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Van Westendorp Price Sensitivity Model Definition

The Van Westendorp Price Sensitivity Model was developed in the 1970s by the Dutch economist Peter Van Westendorp, The model helps gauge the “perceived” value of a product or service by asking respondents a series of price-related questions. For example: "At what price would you say the product is Inexpensive (a bargain)? or "At what price would you say the product is Too cheap to be of value?” The objective of the model is to ascertain the range of acceptable prices, as well as optimum and indifference price points, for a product or service. The range will run from the price at which most respondents start to doubt the quality of the product to the point at which most respondents consider the product or service too expensive. In this model, price sensitivity relates not to absolute price, but rather to perceived value of the product and service.

The Van Westendorp Price Sensitivity Model, also known as the Price Sensitivity Meter (PSM), is a market research technique used to determine consumer price preferences for a product or service. It involves asking respondents a series of questions to understand their perceptions of prices, helping to identify optimal pricing strategies.

Dutch economist Peter Van Westendorp developed this model in the 1970s. It helps gauge the perceived value of a product or service with the objective of ascertaining the range of acceptable prices, as well as optimum and indifference price points, for a product or service.

The range will run from the price at which most respondents start to doubt the quality of the product to the point at which most respondents consider the product or service too expensive. In this model, price sensitivity relates not to absolute price, but rather to perceived value of the product and service.

How does a Van Westendorp Price Sensitivity Model work?

To use the PSM, a researcher would start by asking participants about their price perceptions on a particular product or service. There are four key questions within this model.

• At what price would the product/service be so expensive that they would not consider buying it?
• At what price would the product/service be expensive but still worth considering?
• At what price would the product/service be a bargain or very good value?
• At what price would the product/service be so cheap that they would doubt its quality?

After collecting the answers, a graph is created. There will be four lines representing too expensive, too cheap, expensive but acceptable and cheap but good quality. These lines should intersect at two critical points. These points are called the optimal price point (OOP) and the range of acceptable prices.

The OOP is the price for the particular product/service in question where the number of people who think it is too expensive and the number of people who think it is too cheap is the same.

The range of acceptable prices will be in between the point of the too expensive and too cheap lines cross and the point where the expensive but acceptable and cheap but good quality lines cross.

Why is the Van Westendorp price sensitivity model important?

The Van Westendorp model is important as it offers a structured approach to determining optimal pricing thresholds while maintaining profitability.

It considers multiple price-related perceptions, allowing a company to identify a price range that maximizes profit while meeting consumer expectations. This model ensures pricing decisions are grounded in empirical data rather than assumptions.