Gabor Granger Pricing Technique

Gabor Granger Pricing Technique

The Gabor Granger Pricing Technique was created by Andre Gabor and Clive Granger, and has been in use since the 1960s.  It is a technique which asks the respondents about the likelihood that they will buy a product or service at a variety of different price points. 

This is a simple method that plots the % of people which would be likely to buy a product/service at a number of different prices so that the effect of raising or lowering a price can be easily seen. For example, for Product A, 90% of people might buy it at £10, while 70% may buy the same product at £15, and 50% buy it for £20.  This data can then be used to calculate the elasticity of demand for Product A.  The elasticity of demand shows the effect of raising or lowering a price of a product. 

A product which has a high elasticity of demand can have its price changed and it will have a large effect on the demand for that product, while a change in price of an inelastic product (one which has a low elasticity of demand) will have a small effect on demand for that product.

A practical application in terms of market research would be to use a question such as:  Would you buy product x at y price?

The price then goes up or down depending on whether they say yes or no (if they say ‘no’ we focus on a slightly cheaper price. However, should the respondents say ‘yes’, we’d then ask them if they would pay slightly more).  These questions then continue until the respondent will not go any higher or lower than their previous price.

This approach provides a simple demand curve for the product, which indicates the proportion of respondents interested in buying the product at certain price points.  As such, it builds in demand (i.e. this is useful since you may generate a higher proportion of revenue from a lower price point vs a higher price point).

This simple approach is illustrated in the below chart:

The Gabor Granger Pricing Technique allows a client to clearly see what may be the optimum price to charge for a product/service, based on what a person is likely to pay, and the profit that they will make at that price point.

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