Monadic price test vs Price laddering technique

Request a demo
Monadic price

29/07/2022

Profile picture for user Angela de la Vieja

Angela de la Vieja

Within pricing research, monadic tests and the price laddering technique try to determine customers’ price sensitivity. Both are price research techniques used to evaluate an e-commerce’s product and service prices and to analyse how users perceive them. However, since they have different methodologies, you will have to choose one or the other according to your research’s objectives and the resources you want to allocate. Both research techniques share the same goal: To determine the best pricing strategy for e-commerce growth.  

What do these price research techniques involve? 

You need to know what each involves to choose the most appropriate price research technique. Both involve surveys that are made available to a representative sample of consumers to give their opinion on the prices of items in the store. Monadic price tests show respondents a single concept or product at a single price and ask them about their intention to buy. This typically involves a closed question like, “How likely are you to buy this product for this price?” Answers tend to range from extremely likely to extremely unlikely. 
The process begins the same way with the price laddering technique, with a single concept and a single price. However, if the purchase intent is lower than desired, respondents are asked to reconsider their opinion with successively lower prices. In other words, increasingly lower prices are shown until the one the consumer considers most appropriate is found. Theoretically, the number of levels to be tested can be unlimited. However, usually, the process does not extend beyond three price points.

Price laddering

Advantages and disadvantages of the monadic price test

Monadic tests are generally applied when an e-commerce has a highly developed product and a fairly accurate idea of which price ranges to apply, but seeks empirical confirmation. They are usually considered the most accurate way of measuring price sensitivity, since each respondent sees only one price. Therefore, their opinion is not conditioned by any distraction or external stimulus. Given its simplicity, the survey can also be repeated several months later to assess whether public perceptions have changed. 

Its main drawback is that a large representative sample is required to capture a large volume of consumers willing to participate. This is because the target audience is divided into multiple groups, and each group is asked about a specific product. 

Price laddering technique for smaller samples 

On the other hand, the price laddering technique can be applied to a smaller sample of users. There is no need for significant investment to attract participants. Therefore, because each person evaluates multiple pricing options, more information is gleaned from a smaller group of respondents. 

The most common critique of this model is that responses may be skewed by showing customers multiple prices one after the other. They may be influenced by both the pricing options shown, and by the repetition of the test, until they identify a price that meets their expectations.

In any case, direct pricing questions can provide valuable insight into consumers’ interest in your products. They can help you identify competitive prices to optimise sales. Combining price research and an advanced pricing suite in tandem to monitor and adapt to changes in supply will help boost e-commerce growth. 

Related Articles

11/11/2022

Consumer behavior: How can behavior tracking be effective for setting the right pricing strategies?

Behavior tracking is becoming massively popular today. As a result, pricing strategies born from studying consumer behavior are a merchant's dream come true. If done right, it can conquer every market for the business quickly. With abundant data available, the strategic makeover of the pricing models is becoming easy for companies. 
 

What is behavioral tracking, and how is the data beneficial in pricing?

For a quick understanding, behavioral tracking refers to gaining in-depth knowledge and insights into consumers through their web data. Their browsing habits, spontaneous decisions, shopping interests, and preferences come under behavioral tracking. 

How can enterprises use customer behavior data?

Companies can use customer behavior data as a tool to strengthen their hold on the market. A customer’s preferences, values, and tendencies allow businesses to work in sync with them through the collected data. Apart from this, customer behavior can also aid in:

Tailoring customer needs for customer retention

Personalization is becoming the heart of a company’s growth. No matter in which area an enterprise is functioning, tailoring the services, products, and solutions is becoming increasingly crucial. Uniqueness and personalization attract the crowd like no other. 

Increasing the overall value

One of the best ways customer behavior data affects a business is by upgrading the value of customers for the business. The customer’s characteristics allow the company to target the people that match the business prospects well. 

Optimizing every type of content

Everything that is up for digital display requires content. You must have seen companies unveiling their products or services through advertisements and making the initial public appearance. Two essential sales strategies – upselling and cross-selling comes through content optimization.

Pricing Strategy

Last but certainly not least is the influence of customer behavior data on the pricing strategy. The pricing strategy essentially constitutes content derived from data analysis. Companies need to have a dynamic approach to the pricing system to attract the right customers. 

17/02/2015

Saint Valentine’s Day, always a good opportunity

V-Day is looming, a long-awaited date for all and also a good occasion for the eCommerce. According the study conducted by Prosper Insights and Analytics, it is forecasted the average consumer expense that day will be the highest in last years. Furthermore, 25% of them will buy online, which means an increase of 4% regarding 2014 (The US department of Commerce). This is, therefore, a key date where market competitiveness increase and which could be assumed as a big opportunity for our business or, a big fail if we do not adopt the correct strategies.

How to turn this event into an opportunity? To achieve this goal, we need to adapt our prices to this hostile environment, i.e. we need to develop an appropriate Dynamic Pricing strategy that allows us to adapt our prices to the variations produced in supply and demand and to position us ahead of our competitors. In V-Day, the frequency in changes will be higher, carrying it out each hour or even each minute. It is estimated that 65% of leader retailers have the ability to respond quickly at these variations, such Amazon. For this reason, it acquires great importance the correct use of a software specialised in price motorisation of competitors. Do not miss the time and adapt your business to new adversities.

28/12/2022

Which are the best footwear marketplaces to sell on?

Footwear marketplaces are booming. The last decade has seen the launch of new specialized marketplaces with millions of different users. Among them are Spartoo, Sarenza and Farfetch, portals with international reach. Their main value is that they unite hundreds of footwear brands, as well as offering clothes and accessories. Although each has its own characteristics, they are all vertical marketplaces, i.e., they focus on a specific area, and their sales categories are interrelated. For sellers, these portals provide an opportunity to expand sales channels and drive the globalization of their e-commerce business. We explain how to sell on these footwear marketplaces so that you can assess whether they align with your plans for the future and then start defining a possible pricing strategy.