• Are we getting the maximum price for the value of our new products and services?
• What will happen to our sales volume if we increase or decrease prices by X percent?
• How do we determine the value customers place on product and service features?
• Would different customer segments pay different prices for similar products?

According to surveys of business executives, pricing is considered the most important marketing activity. Rightly so, price has the greatest and most immediate influence on a company’s bottom line.

Interestingly, although most executives agree on the importance of effective pricing, few companies have Pricing Directors or spend significant time focusing on price improvement.

Unfortunately, most pricing decisions are made with little knowledge of how customers value new product and service features. Often, the decisions are made while sitting in a meeting room, with little input from prospective customers. However, the impact of poor pricing decisions can mean the difference between the success and failure of the product line.

The Allegheny Marketing Group (AMG) conducts custom-designed market research to help companies understand how to make pricing decisions. AMG utilizes a number of methodologies, modeling tools, and analytical techniques depending on the project requirements. Some of the techniques AMG uses include:

Price Sensitivity Analysis	Price/Volume Analysis
Conjoint Analysis	Competitor Analysis
Pricing Seminars

The following are actual examples of projects conducted by the Allegheny Marketing Group:

Case Study 1

An energy utility was investigating the market opportunity for new products and services to both their residential and commercial customers. After an initial investigation, two particular new services were promising, pending further investigation on the interest level, available market size, and pricing sensitivity.

The Allegheny Marketing Group conducted extensive interviews with potential customers to understand the relationship between price, penetration, and revenue opportunity. Based on the results of the study, AMG developed a sensitivity model to aid in making the decision of whether to launch the new service.
Based on the results of the research, the utility elected to enter the market at the suggested price package. After two years in the market, the model was effectively validated as the penetration results matched the expected results almost identically.

Case Study 2

A division of a large multi-national corporation was developing a multi-tiered product line that potentially offered enhanced benefits to the customer. Each of the products in the line offered different features to the customer base and was sold into multiple market segments. The real issue was how the products could be positioned and effectively priced for the value they provided.

Using conjoint, or trade-off analysis, the Allegheny Marketing Group interviewed 150 customers and non-customers to evaluate the perceived value of the product features. Four product attributes were investigated – price, product life, productivity, and repair time – by allowing customers to trade-off different levels of each product feature. Using this powerful technique, several important pricing observations could be made, including:

• Overall, the market is not terribly price sensitive within the current range of competitive prices.
• A "pricing threshold" exists at 20% above the current price level – price increases above this level dramatically affected product penetration rates, regardless of the added value of the product.
• Buyers are willing to pay 20-30% more for a 30% longer life product.
• Several new product offerings were particularly attractive to the food and chemical industries.

Using the results of the research, our client developed an effective marketing plan for positioning the new product line and implemented a successful product launch.

Case Study 3

A leading medical device company recently purchased another company, providing a new product line targeted at U.S. hospitals. The market was dominated by two competitors, who represented more than 80% of the market. In addition, long term contracts with group purchasing organizations (GPOs) limited the available market to our client.

The Allegheny Marketing Group was contracted to quantify the size of the total market, the available market for our client, and the current price levels in the market. In addition, a price sensitivity model was conducted to quantify the potential trade-off between price and market penetration. Based on extensive interviews with hospitals, GPOs, and sleep lab facilities, potential pricing strategies were developed to effectively penetrate the market in a reasonable time frame.