Definition: Van Westendorp analysis is a survey-based research technique used to identify a range of acceptable prices for a product. A Van Westendorp survey question asks respondents to select a price for four specific price points. These price points are – 1) too expensive and would not buy, 2) expensive but would consider, 3) bargain price, 4) too cheap and would question the quality. When the results are tallied, price cures can be created, and a range of acceptable product prices can be determined.
Basic Concept: Van Westendorp goes beyond a standard survey question. It forces respondents to enter in specific data points, helping to define a range of acceptable product prices.
The Van Westendorp pricing model is best used when you want to identify an acceptable range of prices for a product. The above sample question could be used by a software company to determine the retail price for a new product. If the price is too high, it would limit the number of consumers willing to purchase. If the price is too low, consumers may feel the product lacks quality, and would not purchase. The company needs to find the ideal price point that is not too expensive, nor too cheap, which will help maximize revenue.
If the software company used a simple input box question to ask for an ideal price, respondents would likely enter in a low dollar figure, limiting the revenue potential. Even if the company used four separate input box questions, the survey would be still prone to user error. For example, a respondent could enter in $20 for "too expensive", but then incorrectly enter in $25 for "expensive but would consider". Van Westendorp solves this problem by using a single question which validates each level of input.
Van Westendorp is often part of bigger research project to find optimal product concepts. A preliminary survey for a conjoint study, might use van Westendorp to find a range of acceptable prices, and then use this range in the conjoint study to determine both optimal product features and price.
The "optimal" and "indifference" price points are sometimes misinterpreted. These price points don’t take into account costs of a product or margins, nor do they take it account the full revenue potential of a product. These points along with the range of acceptable prices should be used as more of a guide, along with other internal information in your company, on how to set the final retail price of a product.
To create a Van Westendorp survey, create a survey as normal, and add the Van Westendorp pricing model question where you want. You can edit the wording the of the four price inputs, edit the minimum and maximum price range, and the scale units of the slider.
By default, the range of prices will go from expensive to cheap. You have the ability to switch this order and go from cheap to expensive. Additionally, you can also require the question to be completed. Respondents will not be able to proceed to the next page until the Van Westendorp question is complete, meaning all four sliders have been set with values.
To obtain meaningful results, we recommend collecting at least fifty (50) responses for a Van Westendorp study. If you wanted to segment your data, for example by gender, you would want to collect at least fifty (50) responses for both males and females.
The output of Van Westendorp involves plotting a curve with cumulative responses for each price point. These curves help you define the following four price points. Below is the definition of each point. The next section has sample survey data and will go more into how to calculate the curves. The sample results section uses these points to create the graphed curves.
This is where the "too expensive" and "bargain" curves intersect. Here a lot of people think the product is too expensive but these customers are offset by a similar percentage of people who consider the product a bargain. Anything greater than this price point will have a limited number of buyers; every unit you increase the price past this, you will lose customers.
This is where the "too cheap" and “expensive would consider” curves intersect. Here a lot of people think the product is too cheap, but the percentage is offset by a similar amount of people who consider the product too be expensive but would consider. Anything lower than this price point will have a limited number of buyers; every unit you decrease the price past this, you will lose customers.
This is where the "too expensive" and "too cheap" curves intersect. At this point only a small number of customers will not purchase the product from being too expensive or too cheap. Because of this, the price point is referred to as optimal only because of the low probability of customers rejecting the price. It does not mean optimum in the sense of maximizing revenue. Sometimes this price point is referred to as the “Market Entry” or “Penetration Price”.
Some data sets will never have an optimal price point. A car for a example might have a very low floor ($1,000 range) and a very high ceiling ($60,000). In this scenario the "too cheap" and "too expensive" curves will never insect. The optimal price point should be more or less of a guide, and not the sole focus of a pricing study.
This is where the "expensive but would consider" and "bargain" curves intersect. This point represents the greatest percentage of people that consider the price to be not too expensive and also not too cheap; this percentage of respondents are indifferent to this price. This point can generally be thought of as “Optimal” in the sense of maximizing revenue that will attract the greatest number of customers.
This range begins where at point of marginal cheapness (PMC) is and ends at the point of marginal expensiveness (PME). Anything outside of these ranges will result in less and less people buying due to the product being too cheap or too expensive.
The results of a Van Westendorp survey start by plotting curves with cumulative responses for each price point. The expensive price points go from low to high, and the cheap/bargain price points go from high to low. The x-axis will contain all possible price vales, and the y-axis will contain the cumulative response percentage. To make things easier to understand and to shoe the math, we created an Excel file with all of the percentages calculated with formulas.
Below is a chart with all of four curves to plotted in addition to the optimal price point and Indifference price point plotted.
A table showing the average price for each point respondents evaluated will also be included in each report. The range of acceptable prices will also be displayed. Both the optimal price point and indifference price point are shown here. These data points will guide your pricing decisions.
|Expensive; would consider||29.75|
|Too cheap; would question quality||9.75|
|Point of marginal cheapness (PMC)||18.33|
|Point of marginal expensiveness (PME)||28.13|
|Optimal price point (OPP)||25.00|
|Indifference price point (IPP)||23.33|
|Acceptable price range||18.33 to 28.13|
Certain projects might require you to segment results, such as by gender. To do this, simply include a question that asks for gender (ideally before the Van Westendorp question). In the reporting section of the survey, you can create a cross-tabuilation report, for both males and females. For each segment, you will see a the price curve graph along with the data tables. Here is an example Van Westendorp report that has been segmented by male and female.
Van Westendorp analysis gets its name from its creator, Dutch economist Peter Van Westendorp in 1976. The goal of the research technique was to understand consumer perceptions of the value. Peter believed consumers would be capable of envisioning a pricing landscape, based on the product described and by relating it to similar products. The full technical name of Van Westendorp analysis is usually referred to as the "Van Westendorp price sensitivity meter".