Creating a Van Westendrop Pricing Model + Template

Definition: The Van Westendorp pricing model is a survey-based research technique used to identify a range of acceptable prices. A Van Westendorp question asks respondents to evaluate four specific price points. When the results are tallied, a researcher can create price curves and determine an acceptable price range for a product or service.

Basic Concept: Van Westendorp analysis forces respondents to enter specific price points, helping to define a range of acceptable product prices. This question type is ideal for conducting pricing research on new products to help estiable a baseline price.

Van Westendorp Questions: A Van Westendorp question is made up of four price points:

1. 1) too expensive and would not buy
2. 2) expensive but would consider
3. 3) bargain price
4. 4) too cheap and would question the quality

The Van Westendorp pricing model is best used when you want to identify an acceptable range of prices for a product. A software company could use the above sample question to determine the retail price for a new product. If the price is too high, it will limit the number of consumers willing to purchase. If the price is too low, consumers may feel the product lacks quality and would not buy it. The company needs to find the ideal price point that is not too expensive nor too cheap, which will help maximize revenue.

If the software company used a simple input box question to ask for an excellent price, respondents would likely enter in a low dollar figure, limiting the revenue potential. Even if the company used four separate input box questions, the survey would still be prone to user error. For example, a respondent could enter in $20 for "too expensive" but incorrectly enter in $25 for "expensive but would consider." Van Westendorp solves this problem by using a single question that validates each level of input.

Van Westendorp is often part of a bigger research project to find optimal product concepts. A preliminary survey for a conjoint study, might use van Westendorp to find a range of acceptable prices and then use this range in the conjoint study to determine optimal product features and price.

The "optimal" and "indifference" price points are sometimes misinterpreted. These price points don't consider product costs or margins or the full revenue potential of a product. These points, along with the range of acceptable prices, should be used as more of a guide, along with other internal information in your company, on setting the final retail price of a product.

Van Westendorp and Gabor Granger are the most common methods to determine product prices. Generally, Van Westendorp is used for the new product offerings, and Gabor Granger is used for established products.

Van Westendorp is typically used to get a range of acceptable prices or to answer the question, "What range prices will the market accept". Gabor Granger is used to build a demand curve and find the revenue-maximizing price.

Each project has unique needs. Below are some scenarios where each pricing method could be used. This information also appears in the Gabor Granger help article.

• An established clothing company looking for feedback on their prices. Van Westendorp’s "Too cheap would question the quality" price point is key here. Clothing is one area where perception matters. Too low of a price means brand reputation will suffer.
• An established SaaS company focused on large enterprise clients and offering a new product. Large organizations will shy away from products with too low of a cost because they fear the quality can adversely impact their day-to-day operations. The too cheap curve would help the company limit negative brand perception.
• A brand new SaaS company looking to understand the market dynamics. Too low of a price means the company won’t get enough exposure, and too low means people will question the quality. A Gabor granger study can be used down the road once the user base has grown and more features added.

• An online newspaper researching a monthly subscription - The price will likely be less than $20 a month, meaning Van Westendorp would be too cumbersome. Readers might be willing to pay $1 a month, meaning the “too cheap” curve in Van Westendorp would supply invalid data.
• An established real estate company exploring a rent increase - The company wonders if certain upgrades will justify a rent increase. Finding a new revenue-maximizing point and plotting the demand curve will help guide this decision.
• A newer but established SaaS company focused on smaller clients. Generally, SaaS products focused on smaller clients have prices that less than $100 USD a month. A small range of prices means Van Westendorp could be too packaged together. Being established, the company should focus on maximizing revenue. The company can send separate Gabor Granger surveys to users in specific tier packages to maximize the revenue of each tier.

To create a Van Westendorp survey, create a survey and add the Van Westendorp pricing model question where you want. You can edit the wording of the four price inputs, edit the minimum and maximum price range, and the scale units of the slider.

Respondents can not proceed to the next page until the Van Westendorp question is complete, meaning all four sliders have been set with values.

We recommend collecting at least one hundred (100) responses for a Van Westendorp study to obtain meaningful results. If you wanted to segment your data, for example, by gender, you would want to collect at least one hundred (100) responses for both males and females.

The output of Van Westendorp involves plotting a curve with cumulative responses for each price point. These curves help you define the following four price points. Below is the definition of each point. The next section has sample survey data and will go more into how to calculate the curves. The sample results section uses these points to create the graphed curves.

This is where the "too expensive" and "bargain" curves intersect. Here, many people think the product is too expensive, but these customers are offset by a similar percentage of people who consider the product a bargain. Anything greater than this price point will have a limited number of buyers; every unit you increase the price past this, you will lose customers.

This is where the "too cheap" and "expensive would consider" curves intersect. Here, many people think the product is too cheap, but the percentage is offset by a similar amount of people who consider the product too expensive but would consider. Anything lower than this price point will have a limited number of buyers; every unit you decrease the price past this, you will lose customers.

This is where the "too expensive" and "too cheap" curves intersect. Only a small number of customers will not purchase the product from being too expensive or too cheap. This price point is referred to as optimal only because of the low probability of customers rejecting the price. It does not mean optimum in the sense of maximizing revenue. Sometimes this price point is referred to as the "Market Entry" or "Penetration Price."

Some data sets will never have an optimal price point. A car, for example, might have a very low floor ($1,000 range) and a very high ceiling ($60,000). In this scenario, the "too cheap" and "too expensive" curves will never intersect. The optimal price point should be more or less of a guide and not the sole focus of a pricing study.

This is where the "expensive but would consider," and "bargain" curves intersect. This point represents the greatest percentage of people who consider the price to be too expensive and not too cheap; this percentage of respondents is indifferent to this price. This point can generally be thought of as "Optimal" in the sense of maximizing revenue that will attract the greatest number of customers.

This range begins at the point of marginal cheapness (PMC) and ends at marginal expensiveness (PME). Anything outside of these ranges will result in fewer people buying because the product is too cheap or too expensive.

The results of a Van Westendorp survey start by plotting curves with cumulative responses for each price point. The expensive price points go from low to high, and the cheap/bargain price points go from high to low. The x-axis will contain all possible price values, and the y-axis will have the cumulative response percentage. To make things easier to understand and show the math, we created an Excel file with all of the percentages calculated with formulas.

Below is a chart with all four curves to plotted and the optimal price point and Indifference price point plotted.

The results will also include a table showing the average price for each point respondents evaluated in each report. The default report will also display the range of acceptable prices. Both the optimal price point and indifference price point are shown here. These data points will guide your pricing decisions.

Certain projects might require you to segment results, such as by gender. To do this, include a question that asks for gender (ideally before the Van Westendorp question). In the reporting section of the survey, you can create a cross-tabulation report for both males and females. For each segment, you will see a price curve graph along with the data tables. Here is an example that has been segmented by male and female.

Van Westendorp analysis gets its name from its creator, Dutch economist Peter Van Westendorp in 1976. The goal of the research technique was to understand consumer perceptions of the value. Peter believed consumers could envision a pricing landscape based on the product described and by relating it to similar products. The full technical name of Van Westendorp analysis is usually referred to as the "Van Westendorp price sensitivity meter."