Uncover the Optimal Price for a Novel Product
An Introduction to the Van Westendorp Price Sensitivity Meter (PSM)
The Van Westendorp Price Sensitivity Meter (PSM) is a tool used to uncover customer price preferences. It was developed by Dutch economist Peter van Westendorp in the 1970s and examines the inherent relationship between price and quality.
The first step involves surveying individuals within your target market using the following questions:
- At what price is this product so inexpensive that the quality could not be trusted?
- At what price is this product inexpensive, but probably of acceptable quality?
- At what price is this product expensive, but still a possible purchase based on its quality?
- At what price is this product so expensive that you would not purchase it, regardless of the quality?
Once you have completed the surveys, the responses are plotted on a line chart, which identifies several key points of intersection and defines pricing parameters for your product.
The first point of intersection occurs where the “expensive” and “too inexpensive” lines intersect. This is known as the Point of Marginal Cheapness (PMC), shown as a dark blue circle, and represents the lower boundary for the acceptable price range.
The second point of intersection occurs where the “inexpensive” and “too expensive” lines intersect. This is known as the Point of Marginal Expensiveness (PME), shown as an orange circle, and represents the upper boundary for the acceptable price range.
The Range of Acceptable Prices, shown in light blue, lies between the Point of Marginal Cheapness (PMC) and the Point of Marginal Expensiveness (PME) on the graph.
The Optimal Price Point (OPP), shown as a light blue circle, is generally identified as the price where the largest proportion of respondents perceive the price as acceptable, this occurs where the “too cheap” and “too expensive” lines intersect.
The Optimal Price Point (OPP) is often used as a benchmark for pricing decisions.
It’s important to note that the Van Westendorp Price Sensitivity Meter (PSM) does not consider the effects of competition or the availability of substitutes on the optimal price. These issues/effects can be determined through additional questions, either in the survey or via in-depth interviews. This is why it’s important to use a market research firm like The Martec Group. With over 40 years of experience, Martec can identify and reach your ideal customer while overcoming respondent bias.
Contact The Martec Group today to identify the Optimal Price Point of your novel offering.
