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.
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.