Question

Describe the role of systematic marketing research in predicting the market's price-change response.

Answer 1

Price-changes are typically a very risky affair. There are millions of dollars at stake in terms of sales expenses, promotion costs, brand reputation etc. Any analysis (of economic, competitive, socio-cultural, politico-legal elements etc.), therefore, should be supplemented by empirical studies - or in other words - a systematic market research.

There are two approaches here-

• Multiple Regression - a systematic study of past data (i.e. pricing and sales history), taking into account the many factors/variables that've influenced sales and prices over the years, to predict future trends.
• Experimentation - studying response differences, based on price variations, across multiple, predetermined, equivalent study groups (i.e. customers groups) and aggregating them to predict the market’s response as a whole.

The main idea behind these approaches (or systematic research as such) is to enable a surer stance on any proposals of price-changes by studying associated cause-and-effect (and price elasticities thereof).