Dutch economist Peter Van Westendorp developed this technique for determining customer price preferences. It takes the form of a survey of four questions. The responses are plotted as distributions, one for each question, and analyzed for acceptable price ranges and price points.
The questions are generally along the following lines:
Curve Labels | Survey Question |
Too Expensive | At what price would you consider the product to be so expensive that you would not consider buying it? |
Too Cheap | At what price would you consider the product to be priced so low that you would doubt its quality? |
Expensive | At what price would you consider the product starting to get expensive that you would think twice before buying it? |
Cheap | At what price would you consider the product to be a bargain? |
Van Westendorp Metrics
The intersection points of the four lines produce key metrics (VW metrics) necessary for price setting.
Metric | Intersection | Interpretation |
Point of Marginal Cheapness (PMC) | Too Cheap + Expensive | This is the lower end of the range of acceptable prices. Below this price point, more transactions would be lost due to the perception of poor quality than would be gained due to perception of a bargain |
Point of Marginal Expensiveness (PME) | Cheap + Too Expensive | This is the upper end of the range of acceptable prices. Above this point, the price is considered expensive and transactions would be lost due to the perception of not having enough value for money |
Range of Acceptable Prices (RAP) | PMC + PME | Any price between these two points is acceptable to most customers. |
Optimal Price Point (OPP) | Too Cheap + Too Expensive | At this price, about the same percentage of respondents regard it as not delivering enough value as those who feel it is of questionable quality |
Indifference Price Point (IPP) | Cheap + Expensive | At this price, about the same percentage of respondents regard it as a bargain as those that consider it to be too expensive. Most customers are indifferent to price at this point |
Van Westendorp Price Sensitivity Analysis is a technique for determining customer price preferences.
It takes the form of a survey of four pricing questions. All the answers for each question are plotted as a distribution.
The intersection of these distributions define acceptable price ranges and price points.
I would suggest to further read Van Westendorp Price Sensitivity Meter
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