Using focus group data to set new product prices

Abstract

Describes a method for setting new product prices at time of launch using data from focus groups and illustrates its application to recommending the price of toothpaste gum for product launch. The proposed method is based on optimization of the expected utility estimated from participant responses to four simple questions. The method is designed to address uncertainties from sampling error and consumer overconfidence. In addition to the formal optimization‐based procedure, introduces plotting techniques to facilitate subjective decision making. Also, compares the proposed approach with the popular “Van Westendorp method” and demonstrates plausible conditions under which the Van Westendorp recommendations would result in prices below those that maximize expected profit.