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Pricing Research

Derive the ideal price for your product with two different pricing assessment techniques.

The Price Sensitivity Meter (PSM)

The Price Sensitivity Meter (PSM), was developed by economist Peter Van Westendorp to understand consumer’s willingness to pay. It is based on the theory that consumers have an idea about what reasonable price they are willing to pay for a product and that consumers are willing to pay more for a high-quality product.

This method can be incorporated into a quantitative study with the following 4 questions which are asked in order to conduct this analysis:

  • At what price would you consider the product to be getting expensive, but you would still consider buying it? (EXPENSIVE)
  • At what price would you consider the product too expensive and you would not consider buying it? (TOO EXPENSIVE)
  • At what price would you consider the product to be getting inexpensive, and you would consider it to be a bargain? (BARGAIN)
  • At what price would you consider the product to be so inexpensive that you would doubt its quality and would not consider buying it? (TOO CHEAP)

Acceptable and recommended price ranges are then developed based on where the “expensive”, “too expensive”, “bargain” and “too cheap” curves cross. An example of this is shown on the right.

Price Laddering Techniques

Van Westendorp analysis works well as respondents are not prompted with specific price points. However, following this exercise we recommend using a price laddering technique to provide you with pricing sensitivity curves around the price of interest.

This is usually conducted by providing respondents with approximately 5 pre-determined price points in a random order. For each price point, respondents are then asked their likelihood of purchasing the product. By analyzing likelihood to purchase at each price point, pricing sensitivity curves can be developed.

We will also analyze willingness to pay vs. the other pieces of data collected during the research survey to see if there are particular attitudes or behaviours which predict consumer willingness to pay.

Interested in learning more?

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