← Back to Muir Wood & Co

Research Trail Guide: Price research #4 – Price thresholds

Just like eating spicy food, everyone has a different tolerance for spending money on things. Here’s how to get this info out of your customers and use it to find out their willingness to pay for your product.

In the last few posts on pricing, we’ve been learning all kinds of ways to work out how much people might spend on your product, without actually flat out asking the question “how much would you pay?”. Well, thank you for your patience, today I’m going to explain how to go in for the jugular and ask for numbers.

You’re not going to ask for one price though, you’ll ask for three! This will help you to establish people’s thresholds: the psychological limits that people set in their minds for different purchases. 

What are price thresholds?

Some people are sweating after a mild Nandos, others can calmly put down a Szechuan stir fry that’s basically all chillis. Just like eating spicy food, everyone has a different tolerance for spending money on things.

Different people allocate different amounts of money to particular problems in their lives. Maybe they are acutely aware of the problem you solve and haven’t found an adequate solution til now. Maybe they are trying to spend their allocated work budget for this financial year. Maybe they like to buy the best. Maybe they just have too much damn money for their own good.

How do we word the question?

Essentially you’re asking people to tell you what would be an affordable, an expensive and an extortionate price for your product.

Please don’t blurt this out at the start of your conversation with a customer. You’ll need to build up to this – it’ll be one of the last questions in your interview.

Here are the steps we’d take:

1. Get them thinking about the problem

It’s essential that you know their relationship with the problem you solve before you start getting price feedback from them.

You really don’t want to take price advice from someone who doesn’t have the problem or isn’t spending money on it. 

Even for people who have the problem, there will be a wide spectrum of attitudes and reactions to it. This is useful context for the end result.

2. Get them familiar with your product

Next you’ll need to get them to understand what your product does. Try to keep it as clear and simple as you can. Use neutral descriptions to explain your features, try not to make it feel salesy. 

This is not a time to paste a complete list of features off your website (see the Feature Sundae exercise to get people to quickly grasp and rank your features).

3. Get them thinking about price

It’s helpful to run one or two indirect pricing exercises, to get their juices flowing around what they’ve spent in the past or: 

4. Pop the question

OK, now they’re warmed up and you have all the context you need, go ahead and ask:

“We are trying to work out what to charge for our product. Now you’ve seen what it does, I’d like you to think hard and give honest answers to these three questions:

  • What would be an affordable price?
  • What would be expensive?
  • What would be extortionate?”

Seeing this written down helps people to do their mental arithmetic. I’ll often have a digital whiteboard up for the previous exercises, so I’ll include three boxes. You can use post-its or even a simple document template.

5. Find out how they reached those numbers

This is the crucial moment (even more important than the numbers themselves): find out how they reached these numbers. Were they making some comparison? Was it informed by a recent purchase that we hadn’t asked about?

Although the numbers are useful info, the thought process is an even more valuable takeaway.

What do the different categories mean?

The way people think about price is going to be different for consumer or business products and will also vary across products, services and other models. Here are some useful themes for each that should get you started on the kinds of answers you’ll hear:

Mild: Affordable

Your product is a bargain at this price

  • They’d just buy it without thinking
  • It’s cheaper than what they’re currently spending
  • They can expense it without sign-off

Hot: Expensive

It hurts a little, but this is the price you can get away with (if your product is good)

  • It could need the boss (or life-partner!) to review
  • They’ll probably look at alternatives before deciding

Unbearably spicy: Extortionate

There is no way they could stomach this price.

  • It’s more than they spend on other, bigger things
  • Their budget won’t stretch this far
  • They couldn’t get this signed-off

How do we use the data?

Once you’ve done this with a number of customers, you should start to see some patterns emerging.

First you’re probably dying to throw the numbers into a spreadsheet and build some box plots! Averaging each of the three will give you a good initial price range for your product to get you started on higher-volume quantitative experiments. 

Don’t try to present qualitative findings as quant though – you’ll get hounded out of the building by your engineers and data scientists. There are quantitative methods (like the Van Westerndorp model) which you can use when you have the scale/resources.

You might also have noticed that certain kinds of people allocate wildly different amounts of money to the problem than others. You should be able to work out why that is and if they have anything in common: this can help you to build a price-based segmentation.

A less obvious, but equally valuable output is the drivers of people’s willingness to pay for things. In my experience of B2B research, it is astonishing how much influence finance/procurement has on peoples’ buying behaviour. Knowing where the sign-off threshold is can transform a sale from a 2 month slog into an instant credit card purchase. That’s a commercial constraint, but people also have psychological thresholds in their heads and lives that you’ll want to interrogate.

🌶 🌶 🌶

Are you thinking about doing some pricing research and want some help planning or running it? We can offer workshops or full service projects to help you learn from customers. 

Get in touch if you’re interested.

← Back to Muir Wood & Co

Get in touch:

Thank you! We'll get back to you very soon!
Oops! Something went wrong while submitting the form.