Use the Van Westendorp price sensitivity meter
Use the Van Westendorp price sensitivity meter
1. Define your survey audience as the most representative cross-section of your intended target audience.
Van Westendorp’s price sensitivity meter assumes that your target audience has an idea of what your product or service should be worth, based on its inherent value and the competitive environment. Aim for a broad survey that yields at least 200 responses, focusing on a relatively accurate demographic representation of your target market once the price is set.
2. Begin your survey with a basic description of the product, then add the four core questions that will allow you to graph the price sensitivity meter: too expensive, too cheap, getting expensive, and bargain.
Too expensive: At what price would the product be too expensive for you to even consider? Too cheap: At what price would the product be so inexpensive that you would question its quality? Getting expensive: At what price would the product start to seem expensive to you, meaning you would still consider buying it but would need to think about it? Bargain: At what price would the product be great value for the money you spend, so that you would consider it a bargain? Responses should be open-ended. Don’t provide pre-selected price ranges as options or require them to choose from within a range.
3. Record the responses in a spreadsheet, with each column reserved for one question and individual responses recorded in rows.
Some survey tools allow you to create the price sensitivity meter dynamically from survey responses. This step is only necessary for manual calculations.
4. Format your spreadsheet to help you plot the responses in graph form.
Sort the Too Expensive and Getting Expensive columns from smallest to largest value. Sort the Too Cheap and Bargain columns from largest to smallest value. Insert two columns on the left. In the first new column, number each row beginning with 1 at the top. In the second new column, enter this formula in the first row containing response data: =A2/counta(A:A). Drag the formula through the remaining rows in the column to apply it to each row, then convert the cell format to percentage. You should now have a table that includes 6 columns: The number of responses. Cumulative percentage of responses. One column for each of the four questions, displaying all sorted responses to that question.
5. Create a line graph with cumulative responses as the y-axis and price as the x-axis, limiting the data to show the intersections between the graphed responses to each question.
Select columns B through F. Insert a line graph. Switch the x-axis and y-axis to show cumulative responses vertically and price horizontally. Change the bounds of the x-axis to show only the price values relevant for analysis, with maximum visibility and focus on the intersections between the four lines graphed.
6. Define your optimum price point as the x-axis value on the intersection of the Too Cheap and Too Expensive lines.
This is the price point your survey respondents would, in isolation, determine to be ideal for the product you have described in the questionnaire.
7. Define your acceptable price range as the range on the x-axis between the intersection of the Bargain and Too Cheap lines, and the intersection between the Expensive and Too Expensive lines.
Any price within this range is generally acceptable to a majority of your audience. Use this variable as your price determinant if you need to account for competitive or cost factors unknown to your survey respondents. A relatively wide range suggests higher price flexibility among your survey respondents. A relatively narrow range around your optimum price point suggests lower flexibility.