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Setting the right price for a product or service is one of the hardest things for a marketer. In many cases the perception of a product or service by the customers is the cornerstone to successful pricing. Unexploited diversification and pricing potentials are often the main driving forces for dramatic price developments and the origin for diversified product offerings.

In this chapter the role of pricing in the marketing mix is examined. An emphasis is placed on its importance and sample applications from the literature in which pricing strategies were developed alongside with the development of a marketing strategy are present. The main objective of this is to familiarize the reader with pricing research in the context of marketing. The importance of pricing also explains the great interest in the topic the management of the Nokia online shop in Germany has.

In designing a pricing strategy, the basis is to set the prices for the goods in view of how much the customers are willing to pay for each of the goods. It is important for the marketer to predict how many of the offered products will be bought at different prices. To predict the demand for different products at different prices the marketer needs a profound understanding of the reaction of his or her customers to different pricing schedules.

In many companies pricing decisions are made without profound understanding of the likely response of the buyers and competitors. These companies do not conduct pricing research and as a result do not have a serious pricing strategy in a marketing sense. They rather have something that could be called an intuitive pricing strategy. Several studies indicate that only 8% to 15% of the companies conduct serious pricing research to develop effective pricing strategies (Monroe and Cox, 2001). Other studies have shown that 49.9% of the surveyed companies adjust prices once or less in a typical year. Further, only 13% of the prices that were changed were a result of a scheduled review of the current pricing policy (Monroe, 2003, p. 19).

In the previous chapter the ongoing research in the estimation of willingness-to-pay (WTP) was reviewed, providing an overview of the different methods and discussing advantages and disadvantages. Also, reviewed were the different methods in respect of their ability to estimate consumers’ preferences at the individual level.

This chapter discusses how pricing studies are performed when conjoint analysis is applied. The general approach is to include price in the conjoint study as yet another attribute. We will explain how this is done, and review a selection of publications which explicitly focus on the estimation of willingness-to-pay (WTP).

In this chapter a novel approach to estimate willingness-to-pay (WTP) is presented. In previous chapters it has been established that it is important to have a surveying instrument that can estimate willingness-to-pay at the individual level based on each respondent’s provided information only. The method is as an additional interview scene which is an extension to conjoint analysis. We call this new interview scene “Price Estimation Scene” (PE scene).

The application of the Price Estimation scene (PE scene) in a real-world scenario is the main objective of this chapter. This was performed among the customers of the online shop of Nokia in Germany in October 2004. It will be illustrated how this PE scene delivers individual level estimations for willingness-to-pay (WTP) that can be used for market simulations. The goal of the simulations is to optimize bundling strategies for joint sales of a telephone with a contract and suitable accessories in the online shop.

This dissertation proposed and tested a new method to estimate willingness-to-pay (WTP). For practical applications the estimation of willingness-to-pay belongs to the field of strategic marketing planning. Recent developments in marketing show that pricing of products is driven by a value based approach. In a value based approache the price of a product is based on the perceived valuation of the target customers. The research in the field of pricing is of ample importance. The reason is that price is the only element of the marketing mix that generates income. All other elements, such as advertising and promotion, product development, selling effort, distribution, packaging and so forth, involve expenditures (cf. Nagle and Holden (2002, chapter 1) and Monroe (2003, chapter 1)). In order to set a good price a marketer has to anticipate the market’s price response behavior. That is, the marketer needs valid estimations of the consumers’ willingness-to-pay.