Price, as one of the fundamental elements of the marketing mix, has an important yet varied role in marketing strategy. On the one hand quite naturally it determines revenue from sales, and so should be as high as possible. But on the other just as naturally rising prices put the brakes on consumer interest, while price cuts generally stimulate demand.

The proper shaping of price cannot only take account of short-term profits from the stimulation of demand. Price is one of the primary elements of a brands positioning, and decisions regarding positioning are of a strategic and not a tactical nature. Where a decision is taken to have too high a price, there is often a loss in the short term, while in the long term the decision proves beneficial as it builds up an image of the brand as elite and prestigious. Consistent and skilful support with appropriate marketing communication can lead to the formation of a strong brand, significantly more profitable than popular brands sold on a large scale but with a minimal profit margin.

Price decisions seem relatively easy because of their lineal character. In most cases the decision boils down to choosing one of a number of possible values. On the surface this decision is much simpler than in the case e.g. of marketing communications strategy, where the number of possible solutions and the multifaceted nature of the problem is significantly greater. However, the magnitude of price decisions and the catastrophic consequences of possible errors mean they are difficult, and on the whole consumer studies are conducted before such decisions are taken in order to estimate their possible effects.

This purely numerical, lineal character of price means that it is a rewarding objective of market research studies. A few basic price test methods have been known for decades. Due to their simplicity and significant predictive value they have gained popularity worldwide. Price tests are conducted most often in the following situations:

• When launching a new product onto the market, and one wants to determine its price.
• When considering raising or lowering the price, and one wants to anticipate the impact these changes would have on demand.
• When one anticipates change in the pricing policy of an important competitor, and wants to forecast how this will influence ones own market share.
• When the situation of the entire product category changes, e.g. as a result of customs duty being lifted, or the abolition of controlled prices etc.; this forces prices to be fixed from scratch.
• When one wants to optimise a complex range of prices covering many different elements (e.g. telecommunications tariffs) or the price of a multi-variant product.

The Pentor Institute offers the following research tools related to price:

• Pricing Navigator a package of studies supporting determination of price policy
• BPTO  a test of price flexibility in the competitive environment (Brand-Price Trade-Off)
• Direct Price Acceptance DPA a price flexibility test
• Price Sensitivity Measurement PSM
• Conjoint Analysis a study used for the optimisation of complex prices