Price Sensitivity Measurement and New Product Pricing: A Cognitive Response Approach

Understanding the price sensitivity of potential buyers is a requirement for successfully determining the price for a new product. Marketers desire to set a price that will maximize demand and ensure a profitable business result. The price sensitivity measurement approach to price setting provides a methodology for mapping the upper and lower bounds of acceptable prices from the customer's perspective. Price sensitivity measurement is based on value perceptions and is a useful tool for pricing new products. This paper explores the role of cognitive response theory as a primary construct underlying the determination of the price customers are willing to pay. Potential customers for a new software service generated significantly more support arguments at the optimum price point than they did at price points above or below the acceptable pricing range. Concomitantly, counterarguments were significantly higher at prices above the upper price threshold and below the lower price threshold. The implications of these findings are discussed. The complementary use of price sensitivity measurement and cognitive response methodologies provides a convenient and easily implemented set of customer- value based tools for pricing new products.