BPTO – Brand Price Tradeoff Analysis
by Greg Thomas
September 24th, 2008
Background
- Typically used to measure price elasticity.
- Developed in early 1970’s.
- Described in working papers by Johnson (1972), Jones (1975), Johnson & Olberts (1991).
Description of How it Works
- A group of products are presented to a customer.
- Each product is priced at its lowest level.
- The consumer is asked to select one product.
- The price of the product they select is then increased to the next level, no other prices change.
- The consumer is asked to select again.
- This process is repeated, until the product reaches its maximum price or the consumer selects another product.
- The study may move through all of the competing products.
- Sometimes the process will include the choice "None of the above", at which time the task ends.
Strengths
- Upon an in-depth review of several BPTO studies and the available quantitative literature we are not able to provide any.
Weaknesses
- The purpose of the study quickly becomes obvious to the consumer leading to self-consciousness which in turn causes artificial behaviour.
- The typical result is the product’s price elasticity is significantly overestimated.
Measures of Predictive Validity
- In a study that employed the BPTO methodology the estimated measure of elasticity was found to be -4.5, whereas the comparative TAG results using a different methodology estimated the elasticity at -0.8. The lower elasticity was proven to be correct. This has profound implications for forecasting revenue and market share changes.
Our Assessment
- This method is generally worse than doing nothing at all.
Johnson, Richard M. (1972), A New Procedure for Studying Price-Demand Relationships. Chicago: Market Facts, Inc.
Jones, D. Frank (1975), "A Survey Technique for Measure Demand Under Various Pricing Strategies," Journal of Marketing, 39 (July), 75-77
Johnson, R.M. and Kathleen Olberts (1991), "Using Conjoint Analysis in Pricing Studies: Is One Price Variable Enough?" Presented at American Marketing Association’s Advanced Research Techniques Forum, Beaver Creek, Co. (June).
