Brief description

The "Price Sensitivity Test Using Van Westendorp’s Model" is a sophisticated method to gauge how sensitive potential customers are to the pricing of your product or service (aka gauge the willingness to pay)

This validation card is a valuable tool for tech companies looking to fine-tune their pricing strategy and optimize their product's positioning in the market.

This experiment assesses critical pricing thresholds, including when the product becomes perceived as too cheap, a bargain, expensive, or too expensive.

Unlike traditional pricing assessments, the Van Westendorp Model employs indirect questioning techniques to uncover a range of acceptable prices, offering a more comprehensive understanding of customer willingness to pay. The Van Westendorp Model addresses common pitfalls in pricing assessments, such as the "lowballing" effect, where customers intentionally provide lower price estimates. It also considers that customers often have a range of acceptable prices.

Case-study

Apple's iPhone Pricing Strategy

Apple's introduction of various iPhone models at different price points, alongside their premium pricing for flagship devices, demonstrates their effective use of the Price Sensitivity Test. By analyzing consumer responses, Apple fine-tunes its pricing strategy to appeal to a wide range of customers while maintaining premium brand positioning.

Netflix's Subscription Tiers

Netflix's multiple subscription tiers and pricing adjustments over the years reflect the company's continuous utilization of the Price Sensitivity Test. They've managed to find the optimal balance between affordability and content access, maximizing customer retention and revenue.

Tools

1. Conjoint.ly (Link: Conjoint.ly): Conjoint.ly is a robust tool that facilitates Van Westendorp Price Sensitivity Meter surveys. It allows you to create and conduct these surveys with ease, providing in-depth analysis and insights into your pricing strategy.

2. SurveyGizmo (Link: SurveyGizmo): SurveyGizmo offers a versatile platform for building and deploying surveys, including the Van Westendorp Price Sensitivity Meter. It provides customization options and analytics to help you understand customer preferences.

3. Qualtrics (Link: Qualtrics): Qualtrics is a comprehensive survey platform that enables the implementation of price sensitivity tests. It offers advanced survey building and data analysis tools to help you optimize your product pricing based on customer feedback.

Pros & Cons

👍 Pros

• Informs data-driven pricing decisions.

• Maximizes revenue potential.

• Enhances customer value perception.

• Helps stay competitive in the market.

• Indirect questioning reduces biases.

• Reveals a range of acceptable prices.

• Helps pinpoint the optimal price range.

• Ideal for products with no direct competitors.

👎 Cons

• Complex analysis and interpretation.

• Results can be influenced by survey design.

• Limited to the product or service's pricing aspect.

• Assumes surveyed individuals have some understanding of the product's value.

• Does not account for fixed and variable costs.

• Best suited for new products with no existing competitors.

Quick how-to

1. Define Price Points: Establish the four key price points: "Too Expensive," "Expensive, But I'd Consider It," "Cheap, But I'd Be Skeptical," and "Too Cheap."

2. Design the Survey: Create a survey that presents these price points to your target audience and collect responses regarding purchase intent.

3. Analyze Data: Use specialized software like Conjoint.ly, SurveyGizmo, or Qualtrics to analyze the data. Calculate the optimal price range based on the responses.

4. Identify Thresholds: Locate the Point of Marginal Cheapness, Point of Marginal Expensiveness, and the Optimum Price Point (OPP) on the graph.

5. Make Informed Pricing Decisions: Use the insights gained to set your product or service pricing within the identified optimal range.