PRICING STRATEGY 101

Why Pricing Strategy Matters

Pricing is more than a number it’s a strategic decision that directly impacts revenue, brand perception, and customer loyalty. In India, where consumers are highly value-conscious yet increasingly willing to pay for quality, understanding what your target audience is willing to pay is critical.

A poorly set price can either:

• Drive customers away if it’s too high

• Leave money on the table if it’s too low

This is where data-driven pricing techniques come into play.

Introduction to Consumer-Based Pricing

Consumer-based pricing focuses on what buyers perceive as fair value, rather than simply calculating costs plus margins. It relies on insights into:

• Consumer expectations and price sensitivity

• Competitive pricing

• Market trends and product positioning

In India’s diverse market, regional income differences, cultural perceptions of value, and purchase behavior all influence pricing decisions.

The Van Westendorp Price Sensitivity Meter (PSM)

One of the most widely used tools for understanding consumer price expectations is the Van Westendorp Price Sensitivity Meter.

How it works:

1. Respondents are asked four key questions:

   • At what price would you consider the product too expensive to buy?

   • At what price would you consider it too cheap, making you question quality?

   • At what price would you consider it expensive but acceptable?

   • At what price would you consider it a bargain or good value?
     
     

2. Responses are plotted to identify:

   • Optimal Price Point: The price that maximizes both acceptance and perceived value

   • Indifference Price: The price where the number of respondents perceiving it as expensive equals those perceiving it as cheap

   • Acceptable Price Range: The range of prices consumers consider reasonable
     
     

Example from India:

For a new organic skincare cream, Indian consumers in metros may consider:

• Too cheap: ₹199 (doubting quality)

• Bargain price: ₹299

• Expensive but acceptable: ₹499

• Too expensive: ₹699

The optimal price might fall around ₹399 balancing value perception and profitability.

Other Techniques to Complement Van Westendorp

1. Conjoint Analysis: Understand how consumers trade off features and price to derive the most attractive combination.

2. Gabor-Granger Method: Measures purchase likelihood at different price points to predict revenue-maximizing prices.

3. Competitor Benchmarking: Evaluate how competitors’ pricing affects perceived value in the Indian market.

Key Principles for Indian Brands

• Value perception matters more than cost: Indian consumers weigh perceived benefits, quality, and trust over purely functional attributes.

• Segmented pricing works: Pricing may differ across urban vs. rural, metro vs. tier-2 cities, or income brackets.

• Iterate and test: Price sensitivity evolves; continuous monitoring and small experiments help optimize pricing over time.

• Combine quantitative and qualitative insights: Surveys reveal numbers, interviews and focus groups reveal the reasoning behind willingness to pay.

Actionable Steps to Set Optimal Prices

1. Collect consumer insights: Use Van Westendorp PSM, Gabor-Granger, or conjoint analysis.

2. Segment your market: Urban, rural, income-based, or psychographic segments.

3. Determine optimal price range: Identify the sweet spot for volume and margin.

4. Test in market: Launch pilots or A/B test pricing before full-scale rollout.

5. Monitor and refine: Track sales, churn, and consumer feedback continuously.

Conclusion

Pricing is both an art and science, especially in India’s value-conscious but opportunity-rich market. By leveraging techniques like the Van Westendorp Price Sensitivity Meter and supplementing with other research tools, brands can find the sweet spot that maximizes revenue while delivering perceived value.

Pro Tip: For new product launches in India, combine quantitative pricing research with qualitative insights from early adopters to refine the perceived value narrative, it’s a critical factor in building long-term loyalty.