Price analysis and optimization

Price analysis and optimization is important when determining a fair price. Momentive solutions can help.

Whenever you’re planning to introduce a new product or service into the marketplace, it’s important to ensure what you’re selling is priced right. Pricing too low could undervalue your business, and pricing too high could detract customers from buying. What you think your product is worth might be different from the actual market price, and if your goal is to sell, then your products and services must also be priced to sell. 

So, how do you go about pricing your products and services to sell? The answer is research. And the most cost-efficient way is using a robust AI-powered experience management platform like Momentive, creator of SurveyMonkey, for feedback and insights to determine a price analysis. This article will explain what price analysis is, its advantages, and how to conduct one of your own.

What is price analysis? 

Price analysis is the assessment of a commercial product based on similar items priced in the market. It’s a thorough study of product prices in the market to compare and improve the profitability of your business. This price investigation helps you better understand how prices influence the volume of sales and their effect on how a business grows. With a good price volume analysis, you can achieve price optimization. 

Price optimization is the analysis of what consumers are willing to pay for your products based on what they’ve paid for competitive goods. This process compares the product’s essential factors like product features, performance capabilities, and price differences. The evaluation of price analysis is also based on the amount offered by vendors and how much consumers are willing to pay for competitive products. Overall, a price analysis helps you correctly estimate a product’s price so that it’s attractive enough for consumers to become your customers.   

A price analysis can also be performed on a routine basis to assess the profitability of your pricing approach. If the product is underperforming, you can adjust the pricing accordingly and conduct another price analysis to achieve an optimal price point.   

What’s the difference between price analysis and cost analysis?

Although obtaining a cost analysis is similar to getting a price analysis, these terms require different approaches. And while price analysis and cost analysis might be used interchangeably, these terms have separate meanings. Price analysis is useful when you’re selling a product, and cost analysis is helpful when trying to price a service. 

Price analysis

A price analysis is helpful when you’re trying to price a tangible commercial product. This analysis is primarily based on how much vendors and consumers are willing to pay based on similar market items. 

The objective of conducting a price analysis is to determine if the price of goods is fair and reasonable. Here’s a quick checklist of some examples of a price analysis:

  • Analysis of previously paid prices: What are competitors’ price points?
  • Analysis of price compared to in-house estimates: How much are similar products in the market selling for compared to your price point?
  • Comparison of quotations or published price lists from multiple vendors: How much have vendors been paying for similar products? 

Cost analysis

Cost analysis is the examination of elements to determine the probable cost of goods or services to a vendor. The goal is to form an opinion on whether the proposed prices align with what a reasonably economical and efficient performance should cost.

Cost analysis is useful when a commodity like a service can't be priced easily. For instance, contracting businesses like legal or accounting services would be contingent on the time and resources used to meet the client’s needs. Another example is land development. The cost of materials, labor, and travel can affect the overall cost of the service. And because these types of services are reliant on other services, pricing can fluctuate, directly affecting your profit margins. That’s why conducting a cyclical price or cost analysis is recommended to remain profitable. 

Benefits of price analysis

Conducting a price analysis can give you a better idea of customers’ price-point preferences. You’ll also get a broader view of what customers are willing to pay for industry-related products and services, revealing new business opportunities that can boost revenue while optimizing costs.

1. Yields higher revenues

Profit margins can be optimized, which allows businesses to receive higher profits for short-term goals. Price analysis techniques provide strategic insight for optimal retail pricing and in-house costs, enabling you to keep your margins low for higher yields. You’ll also be able to determine where you might be overpaying for materials and other resources, allowing you to reduce costs. Another way a price analysis is useful in yielding high revenue is by finding out how much vendors are procuring. You’ll be able to place your costs more competitively when you have that data. 

2. Increases business efficiencies

Conducting a price analysis can quickly educate you on reasonable prices and quotes to better position your business toward more profitability. Data provided by analysis can help maximize return on investment and profits. You'll better understand how price is negotiated, and this knowledge can help make you a savvier expert when working with industry partners and resellers. 

3. Provides insight on consumers

A price volume analysis provides insight into how certain consumers may react to a specific price value or change in price, which can help to identify more and less favorable consumer sets. If sales are low but the demand is high, a price analysis can detect if you’re priced too high or maybe even targeting the wrong type of customer. Additionally, you should also be able to identify new pricing opportunities. 

4. Prepares a plan for price changes

Price analysis and predictive models can estimate changes to revenue in profit if the price of a product or service needs to be changed. For instance, if the cost of vendor prices in your industry is increasing, you know you'll need to adjust the costs to your customers to maintain profitable margins. Conducting a study on past pricing can also help you forecast pricing trends in the industry.  

How to perform a price analysis

Remember, the purpose of conducting a price analysis is to ensure you place a fair and reasonable price on the goods you sell. Your pricing doesn’t only apply to customers but also to industry-related vendors. Pricing your products too low might reflect a lack of knowledge, and pricing too high may price you out of business. Let’s learn how to price your products to sell.

Price analysis techniques

Some of the most common price analysis techniques are competition, historical, parametric, price list, and market research. Let’s take a closer look at how each of these techniques works:

Competition price analysis 

Competitive price analysis is the study of customers’ reactions to new prices. This study is more focused on the customers’ response and what they’re comfortable paying for a product than the operational costs, revenue, and profits of a business. Get to know your customers better using market research solutions to conduct a competitive analysis with the help of surveys and discover optimal pricing strategies and effectiveness. 

Historical price analysis

A historical price analysis is used to research past pricings and costs to determine a trend that can help you forecast any price changes in the market. This information can help you reposition your financial budget for such trends. Use the Gabor-Granger Pricing method to conduct a historical price analysis of your business. 

Parametric price analysis

Parametric price analysis is a statistical method used to help you estimate the cost of goods and services. This approach pulls from historical data while considering the task and the parameter’s cost, time, and value per unit. Access AI-powered solutions to help you find the ideal price for your product or service. 

Price list analysis

A price list analysis is the option of pricing tiers to meet the different segments of competitor pricing models. This approach is useful for subscriptions offered on a monthly, quarterly, bi-annual, or annual basis. Conduct a price list analysis by measuring price sensitivity with agile experience management insights. 

Market research price analysis

Product and service pricing is about consistently listing your goods at a price that’s not too high or too low. Use the Van Westendorp Price Sensitivity Meter to stay reasonably priced when introducing or pivoting a product throughout the ups and downs of market trends. Learn how to use this approach with Momentive Brand Insights solutions

Get started using price analysis techniques

Make sure your products and services remain reasonably priced to sell. Use price analysis techniques that position you for success. Learn other ways to elevate your brand and better understanding of your industry with Momentive insights and market solutions. 

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