Price Sensitivity Meter

Van Westendorp's Price Sensitivity Meter is a direct statistical method to determine consumer price preferences. Customers are asked at which price an offer is considered to be a bargain, getting expensive, too expensive, or too cheap. The results are plotted and the intersections reveal a range of acceptable prices, helping define the optimal price.

This allows you to assess the willingness to pay as well as the price sensitivity of your target group in a straightforward way. The Price Sensitivity Meter is especially helpful for innovative business models since there are often no clear substitute offerings that you can refer to. The simplicity allows you to recruit participants quite easily, as they only have to answer a few questions. In addition to the 4 basic questions, you can ask about the customers likeliness to purchase the product for the 'bargain' and 'getting expensive' price points. Use the test for additional information about the perceived value of the solution, and how they would plan to convince the buying center for B2B cases.

Helpful Tips

Do not test prices early: As price and profit are very important aspects, it’s natural to try to get reliable figures as early as possible. However, deep diving into pricing schemes before your value proposition is specified and demand is verified does not lead to valuable results.

Make clear what you are offering: The whole idea of checking the willingness to pay rests on the assumption that the customer knows exactly what he would be paying for. Asking about prices is always indirect as people only have to tell, not pay – so you don’t want misunderstood offerings to skew your results.

Choose your participants carefully: Ask people who are interested in your solution, otherwise the results are heavily biased.

Do not overwhelm: It is tempting to add this to a long survey or ask and compare multiple pricing schemes or packages. However, this leads to overwhelmed respondents and unreliable results.

Stay skeptical: Even with a structured approach, results from asking for a willingness to pay should be treated carefully as they tend to be overoptimistic. Follow up with real payments as soon as possible.

When Logikcull, a legal discovery software provider, switched to a Software as a Service model, they used the Price Sensitivity Meter to establish the best price ranges for their products and at the same time tested their offerings directly with potential customers.

How to Guide

Clearly define all aspects of your offer. Then, create an open survey with questions around the buying process and prepare the Price Sensitivity Meter itself.

Identify your target group and recruit the respective participants to run the test. Ideally, you have access to a larger audience, a list of interested customers, a high-traffic landing page, or a recruiting service.

Analyze the results by first checking for consistency and then plotting them correctly. The optimal price lies within the range between the crossing of 'too cheap' and 'getting expensive' as well as 'too expensive' and 'bargain'.