As a product owner, setting the right price for your product is crucial for your success in the market. You need to find the balance between generating revenue and keeping your customers happy. One effective pricing strategy is using the Van Westendorp technique. In this blog, we will discuss what the Van Westendorp technique is and how to use it to set the price for your product.
What is the Van Westendorp Technique?
The Van Westendorp technique, also known as the Price Sensitivity Meter, is a market research technique used to determine the optimal price for a product or service. It is a qualitative research method that helps businesses understand how customers perceive the price of their products.
The technique is based on four questions asked to a sample of potential customers:
- Expensive
- Too expensive
- Bargain
- Too cheap
| Key metrics | Survey question |
|---|---|
| Expensive | At what price would you consider the product to be expensive but would consider buying it |
| Too Cheap | At what price would you consider the product so cheap that you would question it’s quality? |
| Bargain price | At what price would you consider the product to be a bargain |
| Too Expensive | At what price would you consider the product to be very expensive that you would not consider buying it |
The answers to these questions are plotted on a graph to determine the optimal price range for the product. Here’s how you can use the Van Westendorp Technique.
Identify Your Target Audience:
Identify your target audience, the people who are most likely to use your product. Choose a sample of potential customers that best represent your target audience.
Conduct a Survey:
Conduct a survey with your sample group, asking the four questions mentioned above. Make sure to collect enough responses to get a representative sample.
Analyze the Results:
Plot the responses on a graph with the price on the x-axis and the percentage of respondents on the y-axis. The graph should show four lines: too expensive, too cheap, expense, and bargain. When you collect all the responses for each four questions and plot them separately, you get a chart like the one below.
Metrics
In the above chart, the intersection of the plotted lines becomes the metrics that helps determine the price.
| Metrics | Intersection | Definition |
|---|---|---|
| Point of marginal expensiveness (PME) | Too Expensive + Bargain | This is the higher end of acceptable price range any cost above this point would be lost due to the lack of value for the money. |
| Point of marginal cheapness (PMC) | Too Cheap + Expensive | This is the lower end of the acceptable price range. Below this price range, there will be loss customer as it creates the perception of poor quality. |
| Optimal price point (OPP) | Too Cheap + Too Expensive | Intersection of too cheap and too expensive create low probability of customers rejecting the price. It is the pricing point at which the perceived value of the product matches the price that customers are willing to pay for it. |
| Indifference price point (IPP) | Bargain + Expensive | It is essentially a break-even point where the seller is not losing any potential customers due to the price being too high, but also not gaining any additional customers due to the price being too low. |
| Acceptable price range (Apr) | PMC + PME | Price set between the two is the acceptable range a customer would buy. |
Determine the Optimal Price Range:
The optimal price range is the area where the percentage of respondents who consider the product too expensive is equal to the percentage of respondents who consider the product too cheap. The price point where the percentage of respondents who consider the product too expensive is equal to the percentage of respondents who consider the product too cheap is the optimal price point.
Adjust Your Pricing Strategy:
Use the optimal price range to adjust your pricing strategy. You can choose a price point within the range that aligns with your business goals and provides value to your customers.
The Van Westendorp technique is a useful tool for product owners to determine the optimal price for their products. By asking potential customers the right questions and analyzing their responses, you can get valuable insights into how they perceive the price of your product. Use the optimal price range to adjust your pricing strategy and ensure that your product provides value to your customers while generating revenue for your business.
Thinking Alley 