Pricing Factors are qualitative factors that you can use to make a decision about whether those factors should drive your price higher or lower. The default modeled price on the pricing factors tab captures 50% of your offering's differential value, meaning your offering price is the same as your competitor's (if they have a price, zero if they don't or the competitor is status quo) plus 50% of the differentiated value.
To add a Pricing Factor, go to the first tab within Price Setting, Modeled Price, and the first sub tab below the graph, Pricing Factors, and select Add Custom.
Note: The purple bar represents the modeled price using the selected method (in this case, pricing factors). If you have already set up an offering price, it will appears as a yellow bar to the right of your modeled price.
Each pricing factor comes with five sensitivity levels, from low to high. The sensitivity level corresponds to how much of the differentiation value you can capture in the modeled price in equal parts, specifically 25%. In the above case, where Brand Image has a positive price impact, moving the sensitivity level closer to high will make the modeled price in your model capture more value. Notice that moving the sensitivity setting from low to high also adjusts the modeled price.
However, the more pricing factors you add, the smaller impact of each pricing sensitivity setting change. Imagine a differentiated value of $100,000 against the status quo (i.e. no competitor price) and one pricing factor with a positive impact. In this case, each pricing factor sensitivity change would equal a 25% change in the amount of the differentiated value to capture in the modeled price. See below how the price changes below as you change the pricing factor sensitivity level.
|Low||Medium Low||Neutral||Medium High||High|
If you were to add a second pricing factor, let's say with a negative impact, then each incremental change of pricing factor sensitivity on either pricing factor would move the modeled price by 12.5% of the differentiated value, but in opposite directions. See below, where the horizontal settings refer to positive impact, and the vertical settings refer to negative impact.
|Positive Low||Positive Medium Low||Positive Neutral||Positive Medium High||Positive High|
|Negative Medium Low||$37,500||$50,000||$62,500||$75,000||$87,500|
|Negative Medium High||$12,500||$25,000||$37,500||$50,000||$62,500|
Notice when the negative pricing factor sensitivity is set to High and the positive pricing factor sensitivity is set to low, the modeled price is $0. Reverse those states and the modeled price is $100,000.