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Sequential Monadic & Gabor-Granger: Bargaining with Respondents

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Unfortunately, as an industry, market research doesn’t always do a good job of passing on knowledge. For the first pricing study I ever did, for training software, I was ironically given no training on pricing research!

As a result, I independently invented a technique known as “sequential monadic” (sometimes called “price laddering”) – asking purchase likelihood for a series of prices, one right after the other. Of course, I got the technique wrong in my re-invention of it.

For my questionnaire, I wrote a product description and then asked purchase likelihood. Next, I asked how likely they would be to purchase this product, from 0% to 100% likely, if the product cost $400. This unfortunately telegraphed to the respondent that my primary interest was in price. Unless they said 100% likely, I then asked how likely they would be to purchase at $350. This then telegraphed to respondents that I was willing to lower the price. Again, unless they said 100% likely, I then asked how likely they would be to purchase at $300 and, finally, at $250.

I made quite a few mistakes in that study 20 years ago:

• Not covering the right price range – Lowering the price from $300 to $250 increased purchase likelihood enough to make up for the lower price; when presenting your analysis, you want to be able to show at what point lowering the price does not lead to higher overall sales. In retrospect, I needed to ask for prices down to $100.
• Not offering enough price points – I asked purchase likelihood for four prices, when the best practice is to ask for eight or nine price points.
• Asking prices in a logical order – The two most common sequential monadic techniques are HI-LO, asking the highest price first then prompting each time for a lower price, and LO-HI, asking the lowest price first then prompting for a higher price each time. HI-LO overstates purchase likelihood at lower price points, as respondents , from a desire to please the interviewer, eventually say “very” or “completely likely”, despite the fact that in the real world many will never buy at any price point. LO-HI understates purchase likely at higher price points, as respondents decide it is not in their best interest to lend support to higher prices. The economists Gabor and Granger, as far back as 1964, advocated randomly varying the order of the prices presented, in order to prevent any order effects.
• Getting the scale wrong - First, I asked respondents to provide their purchase likelihood using a scale from 0% to 100%. A 101-point scale would certainly have greater precision than a 5-point scale, right? Unfortunately, I made the common mistake of treating respondents like robots. Research indicates that five-point fully labeled scales are more valid and reliable, and when I ask this question today I give the respondent five choices: not at all likely, slightly likely, moderately likely, very likely and completely likely.
• Taking respondents at their word – Respondents can’t easily estimate how likely they are to purchase something, and the survey results should be one input into the final price. Firms that have done extensive pricing research within particular industries often develop proprietary models; for instance, perhaps very likely is given a 40% probability of purchase and completely likely is given a 50% probability.

A sequential monadic technique is best when testing a new product concept that lacks direct competition, where the product design is already fixed, in circumstances where you lack the sample to do monadic price testing. That, at least, I got right.

A footnote: The Gabor-Granger technique traditionally doesn’t ask purchase likelihood but instead asks a series of Yes/No questions: “Would you buy the product if it were priced at $X?” This is a simpler question for respondents to answer but, while predictive of their buying behavior, should not be considered to be 100% accurate; don’t send them an invoice and the product when the purchase is done!  For that technique, see Michaela Mora’s most recent installment in our pricing series, “Comparing Willingness To Pay Measurements To Real Purchase”.