In a market environment that is currently more than volatile, pricing is more than just a set of numbers. It is the key to leveraging operating profits. As Michael Marn and Robert Rosiello published in the Harvard Business Review back in 1992, a small price increase of just 1% can lead to an impressive 11.1% increase in operating profit. However, this concept can also be turned around very quickly in the opposite direction: If a company lowers its prices by just 1%, this can lead to a significant 11.1% drop in profit.
The UK-based company Virgin Pure is aware of the importance of pricing. Virgin Pure, an innovator in the consumer goods sector, faced the challenge of implementing price adjustments in a volatile consumer market but struggled to obtain reliable market data using traditional market research methods.
In search of a solution with real market data, Virgin Pure turned to German start-up Horizon. Horizon is a B2B SaaS that helps innovation and product teams estimate market success for strategic product decisions before market launch. Leading companies and brands such as BSH, Bosch, Babbel, Hansgrohe and cosnova already use Horizon to make innovation and product decisions with the highest possible confidence.
Virgin Pure has now used the new method of behaviour-based consumer research for the first time to optimize the price of its Smart Water Dispenser. Using so-called smoke tests, Horizon can uncover trends in customer behaviour already in the pre-market phase through the real-time analysis of quantitative and behavioural data.
Smoke tests, also known as fake door tests, are a market research method in which a product or service is advertised that does not yet exist. Purchase or usage intentions are measured to assess interest and demand before actual resources are invested in development.
This market research strategy has paid off handsomely for Simon Vingoe, the marketing director at Virgin Pure. Based on the data provided by Horizon, a whopping price increase of more than 15% on the monthly subscription price was implemented - without any fear of a drop in demand for the product. On the contrary, the consumer data indicated that a price increase was accompanied by increased demand. Referring to the study by Michael Marn and Robert Rosiello reproduced at the beginning, it is possible to see the enormous effect this price increase is likely to have on Virgin Pure's operating profit.