Research Methods to Optimize Product Development

Research Methods to Support
Product Development
The Smart Entrepreneur

www.solutions-2.be +32(0)9 242 50 40 Leernsesteenweg 225 B-9800 Bachte-Maria-Leerne
solutions-2
Intro to quantitative and qualitative methods
with case studies
Copyright of Nicole Huyghe

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Services
70.2%
• We strongly believe that customer
data and insight
is at the heart of today's most
successful businesses
• 3 relevant questions:
What product/service should we put
in the market?
At what price?
And for whom?
• Voice of customer
Product
Pricing
Portfolio

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PRICE PRODUCT
POSITIONING

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Step 4: Product optimisation + price
setting (conjoint + other research)
Step 2: Needs generation. Brainstorm on what benefits consumers are
looking for (qual research)
Step 1: Decide on market positioning
(desk research)
Step 3: Narrowing down needs list through quantification
(max diff research)

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Volume
maximisation
Penetration pricing
MASS MARKET
Maximum volume
Low prices
Demand highly elastic
Large decrease in cost when volume
increases
Mass appeal
Treat of competition
Skim pricing
NICHE
Low volume
High prices
Demand relatively
inelastic
Large cost savings not
expected at high
volume
Profit/Margin
maximisation
Step 1: Deciding on Positioning Before the customer voice

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No idea about where to position yourself
in the market (i.e. an A brand vs. B brand)?
 identify gaps in market
(desk research/market studies)
Why is it important?
 It helps to identify which consumers to talk to when doing research
(mass market vs. targeted market)

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Step 2: Understanding the Market Needs:
Understanding which features/product benefits might be of use
But how do we get to a list of features to test?

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Qualitatitive research
Focus groups
In Dept interviews
Online communities
Co creation
Traditional Research: Use of Big Data
Online conversations
Twitter
Blogs, Forums
Facebook
ACTIVE BRAINSTORMING PASSIVE BRAINSTORMING
 Designed data  Organic data

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LIMITED NUMBER OF PEOPLE
(< 30)
VERY RICH INFORMATION
BASED ON A FEW PEOPLE
to understand
why, what
QUAL RESEARCH QUANT RESEARCH
WIDER SET OF PEOPLE
(> 30 – 1000s)
LIMITED INFORMATION FROM
MANY PEOPLE
to understand
how many
The starting point - generating a list Narrowing down and quantifying
Step 3: Narrowing Down the Needs List Through the Quantification

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• extended battery life
• superior materials (eg glass/metal)
• faster processing
• clearer voice quality
• more connectivity (Wi-Fi, 3G, HDMI)
• large apps library
• large music & movies catalogue
• easy connectivity to TV
• lighter weight
• ergonomic design
• secure back up service
• greater internal memory
• personal data encryption
• wireless charging
• simple cloud access
• enhanced screen quality (Amoled,
Retina etc.)
• sharper screen resolution
• brighter screen colours
• better navigation / GPS
• open system platform for more choice
• stronger reception
• more responsive touchscreen
• better front camera (eg for
photographing self)
• better rear camera (eg for
photographing others)
• console quality graphics
• enhanced ease of use
• water-proofing
• dustproofing
• shock-proofing
• simple connectivity to car audio
Another example – The Smartphone
Many potential features

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On the next few screens, we are going to ask you what features are important to you when
you are choosing a Smartphone. The features that will be shown are based on a list of
things that other people have said are important to them.
On each of the screens, you will see 5 features. Each time we will ask which of the 5
features is most important to you and which feature is least important when you are
choosing a Smartphone.
There will be 12 of these screens. Please note that you will see the same features on
several screens, though in different combinations.

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266
237
193
121
99
93
80
70
69
43
40
35
32
22
hotspots
higher internet speed
discounted smartphone
family discount
extra sim for tablet
loyalty program
smartphone insurance
norton security
cloud application
geek squad
setup aid smartphone
music streaming
call centre privileges
mobile chat
high interest
interest
(Average score)
low interest
Interest in Mobile Phone Services

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Simple Methods for Price Setting
• Willingness To Pay (WTP)
• PSM
• Gabor Granger
• Monadic Price Testing
Step 4: Product Optimisation and Price Setting

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Willingness To Pay (WTP)
The most simple quantitative methodology:
Present/demonstrate the product and ask
“how much would you be willing to pay for this?”
> mainly used:
1) for a radically new product, with no idea of what the customer will
accept
2) for bargaining products (i.e. where bargaining is allowed, e.g.
second hand products)
> In other situations: most often too low prices
> Often overestimation of price sensitivity

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The respondent is asked 4 questions (after having seen the concept):
- At what price on this scale (a wide range) would you consider
product X as good value
(inexpensive or cheap)
PSM (Price Sensitivity Meter)
- At what price on this scale would you say product X is beginning to
get expensive, but you would still consider buying it?
(expensive)
- At what price on this scale would product X be so expensive you
would never consider it?
(too expensive)
- At what price on this scale would product X be so inexpensive that
you would doubt its quality?
(too cheap)

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PSM
Two underlying motivations:
1. Theory of reasonable prices: Given a product, consumers can
somehow form an impression of what they would expect it to cost,
or at least a range
2. Psychological pricing effects: too low a price signals bad
quality and turn people off
So the “reasonable price range” does have a lower end

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PSM
0
10
20
30
40
50
60
70
80
90
100
%Respondents
Price
% Looks inexpensive
% Too cheap
% Looks expensive
% Too expensive
optimum price
or penetration
price
perceived
normal
price
defines
acceptable
price range
highest
reasonable
price
lowest reasonable price

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Gabor Granger
Customers are shown different prices (about 4 – 5)
For each price, they are asked their willigness to buy at different price
point (yes, no or 5-point scale).
Extension: if no, ask why “Too expensive” or “Too cheap”
• Different ways:
- Purely random selection
- Random start price, then increase or decrease depending on
previous answer

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Gabor Granger
0
10
20
30
40
50
60
70
80
90
100
50 75 100 125 150 175 200 225 250 275 300
%Respondents
Price
Too Expensive
Yes
Too Cheap
Ideal price range

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Monadic design
• A very simple methodology
• Respondents are presented with a product concept at a specific
price and asked how likely they would be to purchase the product at
the specific price.
• Independent groups of respondents do get to see differerent prices
• But each groups only sees one price
Gives more accurate estimation of price sensitivity (than WTP,
PSM, GG) but need for more respondents

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Conjoint Research
Conjoint research is about
“Which product characteristics do matter?”
“What is the willingness to pay?”
Optimises product composition and pricing in one combined method
Assume the product composition is already known and fixed (e.g. a car has
been designed and developed, a pharmaceutical drug is ready to be launched,
…), but you need identify the ideal price level (i.e. the price leading to biggest
revenue)

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Conjoint is based on the trade-off principle:
you can’t have the best product for the lowest price
Quality
Package
Brand
Price Quality
Package
Brand
Service
Price

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25

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Brand
Price
Feature 1
Feature 2
Feature 3 Feature 4
Feature 5
First of all, conjoint analysis will lead to understanding which impact each
of the tested elements (attributes) has on the purchase consideration
Example

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Impact Of or On Competition?
Example: when Tesco gives a Samsung Galaxy as free handset, the share of brand
X will go down to 6.3% (from 8.8%), while Tesco will grow from 4.4% to 17.1%
MARKET SCENARIO 1 MARKET SCENARIO 2

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Value of features?
Assume current share of volume is 20%,
which refers to the current product in the
market including a Sony Ericcson handset.
The price of this product is £6.50. If we were
to offer a Samsung handset (instead of a
Sony Ericsson handset), we can increase
the price of the product to £11.50 without
loosing any share. So consumers are
prepared to pay more if we offer the
Samsung handset.
Similar charts (or tables) can be used to
determine the value of each feature
0%
10%
20%
30%
£0 £10 £20 £30 £40
Shareofvolume
Tested bundle prices
Samsung Galaxy Y
Blackberry 9300
HTC One V
Samsung Galaxy S II
Nokia C1-01
Sony Ericcson Xperia Ray
HUAWEI Titan
SIM only
£6.50 £11.50
Price sensitivity of an attribute (handset included in bundle)

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Product / portfolio optimisation?
TOP 5 BEST PRODUCTS
FULL LIST OF ALL
PRODUCTS

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PEOPLE PRODUCT PRICE
Segmentation Product development
Market Segmentation

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CORE
OFFER
PREMIUM
OFFER
VALUE
OFFER
volume
price

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The Benefits of Segmentation
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0
5
10
0 5 10
Convenience
Cost
Main Principle

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What is Segmentation?
It’s not this… It’s this…
It’s possible to segment the same group in multiple ways!

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Eco-Display Room temperature
control
Integrated door
communication
Movement
detector
Touchscreen Burglarly alarm
6,500 €
TO BE CONVINCED
ENERGY-COST SAVERS
HOME CONTROL
LOVERS
35%
11,500 €
41%
24%

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