The Van Westendorp Price Sensitivity Meter
or how to find the Optimal Price Point

The Van Westendorp Price Sensitivity Meter is a survey that helps you figure out an acceptable price range and optimal price point for a new product or service.

Are you working on a new product? The features are clear, the design is ready, and you are about to launch production? One important thing you have to settle on is the price. The Van Westendorp method is a simple but effective way to determine your pricing strategy with just one survey. Find out more about how it works, how to interpret it and what the pros and cons are.

What is the Van Westendorp Method?

The Van Westendorp Method is a market research technique for determining the optimal price range for a product or service. It is therefore a Price Sensitivity Meter (PSM) used to implement a pricing strategy and maximize profitability. The PSM can also help businesses understand the potential demand for a product or service at different price points and inform decisions on product positioning and marketing strategy.

How Does the Van Westendorp Price Sensitivity Meter Work?

The Van Westendorp price sensitivity meter is an approach that involves conducting a survey among a representative sample of potential customers. It consists of four open-ended questions that determine at which price point customers find a product:

too cheap,
a bargain,
expensive, or
too costly.

These price points are then plotted on a graph to determine the optimal price range, also known as the “Price Sensitivity Range”.

When to Use Van Westendorp Method?

The Van Westendorp Method is especially useful in industries where there is significant competition and a need to understand customer price sensitivity, such as retail, hospitality, and technology. Further, this method is helpful in various stages of the product or service lifecycle, including during product development to understand customer preferences and willingness to pay, during market testing to determine pricing and positioning strategies, and during product launch to optimize pricing and maximize profitability.

Both, the Van Westendorp Price Sensitivity Meter (PSM) and the Gabor-Granger analysis method are market research techniques used to determine consumer price preferences. However, they differ in their approach and the type of information they provide. This is a qualitative technique with open-ended questions to determine a price range. It is therefore ideal when launching a new product or exploring what prices are potentially acceptable. However, the Van Westendorp survey requires a lot of participants.

With the Gabor-Granger Method you are using a quantitative technique with a series of closed-ended questions in order to find the ideal price point. That makes it suitable for scenarios where the product is already on the market, but you are looking for ways to maximize revenue. The Gabor-Granger Method requires you to already have a set of assumptions about acceptable prices.

Van Westendorp Method Questions

By asking respondents to provide an open response, the PSM allows for a range of answers that are not limited by pre-set price points. This allows for a more accurate and comprehensive understanding of customer price sensitivity, as customers can provide prices that are more specific to their individual preferences and situations.

If you already have a price range in mind you can also have customers answer the questions on a scale between your minimum and maximum price idea. The four questions for the Van Westendorp price sensitivity meter remain the same:

At what price would the product or service be too expensive to consider buying it?
The ceiling price marks the point where sales would plummet as customers are not prepared to pay a price that high for a specific product or service. This reduces economic viability.
At what price would you consider the product expensive, but still buy it?
This question shows how expensive you can make a product so that it will still be considered, even if on the high end of your potential customers’ budget. Products at this level are often accompanied by higher marketing input in order to convert prospects into actual customers.
At what price would the product be so cheap that you would doubt its quality and not buy it?
There is not only a maximum but also a minimum price people are willing to pay. The so-called floor price scares off customers as it reduces the perceived quality of a product. It marks the point where cheap turns into too cheap.
At what price would the product be a bargain, i.e., good value for the money?
Who would not want to get a good deal? This question reveals the price at which customers believe they are getting a bargain, a cheaper price for a product or service than they would get from the competition.

These surveys are important for businesses and organizations looking to understand their target market and make data-driven decisions. Businesses can reduce risk, improve decision-making, and increase customer satisfaction by gathering accurate information about customer behavior, market trends, and competitors.

Setting up a Van Westendorp Survey

The setup of a Van Westendorp survey is simple:

Introduce your product with a picture and a description.
Ask the four questions open-ended or on a scale.
If desired add a space for participants to type in the reason for their answer.

In order to receive relevant data, it is essential to not only adapt the survey to your product, but also to control your participant group. Firstly, make sure to send out the survey to the right target group that would be interested in and buy your product. If needed, you can also establish several target groups to find out about different markets. Secondly, include enough participants. As a rule of thumb, you need about 200 responses per target group.

Learn more about target survey audience

Interpreting the Van Westendorp Graph

After collecting the data, interpreting it correctly is the most critical part. The analysis is best explained when presenting the data in a graph. The price points are plotted on the X-axis, starting with the lowest price, and ending with the highest price. The Y-axis constitutes the percentage of participants that chose those price points. The percentage of responses to each question are connected to form four intersecting lines – these are the revealing points that give you an insight into your customers’ evaluation and therefore input for your pricing strategy. There are several key figures to look at.

The acceptable price range
There is no one and only possible price after conducting a Van Westendorp survey. The acceptable price range lies between the so-called point of marginal cheapness (PMC) and the point of marginal expensiveness (PME).
The indifference price point
The point of indifference (IPP) is where the “cheap” and the “expensive” curve intersect, meaning that there are as many participants who find the product cheap as participants who find the product expensive. It is understood that this is usually the average market price for a product of that kind. Most customers believe that they receive the quality they expect for this price.
The optimal price point
The intersection of the two lines for “too expensive” and “too cheap” marks the optimal price point (OPP). There are as many participants who find the product too cheap as participants who find the product too expensive. In this sense there is an equal trade-off and therefore also an equally low resistance to not buying a product.

If the OPP is significantly higher than the PMC and IPP, it suggests that consumers are willing to pay a premium price for the product. If the OPP is significantly lower than the PME, it suggests that the product may be overpriced and that consumers are not willing to pay a premium price for it.

Advantages and Drawbacks of the Van Westendorp Price Sensitivity Meter

The Van Westendorp graph can help companies identify the optimal price point for their product or service and make informed pricing decisions that will maximize sales and revenue. However, it also has its shortcomings. Find out whether the Van Westendorp Price Sensitivity Meter is the right method for your project.

Advantages of the Van Westendorp Price Sensitivity Meter	Disadvantages of the Van Westendorp Price Sensitivity Meter
Conducting the Van Westendorp survey is simple.	Specific product features that can have an impact on the outcome are neglected in the Van Westendorp survey.
Conducting the Van Westendorp survey is simple.	Specific product features that can have an impact on the outcome are neglected in the Van Westendorp survey.
The input for the pricing strategy comes straight from the target group.	Van Westendorp cannot be used for very small price ranges.
The evaluation and visualization of the Van Westendorp analysis is straightforward and easy to understand.	It should not be the only criterion, as the Van Westendorp analysis only provides a rough guideline. Further research is recommended.
It helps to avoid underpricing or overpricing a new product.
The Van Westendorp Price Sensitivity Meter is a cost-effective method to gain insights into pricing strategy.

Find the Price With the Van Westendorp Price Sensitivity Meter

The Van Westendorp Price Sensitivity Meter (PSM) is a valuable tool for businesses seeking to understand consumers’ price perceptions and preferences for a particular product or service. By identifying four key price points, including the point of marginal cheapness, the point of marginal expensiveness, the optimal price point, and the indifference price point, the Van Westendorp Graph provides a clear and comprehensive view of consumers’ willingness to pay for a product.

By analyzing the relative position of these price points, companies can make informed pricing decisions that maximize sales and revenue. Overall, the van Westendorp PSM is a powerful market research tool that can help companies develop effective pricing strategies and achieve greater success in the marketplace.

Conclusion

In conclusion, the Van Westendorp Price Sensitivity Meter is a valuable tool for businesses looking to set the right price for their products or services. By using a range of questions to determine the point at which consumers perceive a price as too high or too low, the Van Westendorp approach provides a comprehensive understanding of how customers value a product.

This information can be used to make informed decisions about pricing, balancing the need to maximize profits with the desire to remain competitive in the market. While this approach is not without limitations, such as the potential for response bias or the need for a large sample size, it remains a widely used and effective method for pricing research. Ultimately, by taking a data-driven approach to pricing, businesses can ensure that they are offering their products at a price that meets customer expectations and maximizes revenue.

Learn about further Data Analysis Methods in Market Research

FAQ on Van Westendorp Price Sensitivity Meter

What kind of data does the Van Westendorp Price Sensitivity Meter generate?

The Van Westendorp approach generates data related to consumers' willingness to pay for a product or service. It provides insights on the price point at which customers perceive a product as too expensive or too cheap, which can help businesses determine an optimal price range.

What are the limitations of the Van Westendorp Price Sensitivity Meter?

Yes, market research surveys can be conducted online through various survey platforms and tools. Online surveys offer several advantages, including faster response times, lower costs, and the ability to reach a larger and more diverse audience. However, online surveys also have limitations, such as potential bias due to self-selection and a lack of personal interaction with respondents. It's important to consider the pros and cons of online surveys when deciding on the best approach for a specific research project.

How does the Van Westendorp Price Sensitivity Meter differ from other pricing research methods?

Unlike other pricing research methods that focus on determining the exact price that customers are willing to pay, the Van Westendorp approach provides a range of prices that customers perceive as too high or too low. This range can help businesses make informed decisions about setting a price that is both profitable and attractive to consumers.