How much more are customers willing to pay for your brand than for a comparable no-name product? This question sounds simple – yet its answer is one of the most meaningful metrics available for evaluating brand strength: the price premium.

Metrics such as awareness, likeability, or recommendation are often used to evaluate brand strength. However, studies show that these cognitive and affective factors are closely linked to another very concrete measure: willingness to pay. The more attractive a brand appears, the more consumers are willing to pay for it. Comparing the willingness to pay for a brand with a reference brand or a no-name provider thus provides direct insights into the actual strength of a brand.

An example: Ms. Huber is doing her weekly grocery shopping and needs laundry detergent. She has a choice between Brand A and Brand B, each costing €9, and a no-name product for €7.50. Because she has had good experiences with Brand A, she chooses it – even though the no-name product would be €1.50 cheaper. This difference is the added value that Brand A has earned through its performance and positive associations compared to the competition.

Direct surveys (“How much more expensive can our branded product be?”) provide only limited reliable answers – their validity is questionable, and price experiments in the market are risky from a revenue perspective. A market research technique that is significantly better suited for determining the achievable price premium is conjoint analysis.

The basic idea: Consumers choose a product because the combination of its features provides the highest utility – and they consciously accept trade-offs. In a conjoint survey, participants repeatedly choose between complete product packages that differ in several attributes such as brand, price, or format.

From many such decisions, individual part-worth values can be calculated for each respondent, showing how important individual product attributes truly are – and how deteriorations in one attribute can be compensated by improvements in another.

Ms. Huber’s example shows: She prefers inexpensive detergents over expensive ones, prefers tabs slightly over other forms – and clearly prefers Brands A and C over Brand B and the no-name option.

The price premium can be calculated precisely from the differences between the utility values: If Brand A offers its powder for €10.50, the no-name product would have to be at least €3 cheaper to be equally attractive to Ms. Huber. The price premium of Brand A compared to the no-name product is thus almost €4 – a concrete metric, expressed in Euros, for the strength of the brand.

Determining brand value is a central issue for many companies – but it often remains abstract and highly dependent on the chosen valuation method. The price premium provides clarity here: It concretely answers how much more customers are willing to pay for your product or service compared to the competition. Linked with other brand drivers such as innovation or environmental awareness, it can also deduce which factors actually influence the prices achievable in the market.

This makes the methodology a regularly applicable management tool – for reviewing one’s own price level in different regions, channels, or subsegments, as well as for long-term monitoring of one’s own brand strength over time.