Quickly understand how consumer preferences impact pricing decisions
Conducting pricing research is an important step in uncovering the value that consumers place on products by revealing the price range consumers are willing to pay for a product, service, or idea. It also gives organizations insight on how to increase revenue and convert market share by means of price optimization for proposed innovations, design changes, or concepts.
UNDERSTANDING PRICING PREFERENCES
Since marketing today is becoming more dynamic and consumer-centric, we aim to help our clients address rapidly changing consumer preferences that may affect pricing decisions — putting consumers at the heart of pricing research and ensuring that the price for a product or service is at the optimum point for all participants.
A Dutch economist, Peter van Westendorp, introduced a simple tool for determining the optimal price for products (OPP) in 1976, called the van Westendorp Price Sensitivity Meter (PSM), the technique asks respondents four indirect questions about their willingness to pay and measures overall price sensitivity of consumers. In other words, it discovers, from actual consumers, prices for a product or service they perceive to be either too high, too low, or just right.
Access to the van Westendorp PSM can be expensive, not only because of its complicated nature but also because higher performing organizations will make use of the tool frequently to come up with up-to-date pricing structure based on shifting market landscape, product innovations, communications, and ever changing consumer perceptions.
COST-EFFECTIVE PRICE SENSITIVITY RESEARCH
GetWizer makes pricing sensitivity research programs cost effective for everyone by using machine learning and algorithms to automate the research. Leveraging our technology, we provide this essential outlook on pricing as a part of our research offerings. This means clients seeking a pricing optimization tool can now “add to cart” this previously prohibitively expensive add-on – starting at only $500 per concept or tested product – and get results in days, not weeks.
A quantitative approach, the van Westendorp PSM method asks questions that characterize four price points — what is so cheap that you question quality; expensive, but acceptable; too expensive to consider; and cheap, but a fair deal. Plotting the answers to these questions aids in isolating the “optimum” range and price.
Even though the PSM defines an OPP, it is also important to consider the range of acceptable pricing which falls between the upper and lower price threshold. Prices within this range are accepted by the majority.
Conducting pricing research with van Westendorp PSM should be done on a regular basis as there are many factors affecting consumer perceptions, for example, when a competitor comes out with a new product or service that is cheaper or more expensive, or when there is a significant change to the overall consumer target.
UTILIZING THE POWER OF AI
With artificial intelligence, GetWizer makes van Westendorp PSM more accessible for everyone. Using this technique, in addition to the company’s other knowledge resources, GetWizer has provided insights regarding pricing strategies and guided clients not only in identifying the right prices but also in improving consumer perceptions in their markets.
At GetWizer, we applied the van Westendorp PSM in a concept test study conducted for a leading food manufacturer examining new food concepts and their ideal pricing points. The results show that the OPP is $7.30, and the optimal price range is between $6.57 and $10.90.
The van Westendorp PSM provides a data-driven method in determining the pricing strategy for a product or service. It is easy to implement and relatively simple to analyze. Moreover, as presented, it is useful in finding price thresholds and perceived normal prices.
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