivity with your real audience to figure out the price points that will appeal to rather than alienate your target consumers.

“We’re launching a new product and want to avoid pricing missteps”

First price impressions stick—especially in competitive markets. That’s why you need to get your pricing right in the first launch. 

Price a product too high and consumers will have an enduring impression of your brand as self-interested and unfair. Price a product too low and you risk consumers questioning the quality of your product. 

NielsenIQ found that 86% of consumers associate higher prices with higher quality. Consumers are typically impacted by the price-quality heuristic, in which they see a higher price as a signal of a higher-quality product. Consumers often see brands and products connected to higher price points more favorably and even have stronger emotional ties to them—one study found that participants who drank an assigned bottle of wine found it more enjoyable when they were told it was more expensive. 

This cognitive bias can endure, with consumers' initial impressions of a brand that charges more as being one that is more credible and invests more in creating more premium products. 

Deloitte found that 54% of consumers feel that companies are wrong for raising prices beyond out of pace with their own rising costs to try to increase profits. Here, consumers are influenced by the price-fairness heuristic, in which their innate need for fairness means they judge a product and brand by what they think a product should cost—with perceptions of unfair pricing leading to weaker spending intentions, reduced trust, and a measurable impact on brand loyalty. 

💡 Zappi in action: Use Zappi’s Pricing Research to test multiple pricing scenarios before launch to see which one drives volume and margin and makes your target consumers more likely to buy your product and compare your product’s pricing with norms for both your category and your audience. You can also use Zappi’s Pricing Research to assess how your price impacts key metrics like distinctiveness and advantage. 

“We need to justify a price increase with confidence”

Raising prices is risky without understanding the potential tradeoffs. Raising your prices too much, especially unexpectedly, risks churn. But if you hold back on increasing your prices, you sacrifice revenue growth. 

McKinsey noted a rise in trade-down effect, in which three-quarters of consumers are swapping "down" to save money, with over 40% switching to a private-label product. No matter how much they may prefer your product over other brands’, a sudden price hike that consumers see as unreasonable can push them to swap to a competitor. 

Raising your prices is one of your biggest levers for growth. A 1% increase in price typically leads to an average 11.1% increase in operating profit. In comparison, a 1% jump in sales volume leads to just a 3.3% rise in profits. 

💡 Zappi in action: Use Zappi to model elasticity curves to forecast demand at different price points—before making a move. Maximize sales potential by finding the sweet spot: compare your reasonable price with a maximum and bargain price to work out both the ideal price and an acceptable price range for your product. 

“There’s internal debate between profit margin and consumer acceptance”

Internally, you’ll find that your departments have opposing views on whether to put consumers or immediate profits first. Typically, finance wants margin and brand wants accessibility. Without real-time data to guide your pricing decisions, you’re stuck in a loop of opinion vs. opinion.

💡Zappi in action: Equip your team with the insights you need to balance business needs with what consumers are willing to pay. Find the optimal price point that both helps maximize profit and helps ensure consumer accessibility. 

Don’t just guess—price with precision

Don’t go off gut instinct or the most persuasively-presented internal perspective—base your pricing strategy on real insights on what your audience will pay. Use Zappi’s Pricing Research to uncover consumer expectations, model price elasticity, demand curves, and revenue potential.