Making the Case Against the Van Westendorp Price Sensitivity Meter

Despite its many flaws, the Van Westendorp Price Sensitivity Meter is a popular approach for pricing research.

A while ago, I received a survey from a trade association testing a poorly described product concept of an online market research course. As part of the product concept test, they also wanted to estimate how much I would pay for this course. To do it, they asked the classic questions of the Van Westendorp Price Sensitivity Meter.

The Van Westendorp Pricing Questions

The Van Westendorp Price Sensitivity Meter is calculated from the answers to four standard questions (other variations of these exist):

• At what price is it too cheap?
• At what price is it a good value/bargain?
• At what price is it getting expensive?
• At what price is it too expensive?

In the Van Westendorp PSM approach, the results are displayed in a chart of cumulative percentages for each question by price point to find the “acceptable” price range and optimal price point. 

The point where Too Cheap and Expensive intercept is considered the lower bound (Point of Marginal Cheapness), while the point where Cheap and Too Expensive meet is the upper bound (Point of Marginal Expensiveness) of the product’s perceived value.

The point where Too Cheap and Too Expensive cross is called the optimal price, which is the point where the number of rejectors is expected to be minimized.

This approach is popular among some market research practitioners because it is simple to implement and intuitive to the respondents and marketers.

Intuitive at First, Confusing at the End

Although the questions sound intuitive, the output is often confusing to clients. Making sense of the curves and their relationships requires some mental gymnastics. They are hard to understand because this model has no theoretical foundation. Many clients end up with a nebulous sense of a price range that looks too low, without understanding the logic of the line intersections.

Inviting Lowballing

Another concern with the PSM is its reliance on direct questions about price. This makes the intentions of the research too obvious for respondents, which usually invites price lowballing.

Consumers always prefer to pay less if the quality is acceptable. However, depending on many other factors not specified in the Van Westendorp model, customers may still pay higher prices.

In the many studies I have conducted using this method (per clients’ requests) the results suggest price ranges consistently lower than what customers pay in reality.

The chart below shows an example of a test we conducted for an established product. The resulting “optimal” price point was $10 lower than its current price. The latter point falls entirely outside the “acceptable” price range recommended by the Van Westendorp PSM.

Further tests showed that if we were to price the product as suggested by the PSM, we would leave a lot of money on the table. Here, the price was not the main purchase driver, and the client would not see a significant increase in volume by lowering the price.

 

 

Given the tendency to lowballing, I find the Van Westendorp PSM more helpful in exploring discount ranges.

Ignoring the Competition

The Van Westendorp Price Sensitivity Meter is often recommended for new products. Still, I find the notion counterintuitive. How can customers estimate the value of a new product for which they don’t have any point of reference or experience?

Price/value perceptions are always relative to an internal point of reference. This can be value perceptions about the product category (I would never pay more than $$ for X type of product), the price offered by competitors, or something else.

Regarding the case that inspired this post, using the Van Westendorp PSM was an unfortunate approach. Online training using webinar-like setups are nothing new at this point. Hence, the trade organization that sent me the survey will probably see lower or comparable prices to competitor alternatives.

While answering the survey, I couldn’t help but think of the prices I have seen for online classes and used them to guide my answers. It didn’t help that the concept was poorly described, so I had little to hang on to.

Following the questions from the Van Westendorp PSM, I got this question:

Really? What about “Over 50%”? Why would I want to get less than that? That’s the mindset we don’t want respondents to have.

 

As a way of summary, if you are thinking about using the Van Westendorp PSM for pricing research, think again and consider this approach:

• Incites lowballing by relying on direct questions about the price.
• Has no solid theoretical foundation.
• Does not consider the competition.
• Has no history of predictive success.
• Does not allow us to optimize revenue, profits, or net present value.

 If you still want to do it, regard its results are exploratory and follow up with more research.

A Better Approach to Pricing Research

When clients are looking for optimal regular prices, I recommend not accepting its results without further research.

Willingness to pay at a particular price point is influenced by need urgency, brand perceptions, competitors’ offers, perceived product benefits supported by specific product features, cultural norms, social pressure, external product attributes (design, packaging, etc.), past experiences with products and companies, etc.

Which price research method should the trade association use to find the optimal prices and discounts for its online market research classes?

Trade-off research techniques are better suited to study the impact of pricing on purchase decisions. Conjoint Analysis is the most known family of trade-off techniques, which includes variations such as Choice-Based/Discreet Choice-Based Conjoint, Menu-Based Conjoint, and Adaptive Conjoint Analysis.

Trade-off techniques are not perfect. No method is. Still, it is the best approach so far to study pricing using the current survey methodology.

For more on using conjoint analysis for pricing research, check Why Conjoint Analysis is Best for Price Research.