Doug Garnett wrote a blog post titled Pricing and Complexity (Part 2): Conjoint Analysis Can Undercut Price for Innovations (Feb 9 2020).
« According to Wikipedia: ‘Conjoint analysis‘ is a survey-based statistical technique used in market research that helps determine how people value different attributes (feature, function, benefits) that make up an individual product or service. »
« For conjoint analysis in marketing, a product or service is broken into attributes (commonly features) and a set of “options” are developed which are combinations of the features. Research is then conducted (qualitative for discovery, quantitative for reliability) where participants are asked to rank or rate the options… In some [cases] price is included as an attribute and in others we learn perceptions by asking customers to predict the pricing for each option. »
« Conjoint analysis can only succeed within a narrow range of boundaries where customer response is well behaved. »
« The market almost ALWAYS needs communication before it can accurately value an innovative new feature or product. This is made more important because most important innovations are hidden — not physically obvious — so they aren’t self-evident (see the Kobalt Double Drive for an example). »
Case in Point: « Almost 20 years ago I was approached with the Drill Doctor — a product loved by many professionals but which wasn’t moving at retail. Interestingly, a well known midwest US ad agency had done some research work and, following a 75 word product description, had asked respondents to rate their interest in buying the product. On a 5 point scale, the average interest was around a 2.5. In other words, they weren’t buying it. The ad agency recommended they not pursue a wider market. I looked at the research. It clearly didn’t ask an informed consumer about their interest — these respondents knew nothing about the product. So my agency took on the challenge and we did research to learn how to communicate the benefits of the Drill Doctor… Over the next 8 years, our advertising was key to selling over 3 million units of a $100 product which sharpens $0.50 drill bits. Communication also drove exceptional sales of their $179 version of the product. Now, 20 years later, they retain strong big box distribution, the high end product still demands over $100 and the core product remains priced at $100. All for a product people said they didn’t want. »
« I will take a moment to observe that ANY new introduction of a product with highly innovative features should START with specialized research learning how to create the most effective communication. That research will also reveal quite a bit about price elasticity because people pay the most for that which they value the most. »
« Marketers can start by always assuming that market response to new, innovative product is particularly unstable and ill behaved — complexity is ALWAYS at work with innovations. »