When you have a new product that's different from anthing else on the market, pricing can be a challenge.  One key input to the pricing process is gaining an understanding of what customers are willing to pay.  But it's not necessarily easy to figure that out.  Simply describing your product or service to a custoemr and asking them what they would pay turns out to be a very ineffective way of understanding pricing.

There are mutliple methods that researchers use to determine how customers view pricing, including:

• Demand Estimation
• Self-Explicated Conjoint
• Ratings / Rankings Based Conjoint
• Adaptive Conjoint
• Discrete Choice
• Van Westendorp

The approach we'll focus on here is the Van Westendorp method because it's reasonably practical for non-statistician entrepreneurs to use, and it can provide very useful insight as to what customers will pay.  It involves asking a group of prospective customers the following questions:

At what price would you begin to think product is too expensive to consider?

At what price would you begin to think product is so inexpensive that you would question the quality and not consider it?

At what price would you begin to think product is getting expensive, but you still might consider it?

At what price would you think product is a bargain – a great buy for the money

The answers to those questions are graphed and analyzed to determine the likely range of acceptable pricing.  For more details on the Van Westendorp process, read this blog post by Mike Pritchard of 5 Circles  Research.