BMP - Business Management and Psychology
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- 2021 (2)
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- Bachelor Thesis (2)
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- English (2)
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- Willingness to pay (2) (remove)
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Pricing decisions are some of the most important marketing considerations and require knowledge on the value that customers associate with a company’s offerings when optimizing revenues and product positioning in a market. However, measuring the customers’ willingness to pay (WTP) remains a challenging task, because numerous biases, psychological phenomena, and social norms cause distorted answers in methods that are commonly used to assess the WTP, which leads to misguiding data and false assumptions with regard to price-sales relationships. This study recognizes the importance of reliable and accurate data that adequately reflects the real market situation. In this context, controlling as a business function plays a major role, being the intersection between financial consideration and business functions such as marketing and sales, providing important data that is used as a foundation for strategic decision-making. Therefore, this study has the objective to investigate how implicit price research can support the planning of strategic decisions in the context of digitized controlling by implementing an online reaction time tool as an integrated module into a controlling software.
The present paper proposes to contribute to this topic by applying an experimental pricing research method – NeuroPricing® Online – using implicitly assessed reaction time data to investigate the subjects' unconscious willingness to pay in two distinct case studies in the mineral water market.
The results of the first case study indicate the existence of the willingness to pay a price premium for organically labeled water but suggest a strong dependence on the container type and the distinct price segment in which the water is offered. The second case study revealed that the perceived value of identical products of a brand could be considerably different between potential customers in established and new sales regions.
Our research contributes to a better understanding of consumers’ valuation and emphasizes the importance of implicit pricing research as a method to support digitized controlling as an interconnecting business function between financial considerations, consumer behavior, and strategic management.
Forecasting demand is a mission-critical but non-trivial pursuit in strategic planning for any brand. However, long-established explicit pricing research methodologies suffer from well-described biases, thus posing a significant obstacle to accurate forecasting. One way to tackle this challenge is resorting to implicit measures inspired by paradigms from cognitive psychology and neuroscience. Hence, as carried out with NeuroPricing Online, implicit price research can help identify a consumer's Willingness to Pay (WTP) for a product or service. Consequently, the entire sample´s distribution of WTPs can be converted into a population model of demand vs price. A subsequent model of revenue has, to date, in marketing research, typically been based on indexed values, providing the user of the data with non-intuitive and rather abstract measures. Here, using the case of a Mineral Water bottler, we have integrated the demand model directly in a well-maintained digital controlling tool of said cooperation. Central figures such as gross sales and contribution margin were modelled based on realistic cost and market estimates. Thus, assuming the same conditions, the data leads to a fact-based and accurate prediction of the results of a price change. The insights allow the company to gain concrete insights into the context of its pricing strategy and, if necessary, reposition itself to achieve a competitive advantage. For instance, the pricing model integrated into the controlling tool allows for comparing various bottle types in terms of revenue and contribution margin. As such, the specific impact on the financial performance of, say, a revenue maximising or contribution margin maximising strategy can be predicted.