The pricing opportunity: discovering what customers actually value

Abstract

PurposeCompanies cannot capture the full profit potential of their products and services until their managers understand the ideal price points and width of the price range for each product or brand given its position in the marketplace. This article describes the tools and best practices to accomplish this.Design/methodology/approachIn the past year or so, Mercer Consulting has conducted 26 discrete choice modeling studies (our version of the modeling is called Strategic Choice Analysis® or SCA) with over 15,000 customers in a wide swath of industries across the U.S., Canada, Germany, and China.FindingsMercer studies show that price (17 percent out of a possible 100 percent) is nowhere near as important a selection factor as product features (65 percent); service features (11 percent), and other features (7 percent) account for the rest of decision‐making.Practical implicationsThe article shows how all businesses can follow the lead of the exemplars in aligning pricing to customer value.Originality/valueIt clarifies why ideal pricing depends on discrete choice modeling and a number of best practices rather than on price optimization software alone.