How do you Value Peace of Mind?
How do you Value Peace of Mind?
A NeuroPricing™ case study with Dräger
No price is too high when it comes to your child’s safety. Despite that, we wouldn’t pay €2500 for a child car seat or €150 for formula milk. Thus, from a consumer-centric perspective of predictive market research, it remains paramount to identify the perceived value of a product. So how do you define a price?
One technical approach to product pricing is to establish the manufacturing costs before adding a profit margin. However, this cost-plus pricing approach may undermine the full commercial potential. That is because pricing is a highly relevant factor in the marketing mix. Price adjustments have a direct impact on profit. Therefore it is a huge opportunity to base the price on the perceived value, rather than on the cost.
It is hard to define the perceived value of a product. As is common knowledge in the field of consumer neuroscience, it is rarely a good idea to ask someone directly about their perception due to the limitations of introspection: people do not act as they plan to, and are unable to understand their emotions which then trigger action. This response is even more exaggerated with pricing. When a researcher asks the price target consumers claim they’d be willing to pay, responses are more motivated by a bargain, than by truth. As economists would say, shoppers have a vital pre-disposition in maximizing “consumer surplus”, i.e. the difference between the perceived value and the actual price.
A technology that takes all these considerations into account is NeuroPricing™, which was recently acquired by Neurensics. This technology implicitly measures the perceived value from research-grade EEG brain signals via a proprietary algorithm, validated and refined over eight years in various laboratory and field studies. Measuring values directly from the brain using EEG relies on the capture of ultra-fast responses from the brain’s numerical areas; these help classify a price immediately as appropriate or inappropriate for a product - before social aspects and response biases kick in. NeuroPricing™ reveals not just the perceived value, but also how those “perceived values” vary within subjects and across the target group. Such insights enable us to model the demand and make field-validated predictions about how a specific price will fare in the market.
Dräger, a world market leader in medical and safety engineering, had developed yet another innovative product: a high-tech motion-sensor with baby monitor function, termed Dreamguard. Given the all-too-prevalent fear of sudden infant death and an everincreasing desire to control and monitor babies, the product is spot-on and caters to the needs of today’s digitally native Generation Y parents. The branding of the then-prototype was already polished.
The pre-launch business challenge was that the Dreamguard is a highly innovative and complex product which demanded a price above €200. However, it remained an open question whether consumers would in fact recognize and value the uniqueness of the Dreamguard proposition, or perceive the product as anything other than “just a fancy” baby monitor- a category typically priced significantly lower. Finally, the price-quality heuristic is well-documented in science, stressing the impact of the price on perceived quality.
The right launch price would make or break the product from a purely bottom-line perspective. So it was critical for Dräger to find a l aunch price that would (1) represent an attractive business case, (2) resonate with the target group’s value perception, and (3) be a quality indicator.
In order to run NeuroPricing™, we recruited 37 targeted men and women around the time of birth of their childspecifically, four months before the due date up to one month after giving birth. These participants were made familiar with the Dreamguard akin to the product decision process in the field. Using EEG-based NeuroPricing™ we identified the unbiased subconscious value perception of the product (Figure 2). Furthermore, we derived demand curves and price elasticities for Dreamguard. Additionally, participants completed a classic explicit pricing questionnaire to allow modeling of a demand function (Figure 3). Knowing the demand, we calculated the revenue curve.
If we had based our advice on the explicit pricing questionnaire alone, we would have suggested a price of below € 100 in order to obtain an adequate market share. Yet, the resulting low margin would have aborted the launch of the product. The implicit brain data showed the subjective value of the Dreamguard was significantly higher.
We thus proposed launching at between € 200 to € 250, corresponding to demand levels between 50% and 70%.
Understanding the perceived value as well as modeled demand and revenue allowed us to set up a targeted pricing strategy which included insights from behavioral pricing and estimated effects of platform economics. Dräger successfully launched Dreamguard in the range of prices indicated by NeuroPricing™. At the time of writing, Dreamguard has a 4.5-star rating on Amazon Germany and social listening data indicate that - while indeed delivering priceless peace of mind to young parents - the Dreamguard is perceived to offer excellent value for money.
Neurensic’s core capabilities lie in fMRI, EEG and behavioral methods. However, it has been the augmentation of the specific EEG-related application, NeuroPricing™, together with Kai-Markus Mueller’s leading expertise in evaluating price-value related impulses, that enabled us to more forensically optimize launch pricing strategy. This initial study sees NeuroPricing ™ and Kai himself formally joining forces with Neurensics to build on the potential for further client price-value challenges.