Best practice for ACBC Summed Price Levels for trying to estimate optimal pricing range

Question

Hi Sawtooth Team,

I have an ACBC project where I'm trying to figure out optimal price ranges for some features (levels in attributes grouped by their purpose). These features are additions to a main component (which are represented by levels in one attribute). The main component represents around 65%-85% of the overall price.

We're not really sure how much the features are worth to people and our goal is to find out what price ranges they're worth.

We're using the Summed Price approach and thinking of doing a shock on the total price. However, we're not really sure whether it's best to use just the main component price as the total price or to include an estimate for the feature prices and sum that with the main component to get the total price.

Which method would you recommend and why?

Thanks!

Answer 1

If buyers just view the total price of the product and make their choice, then ACBC would be a good approach.

If in the real world buyers see the prices for each add-on feature and also see the price of the main component, then make their choice by configuring their final product to buy, then MBC (menu-based choice) could be more appropriate.

If you decide that ACBC is a good approach, and price is involved, then I generally recommend using summed price.  Even if you can only approximately guess what the average street price is for the add-on options, then this allows the software to create more realistic tradeoffs, where the products are closer in general to their expected street price.

Of course, you need to allow ACBC to give a random shock (recommended in the range of +/-30%) to the expected calculated street price per product to allow for precise price sensitivity estimation.

Be on the lookout for significant interaction effects between each of the features and the overall price attribute (you often won't find them, but it's a good idea to watch out for the possibility).  This can help you obtain more accurate estimates of the price sensitivity for different features.  You can examine this possibility using our "CBC/HB model explorer", which is an advanced (free) tool available for folks with CBC/HB licenses (for example, if you have a CBC license, you also have a valid CBC/HB license).

Comments

Thanks for your timely and insightful response Bryan!