An Entrepreneur’s Guide:Kaymu.com.ng's Approach to Pricing Strategy
80% of entrepreneurs face problems of setting prices regardless of products or services rendered. Amidst competition, entrepreneurs set price below, above or on par with their competitors by taking a deep dive analysis to determine demand as well as consumers’ willingness to pay for products or services. Random administration of surveys, use of focus groups, revealed preferences, educated guesses, quantitative methods and auctions are strategic ways to test demand.
In order to assess consumers’ preference, survey research is mostly used in businesses to reach a wider audience especially where there is the absence of a demographic base of customers. Surveys are organized to acquire data that can be used to evaluate trends and to establish business strategies. Information about what people would love to buy, when they shop, how they shop can easily be achieved through the use of ‘open-ended’ and ‘close-ended’ questions in survey. It is carried out either through social media, text messages, e-mails, internet polls and questionnaires.
As an entrepreneur, it's important to choose appropriate survey procedures like sampling, question design, mode of data collection and interpretation of data. Getting accurate information to use in determining prices can only be achieved using suitable measures. Some companies outsource surveys to agents, in essence, they provide the questions and the target audience while the agent provides the supposed result in form of data that can be actionable.
Entrepreneurs can also make use of focus groups- a discussion forum between a small set of people (10-15) who are knowledgeable about the particular product and service to be researched. Entrepreneurs can invite consumers to discuss about products or services rendered. This is most especially good for entrepreneurs who are launching a new product into the market. Usually open-ended in nature, important consumer issues are discussed which serves as a real time feedback for entrepreneurs to work with. Information gathered during this discussion can be used in assessing consumer demand for a product or service which helps in determining price.
Auctions are arguably one of the most effective ways in assessing consumer demand for a product or service. Auction is achieved through the process of competitive and open bidding where the price is neither set nor arrived at by negotiation. Participants bid against each other, with each bid set to be higher than the previous one. An entrepreneur can take advantage of the auction strategy when introducing a new product or service to the market and when selling off old items.
“Offering bids, taking them and selling to the highest bidder as a means of market research has helped key entrepreneurs determine the truth in consumers’ willingness to pay”- Idris Muhammed, Head Business Intelligence Kaymu, Nigeria. Irrespective of the kind of auctions, revenues are usually the same.
Unlike auctions, focus groups and surveys the use of revealed preferences to assess demand does not require consumers’ willingness to pay to set prices. Revealed preferences involves collating data with past purchase history of consumers to infer their willingness to pay. Companies use past purchase trends and buyers’ demographic information to make decisions about products and pricing. Revealed preferences is one of the key elements that led to Big Data Analytics .
While these processes are powerful, most companies especially tech companies make use of a much more sophisticated process- Conjoint Analysis .
This entails isolating key features of a product, creating variations of these features and modelling it in ways that buyers can make preferences. It is useful during product development or upgrade.
As a motivating example, a typical ‘revealed preference’ chart which depicts the purchase history of consumers in an undisclosed region in Nigeria by category and gender is shown below.
It can be seen that the highest purchases were made by the masculine gender on fashion items.