Are you charging enough? Most businesses guess at pricing and move on, but that approach is going to leave money on the table. How do you set the right price to maximize profits?
Price is one of the 4 P's of Marketing, yet many Marketers don't know how to optimize pricing...More
That’s interesting, so we basically survey people and ask them what they would pay
But not directly like “what would you be willing to pay”
Instead it’s like “would you buy this product if it was $10?”
Then we keep increasing or decreasing the price depending on if they say yes or no?
Yeah I’m willing to give that a shot: it’ll be better than just guessing!
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Gabor Granger pricing is a type of economic analysis that attempts to identify the optimum price for a good or service. It is named after Zoltan Gabor, who developed the concept in the 1930s. It works by asking a customer if they would buy the product at one price, then if they say yes asking if they’d buy at a higher price, if they say no asking if they’d buy at a lower price. This keeps going until the prices are exhausted, and we can draw a demand curve out of the aggregate responses. This method is designed to avoid asking customers “How much would you pay?” because most people don’t know off the top of their heads. However if you show them a price and ask “Would you buy this product for $10?”, they will get an instant reaction and be able to decide if it feels high or low.
There are a number of advantages associated with Gabor Granger pricing analysis. Firstly, it is relatively simple to understand and use. Secondly, it takes into account a wide range of factors that can affect prices, such as costs, demand and competition. Third, it can assist in setting prices that are competitive, yet still provide a good level of customer satisfaction. Finally, it is a good option for businesses that are looking to maximise profits, or decide on the tradeoff between profit and volume.
There are also a number of disadvantages associated with Gabor Granger pricing analysis. It can be time-consuming to carry out and may not always produce accurate results if people don’t answer truthfully about their willingness to pay. Gabor Granger pricing analysis is most appropriate in situations where there is a need to price a product or service with not much competition, as it doesn’t take into account competitor price changes and therefore is prone to causing bidding wars. It is important to remember that Gabor Granger pricing analysis is only one tool that can be used to price goods and services. There are a number of other pricing methods available, and it is important to select the most appropriate option for each individual situation.
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