The pricing data gap: Most approaches miss what matters

The global economy irrevocably changed in March this year when US President Donald Trump announced his tariff programme. Nearly all industrialised nations reciprocated to varying degrees.

Chaos and uncertainty reigned. They continue to do so. For many companies the threat of bankruptcy has become very real and for many others predicting the future seems almost impossible.

Business survival in an era of uncertainty

To boost the survival prospects of your own business the number one thing every business leader must do is determine the location of the price walls for your product or service. This may sound like bizarre jargon to anybody outside of the pricing research business. But the identification of price walls - and their cousins, price plateaus - has become even more business critical.

But what is a price wall?

Price walls are distinct price points that, when breached even by a fractional amount, result in unit volume decreasing by 5, 10 or even 20%. Price plateaus, on the other hand, are finite stagnant zones where unit volume stays essentially steady although the price may increase by 5 or 10% or more.

Few things are considered more rigidly axiomatic in the business world than the direct, constant, inverse relationship between unit volume and price. Specifically, the higher the price for a given product or service, the fewer units will be sold at every point along the axis. Except the axiom does not hold true in the real world. It is true that unit volume almost never goes higher when the price goes up, but it does not always go down.

Consider, for example, a maker of a popular spaghetti sauce produced in Italy that sold for $3.79 in the US before the onset of 25% tariffs which would mean a revised unit selling price of approximately around $4.75. Yet pricing research shows a price wall at $5 and only a minor 2-3% decline in unit volume. The research suggested the revised price go up to $4.99, or right up to the $5.00 price wall.

Identifying customer ‘willingness to pay’

The findings represent a perfect example of a price plateau where unit demand stayed essentially the same from $3.79 to $4.99 despite an increase in price of almost 25%. How can this be? It suggests that in all likelihood the product was underpriced to begin with and patrons of this spaghetti sauce are very loyal to the brand and not willing to switch off and sacrifice their preferred eating habits. The reality is that business leaders often leave money on the table in this way, by failing to identify customer ‘willingness to pay’ – another well worn phrase in pricing intelligence that often fails to get the attention it deserves in the boardroom.

Price walls and price plateaus also take effect in higher priced items such as cars and computers. Price walls differ by industry, by brand, by product, and by channel. It’s imperative for every company to determine where the baseline price walls exist for their products and industry, and also what they can do to raise them by perhaps focusing more on a different customer niche, changing the marketing narrative, improving the product or increasing the package size.

AI is revolutionising pricing intelligence 

Don’t be alarmed by the precision of price walls; instead identify where they exist for your company and products and leverage that information to the utmost. Setting the optimal price especially in these challenging times is absolutely essential. In fact, according to research by McKinsey Consulting, just a 3% increase in price will boost the bottom line for the average company by approximately 25%. What’s more, new research tools that leverage AI and tap into massive global databases have increased the accuracy of pricing research, reduced the turnaround time to a week or less and in most cases the cost of the research itself has dramatically reduced. 

Indeed, the ROI of pricing research with regards to the impact it has on your business is unsurpassed, now more than ever. And if companies can start to identify their own price walls and price plateaus, we may benefit from an unexpected upside of today’s current state of uncertainty.