Price is one of the marketing variables that most influences a consumer’s purchasing decision. Studying it and determining the optimal price at which to offer products in the market is crucial for maximizing sales. But how do you calculate the most suitable selling price? Is there a formula for the optimal price? The Van Westendorp analysis provides the answer.
How do we find the balance point where the price is attractive to the consumer and economically profitable? To find the answer, market research offers various techniques of price analytics to decide what the optimal price for a product or service is.
In the market research studies conducted by We are testers to analyze the most appropriate price, we use one of the most popular techniques in market research: the Price Sensitivity Measurement by Van Westendorp model, thanks to the implementation of a Price Test.
The Price Sensitivity model was developed by Dutch economist Peter Van Westendorp in the 1970s. It is based on a set of four questions to investigate and analyze what price consumers would be willing to pay for a specific product, resulting in its optimal price.
The four questions are as follows:
These four data points are cross-referenced for analysis, with the requirement that, for the price test to work correctly, the responses must be consistent and logical. In other words, the result for ‘too expensive’ must be higher than ‘expensive,’ and these two prices categorized as ‘expensive’ must be higher, by necessity, than the two ‘cheap’ prices (with ‘too cheap’ being lower than ‘cheap’).
The responses are represented on a coordinate graph, with the price on the x-axis and the percentage of respondents on the y-axis. The cumulative frequencies of the four questions are calculated and plotted on the graph, taking into account that the ‘expensive’ and ‘cheap’ curves should be inverted. This generates four curves: two with positive slopes (‘too expensive’ and ‘expensive but acceptable’) and the other two with negative slopes corresponding to the categories ‘too cheap’ and ‘cheap.’
The optimal price of the product according to the Van Westendorp price model corresponds to the intersection between ‘too expensive’ and ‘too cheap’. In other words, at that price, the percentage of people who say the product is too expensive is equal to the percentage of people who say the product is too cheap. This point, considered the most advisable, is where there is the least resistance from customers to buying a product.
In the following graph, you can see the representation of the optimal price as well as the acceptable price range, which would lie between the intersection of ‘too cheap’ with ‘expensive’ and the intersection of ‘too expensive’ with ‘cheap.’
After the Van Westendorp analysis, you can reach the optimal price, which, as we mentioned at the beginning of this article, is one of the essentials for defining the marketing strategy for any product, reacting and positioning against the competition, and achieving a larger market share.
Do you want to know how much consumers would pay for your product or service? Ask our online community, composed of over 100,000 consumers, what price they consider most suitable for your product or service with a Price Test, and succeed with one of the most decisive variables in any marketing plan.
Let’s talk? Contact us at info@wearetesters.com or through our contact form.
Update date 22 December, 2023
