Most people don’t have a specific price in mind about what they would pay for your product or service. There is usually a range of acceptable prices. A great way to find out what the range is, is to use the Van Westendorp’s Model.
This relies on 4 questions:
- At what price is this product/service too expensive to even consider purchasing it? (too expensive)
- At what price is it starting to get expensive, but you’d still consider purchasing it? (expensive)
- At what price do you think this product/service is a really good deal? (You’d buy it right away.) (cheap)
- At what price would it be so low that you start questioning the quality of it? (too cheap)
The Van Westendorp Price Sensitivity Meter is an especially suitable method for new products or services that are innovative and may not exist in this form. It is not very suitable to compare and determine prices with competing products.
It gives a first indication of possible prices and offers a number of advantages:
- The process is simple. Survey participants only have to answer four short questions about their price expectations.
- The evaluation is just as simple. An Excel spreadsheet with the answers of the consumers is sufficient to create the diagrams and determine intersections.
- The presentation of the results in the form of diagrams is also simple and easy to understand, making it easier to communicate the results.
After you’ve plotted the results of your survey into Excel, you can find your optimal pricing range at the intersection of the lines. Hereby:
- The Point of Marginal Cheapness: this is the lower bound of an acceptable price range. You can find it at the intersection of Too Cheap and Expensive lines.
- The Point of Marginal Expensiveness: this is the upper bound of an acceptable price range. You can find it at the intersection of Too Expensive and Cheap lines.
- The Indifference Price Point: this is the price at which an equal number of respondents rate the price point as either “cheap” or “expensive”. You can find it at the intersection of Expensive and Cheap lines.
- The Optimal Price Point: this is the point at which an equal number of respondents describe the price as exceeding either their upper or lower limits. Optimal in this sense refers to the fact that there is an equal tradeoff in extreme sensitivities to the price at both ends of the price spectrum. You can find it at the intersection of Too Cheap and Too Expensive lines.
As a result, your optimal price range lies in between the Point of Marginal Cheapness and Expensiveness.
Video Price Sensitivity Questions