An example of how price sensitivity analysis was used to determine the optimal price point for a new product launch

The Challenge

A global FMCG company was looking to introduce a new premium range of products, targeting high value consumers. As part of the launch they needed to understand the optimum price that the luxury product could command relative to the existing product ranges.

The Analysis solution

We selected members of an online community panel to take part in a price sensitivity analysis study. The technique chosen was the Van Westendorp price sensitivity meter (PSM). We asked consumers to assess the price for the premium product range at which the product was…

so cheap they would question its quality

a bargain and great value for money 

starting to get expensive, but they would still consider buying it

becoming too expensive to the point where they would not consider buying it

From this we plotted the critical price preference points, providing the price parameters they should keep within, and the optimal price point.

“Price sensitivity is the degree to which demand changes when the cost of a product or service changes. Price sensitivity is commonly measured using the price elasticity of demand.”

The Impact

Our analysis allowed the company to calculate the ideal price point for maximum market share. It also provided them with the optimal price range allowing for profit margins and revenue projections to be taken into account when making the final decision on price.

The analysis informed the pricing strategy for the product within each of the global markets, leading to a successful and highly profitable launch.