Van Westendorp's Price Sensitivity Meter, also known as the VW Meter, is a widely used market research technique that helps businesses understand the price sensitivity of their customers and determine an optimal price range for their products or services. Named after its creator, Peter Van Westendorp, this methodology provides valuable insights into consumer perceptions of pricing and assists in making informed pricing decisions.
Goal
Apply Van Westendorp's Price Sensitivity Meter (VW Meter) to determine an optimal price range for your product or service.
Instructions & Resources
Use this Google Sheet from Alex Sherwood to analyse your survey data
Step 1: Define the Research Objectives Clearly define the objectives of the pricing research. Determine what specific insights you aim to gain from the VW Meter survey, such as identifying the optimal price range or understanding price sensitivity.
Step 2: Prepare the Survey Create a survey questionnaire based on Van Westendorp's Price Sensitivity Meter. Include the following four questions:
- At what price would you consider the product/service to be so expensive that you would not consider buying it? (Too Expensive)
- At what price would you consider the product/service to be priced so low that you would feel the quality couldn't be very good? (Too Cheap)
- At what price would you consider the product/service starting to get expensive, so it is not out of the question, but you would have to give some thought to buying it? (Expensive)
- At what price would you consider the product/service to be a great deal for the money, so it's a must-have? (Cheap)
Step 3: Collect Survey Responses Distribute the survey to a representative sample of your target market. Aim for a sample size that provides statistically significant results. Gather responses from respondents, ensuring they answer all four questions.
Step 4: Analyze the Data Once you have collected the survey responses, analyze the data to determine the optimal price range. The analysis involves plotting the cumulative distribution curves of the four questions and identifying their intersection points. These intersection points help identify the acceptable price range.
Step 5: Create a Price Sensitivity Chart Create a price sensitivity chart to visualise the results. This chart typically includes four lines representing the cumulative distribution curves of the four questions. The point of intersection between these curves indicates the optimal price range.
Example Data:
Below is an example table showcasing fictional survey responses for the four questions of the VW Meter:
**Use this Google Sheet from Alex Sherwood to analyse your survey data - Follow Alex here.**
| Question | Too Expensive | Too Cheap | Expensive | Cheap |
|---|---|---|---|---|
| Frequency | 20 | 45 | 35 | 60 |
| Cumulative % | 20% | 65% | 100% | 160% |
| Cumulative % (Rev) | 100% | 55% | 20% | -60% |
Step 6: Interpret the Results Interpret the results of the survey and the price sensitivity chart. Determine the optimal price range based on the intersection points of the cumulative distribution curves. This range typically falls between the upper "Too Expensive" and lower "Too Cheap" thresholds.
Step 7: Adjust Pricing Strategy Based on the insights gained from the VW Meter survey, refine your pricing strategy. Consider setting your price within the optimal price range identified, ensuring it aligns with your business objectives, target market, and perceived value of your product or service.
Note: The example data provided is for illustrative purposes only and does not represent actual survey results. The exercise aims to demonstrate the process of using Van Westendorp's Price Sensitivity Meter.
Remember, conducting pricing research using the VW Meter is just one aspect of developing a comprehensive pricing strategy. It's essential to consider other factors such as costs, competitor analysis, market demand, and perceived value to make informed pricing decisions.