Gabor-Granger Pricing Method

The Gabor-Granger pricing method determines the price elasticity of products and services. Developed by two economists, Andre Gabor and Clive Granger, it has been used since the 1960s. It is particularly useful when:

  • You want to get a directionally correct estimate for willingness to pay for the product.
  • You want to find revenue-optimising price points.
  • All the other components (or attributes) of the product or service are fixed and cannot be changed.
  • You only want to look at your brand or SKU without considering competition.

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Outputs


The price elasticity of demand curve shows customers' willingness to pay for your product at different price points. THe steeper the demand curve, the more price-sensitive customers are in relation to your product.


The “revenue vs. price” curve helps identify revenue-maximising price points.

For example, this chart below suggests that the revenue-maximising price is around $24.

How it works

You need to specify several price levels (ideally, between 5 and 15 approximately equidistant price levels). For example:

  • $10
  • $20
  • $30
  • $40
  • $50
  • $60

Each respondent is given a series of almost identical questions such as “Would you buy product X at price Y?” In each of the several questions, the price is different. There are two approaches to rotating price through the questions:

  • Randomised, i.e. prices are chosen at random, which is an old approach.
  • Adaptive, i.e. prices are chosen so as to find the maximum price at which each respondent would buy the product. Conjint.ly uses the adaptive approach.

Two types of questions can be asked of respondents:

  • Would you buy this product at this price (Yes or No)? Conjoint.ly uses this approach.
  • How likely are you to buy (on a scale of 1 to 5)? In this approach, the top two responses (i.e., “very likely” and “likely”) are considered to be “Yes”, while the bottom three are considered to be “No”.

In Conjoint.ly, Gabor-Granger is available both as:

  • a separate experiment type, and
  • an additional question that can be added to conjoint, Van Westendorp, or another survey.

You can add as many Gabor-Granger exercises in a single experiment as you like.

When you need to examine product attributes other than price (e.g., design, quality, power) or you also need to look at competitive brands, it would be more appropriate to use conjoint analysis, where price and brand are only two of the attributes among many. Conjoint studies can also provide more precise estimates for total willingness to pay and are less prone to understating the acceptable price by research participants.