How Expensive Is Your Product Perceived to Be? CONSUMER GOODS Why You Should Be Measuring SECTOR Expensiveness If You’Re Not Already

Point ofview

How Expensive Is Your Product Perceived to Be? CONSUMER GOODS Why You Should Be Measuring SECTOR Expensiveness If You’re Not Already

How expensive consumers perceive your product to be – a measure we call “Expensiveness,” for lack of a better word – is a proven diagnostic for evaluating price and a qualiﬁed forecasting input. If you’re not already measuring it, you should be. Here’s why. One of the most fundamental decisions Marketers have to make about their new products is setting Lee Markowitz, Ph.D. Global Chief Research Ofﬁcer, the price. There are many pricing research tools Ipsos Marketing, Consumer Goods Sector available to help Marketers determine the best [email protected] price, but often these tools are not used because they are too imprecise, too costly (require additional monadic cells), or too specialized (require a sophis- ticated methodology like discrete choice). So how should price be measured? Marketers typically use the survey question Value for the Money to draw conclusions about price. While industry practice has often placed more emphasis Bernard Fressart on the Value for the Money question than the Director, Global Product Center, Ipsos Marketing, Expensiveness question, the truth is that Expen- Consumer Goods Sector [email protected] siveness is the better indicator of price – and can even be used as a model input for forecasting.

September 2008 For more Ipsos Marketing POVs, visit www.ipsosmarketing.com/knowledgecenter

Expensiveness is a More Actionable Measure Value for the Money is the relationship between the quality of a product and Figure 1 its price. Quality perceptions can be measured by a survey question on Value Relevance, while price perceptions can be measured by a survey question on Expensiveness. (See Figure 1.) Typically, the Value for the Money ques- Quality vs. Price tion is posed to consumers as follows: Relevance Expensiveness Considering the price for (Insert Test Survey Question Survey Question Concept or Product) is (Insert Test Price), would you consider this product to be a… (1) Very good value; (2) Somewhat good value; (3) Average value; (4) Some- Figure 2: Correlation of Relevance with Value for the Money r2 = 0,47 what poor value; or (5) Very poor value. 5 While Value for the Money is a good indication of whether or not consumers 4 believe the price point is appropriate given the perceived Relevance of the 3 product, it has a major drawback when 2 being used as a pricing tool: it is not a pure evaluation of price. Ipsos Market- 1 Value for the Money Value ing R & D has proven that Value for the Money is strongly correlated with Rele- 0 01 234567 vance (r2 = 0.47) and therefore is not an Relevance independent price variable. (See Figure 2.) Therefore, relying strictly on Value for the Money to gauge price can be misleading. For example, a high Value for the Money score may be due to the price being perceived as low versus competitors, or it may be due to the product’s Relevance being perceived as high among target consumers. Conversely, the same lack of clarity will exist with a weak Value for the Money score; Marketers will not know what action to take to change consumer perceptions. Should the price be lowered or should the concept or product be made more relevant to target consumers? Or, is there something about the positioning or brand ﬁt that caused consumers to question the overall quality? Thus, Value for the Money is not a strong diagnostic measure of price because it does not provide clear direction. Expensiveness Will Give You Conﬁdence in Your Price Expensiveness Does Not Correlate with Relevance Unlike Value for the Money, Expensiveness focuses solely on price. The question itself is posed in the context of the competitive environment: Considering the price of (Insert Test Concept or Product) is (Insert Test Price), do you think the price is: (1) Very expensive; (2) Somewhat expensive; (3) About average; (4) Somewhat inexpensive; or (5) Very inexpensive… compared with other similar products you could buy. To prove that Expensiveness is independent of Relevance, Ipsos Marketing conducted R & D that revealed Expensiveness has a much lower correlation with Relevance than Value for the Money does. The squared correlation between Expensiveness and Relevance is only r2 = 0.04 while the squared correlation between Value and Relevance is r2 = 0.47.

Expensiveness Validates Against In-Market Prices Figure 3: Correlation of Expensiveness with In-Market Price r2 = 0,58 e

To further prove that Expensiveness c 160 should be relied upon to gauge price 140 points, Ipsos Marketing conducted analy- ses to compare Expensiveness and Value 120 for the Money to in-market price data. 100 The first analysis indicated that the 80 correlation between Expensiveness and In-Market Pri in-market price data is very high. Specifi- 60 cally, the squared correlation between 40 consumer-perceived Expensiveness and 5070 90 110 130 150 170 190 2 the in-market price data is r = 0.58. Expensiveness (See Figure 3.) The correlation between Value for the Money and in-market price data is much lower (r2 = 0.36), as was demon- strated in a separate analysis conducted by Ipsos Marketing. Based on the high correlation between Value for the Money and Relevance (r2 = 0.47); the low correlation between Expensiveness and Relevance (r2 = 0.04); the high correlation between Expensiveness and in-market price (r2 = 0.58); and the weaker correlation between Value for the Money and in-market price (r2 = 0.36) we can conclude: Expensiveness is a more direct measure of price than Value for the Money. Therefore, Expensiveness will give you confidence about the price point of your concept or product. When Should Value for the Money Be Used? Value for the Money is still an important measure in evaluating consumer perceptions of the concept or product. Value for the Money should be used as a logic check for Relevance and Expensiveness: the Value for the Money results should be consistent with the conclusions drawn from looking at the combination of Relevance and Expensiveness. Expensiveness Can Be Leveraged in Forecasting, Saving Both Time and Money Ipsos Marketing’s forecast models take into account several characteristics of the market to reflect competition:

1 Market permeability – the ease or difficulty of 2 Market leaders to be used as standards for penetrating the market long-term based on the success; and degree of brand dominance (share maintained 3 The new product’s in-market price versus com- by market leaders) and the degree of fragmen- petitors (i.e., its relative price). tation (number of brands in the category);

Regarding the third point above: Ipsos Marketing R & D has proven that Expensiveness can be used instead of in-market price for forecasting. Since Expensiveness is highly correlated with in-market price data, Expensiveness can be used to replicate in-market price in forecasting models such as those used in Ipsos Marketing’s InnoScreen® and Designor® methodologies. InnoScreen is Ipsos’ global concept screening system that identiﬁes the highest potential concepts based on the InnoTrial Potential™. The InnoTrial Potential is an estimate of maximum in-market trial potential and represents the percent of consumers that will ever purchase the product.1 Designor is Ipsos’ simulated test market forecast model for consumer packaged goods and has been validated over 600 times, producing estimates within 9% of actual sales on average (taking into account the full marketing mix, including a detailed marketing plan, advertising, shelf impact and competition). Another advantage to using consumer perceptions of Expensiveness instead of in-market prices is that Expensiveness mirrors the consumer mindset and will generally be more reliable in countries where panel data are questionable. And, ultimately, using Expensiveness instead of in-market prices is faster and more cost-efﬁcient than gathering accurate in-market price data.

1 The ITP assumes 100% awareness and distribution and an average level of advertising identification and shelf visibility. The ITP does not incorporate marketing plan inputs; however, Year I volume forecasts are an option with InnoScreen®, in which case basic marketing plan inputs would be required.

Concluding Remarks The Expensiveness survey measure is a proven diagnostic and a qualiﬁed forecasting model input. Marketers should focus more on Expensiveness than Value for the Money as a diagnostic because Expensiveness, unlike Value for the Money, is a more direct evaluation of price and the survey question itself includes the competitive context. Further, Marketers can leverage Expensiveness as an input for forecasting because it mirrors in-market price. Marketers should feel conﬁdent about their forecasting results when using consumer-perceived Expensiveness as a model input. About Ipsos Marketing Ipsos Marketing is a leading global market research company. With unequalled expertise in Innovation and Brand Research, we help clients understand consumer behavior, develop and launch new products, and improve brand performance in their respective markets. Ipsos Marketing offers world-class solutions that help clients build their businesses throughout the new product development process, from the earliest stages of innovation through brand maturity. Our wide range of global solutions integrates quantitative and qualitative research as well as advanced modeling and forecasting techniques. Our research is supported by sector experts who specialize in Consumer Goods, Shopper and Retail, Health and Pharmaceuticals, Durable Goods, Financial Services and other industries and services. By developing a deeper understanding of your brands, consumers and marketplace, we always deliver actionable recommendations rooted in reality.