Understanding the Van Westendorp Price Sensitivity Meter and how to use it effectively.
The Van Westendorp price sensitivity meter is a technique for market researchers to gauge consumer perceptions of the value of products or services. This usually means asking four different questions to help uncover the best price for the product—ideally, without scaring potential customers away by a large price tag or, on the other hand, leaving them skeptical of the quality from a price that is too low. The goal of the Van Westendorp Price Sensitivity Meter. is to maximize the profit that is generated from a certain product or service.
In order to get the most appropriate answers to price out the product or service, you need to first be able to ask the correct questions.
The price sensitivity meter can be implemented for both new and existing products. You can give the respondent price options for each question type or leave it open-ended.
Using Van Westendorp’s Price Sensitivity Meter, researchers can determine the following price points:
By interpreting the graph above, you should be able to get an accurate estimate of your pricing. Very generally, pricing needs to be between the Point of Marginal Cheapness and the Point of Marginal Expensiveness; this is called the Range of Acceptable Pricing (RAI). With the example above, the Range of Acceptable Pricing is $15 - $30.
Consumers can usually give a realistic idea about price, making this a valuable technique. On the contrary, this assumes that the person you are surveying understands the landscape of the product to an extent. If the respondents are not as familiar with what you are asking them, the survey data will not be as useful in the end.
Let's take, for example, a Van Westendorp question about a boutique ice cream shop that is opening up in San Francisco. This ice cream is organic and hand-churned—it is simply the best of the best. However, before opening, you need to know how much you can charge for a prized single-scoop of ice cream. The best way to know how much your customers are willing to pay is to simply ask.
The example of the Van Westendorp question clearly illustrates how respondents feel about ice cream. This could become inaccurate if someone who filled it out did not partake in ice cream eating—perhaps due to their lactose intolerance. In that case, their survey answer may look drastically different.
If that is the case, your data may potentially become flawed, which is why Van Westendorp price sensitivity meter should be used to provide input into how you price your product, rather than be the finite answer.
Once responses are collected, the ideal price becomes very clear. As shown in the graph below, the red line represents “Too Cheap,” a price where the customer becomes skeptical of the product quality. The purple line, which is indicative of “Not a Bargain,” represents the customers that found the product on the high side but would still consider buying. The purple, or “Not a Bargain” line, intersects with the “Too Cheap” line at about $3.75. That intersection of price points is the Point of Marginal Cheapness, representing the price where the majority of sales are lost due to the customer perception’s lack of product quality. The Point of Marginal Expensiveness is where the price becomes a major concern based on its costly nature. That point is represented where the blue, “Too Expensive” line intersects with the green, “Not Expensive” line. For the organic ice cream, the Point of Marginal Expense is about $5.90. The range of acceptable prices is spread between the Point of Marginal Cheapness and the Point of Marginal Expense. For the organic, hand-churned ice cream, the data suggests setting a price between $3.75 and $5.90.
The Indifference Price Point and Optimal Price Point helps with delineating the best price within your range of acceptable prices. Indifference Price Point is where the “Not Expensive” and “Not a Bargain” lines bisect each other. This is defined as the point at which the percentage of customers that feel it is a bargain price and customers that feel it is too expensive are equal. Optimal Price Point, on the other hand is when the same percentage of customers feel that the price is too expensive versus the quality of the product or service, where the “Too Cheap” and “Too Expensive” lines intersect. These two points allow businesses to make educated pricing decision, so they fall within the “Range of Acceptable Prices,” which you can see in the graph.
In conclusion, you can better understand the scope of your pricing by using the Van Westendorp price sensitivity meter. This data helps business owners and decision makers choose the right price that will neither scare off potential consumers nor lead them to believe you are offering a low-quality product. By harnessing your most recently gained insight of customer pricing, you can appeal to a wider audience.
Learn more about how to write a Van Westendorp question here: Van Westendorp – Price Sensitivity Question Type
Need a survey template for the Van Westendorp Price Sensitivity Model? Look no further.