Van Westendorp PSM Question
Van Westendorp Price Sensitivity Meter (PSM) Model is a research method that helps businesses determine how price sensitive their customers are. It involves asking customers several questions about their willingness to purchase a product or service at different price points. These questions aim to identify the price range that customers consider acceptable and the maximum price they would be willing to pay for the product or service. View a Van Westendorp PSM example.
What is PSM Price Sensitivity Testing
Price sensitivity testing is a research method used to measure customers' satisfaction and acceptance of different prices, and to understand what customers consider appropriate product prices. It provides important reference information for clients to determine appropriate prices for products/services.
This method typically asks respondents four questions about a specific product or service:
(1) What price do you consider good value for this product? (Lower price);
(2) At what price would you begin to suspect the quality is poor and would not purchase? (Minimum price);
(3) What price would you consider high but still might purchase? (Higher price);
(4) At what price would you definitely decide not to purchase? (Maximum price).
For each of these four questions, we can calculate the frequency and cumulative percentage for each question at different price points.
Creating a PSM Question
1. Choose PSM to add the question to your survey.
2. Enter the question.
3. (Optional) Edit the row questions. The order of the row questions should from the cheapest price to the most expensive price.
4. Customize the following price scales: Lowest price, Price intervals, and number of prices.
5. (Optional) Adjust any additional settings for questions.
Making Survey Questions Required/Optional
6. Click Finish.
Analyzing the Data
When you click on the PSM Report, you can view four price points:
- Best Price: This is where "Too expensive" and "Too cheap" curves intersect.
- Acceptable Price: This is where "Cost effective" and "High price" curves intersect.
- Maximum Price Point: This is where "Cost effective" and "Too expensive" curves intersect.
- Minimum Price Point: This is where "Too cheap" and "High price" curves intersect.
The acceptable price range is between Minimum Price Point and Maximum Price Point.
FAQ
Q1: When launching a new product, in which scenario should I use the PSM model?
A: Use the PSM model when determining the initial pricing of a new product. It helps identify the acceptable price range, best price point, and maximum price customers are willing to pay by collecting responses to questions about different price points. This avoids overpricing (reducing adoption) or underpricing (missing profit potential) based on actual customer sensitivity.
Q2: For existing products planning a price adjustment, why is the PSM model recommended?
A: When adjusting prices (e.g., raising or lowering), the PSM model helps assess customer sensitivity. By analyzing intersections of "too expensive," "too cheap," "cost effective," and "high price" curves, it identifies the maximum price point customers can tolerate (to minimize churn) or the minimum acceptable price (to avoid devaluing perception), ensuring adjustments align with customer expectations.
Q3: In market segmentation pricing, how does the PSM model support strategy making?
A: For segmenting pricing (e.g., by region, age, or usage), the PSM model can be applied to each segment. It generates segment-specific acceptable price ranges and optimal prices by customizing price scales and analyzing responses. This enables tailored pricing strategies, such as setting higher prices for less price-sensitive segments without losing price-sensitive ones.
Q4: When pricing intangible services (e.g., subscriptions, consulting), is the PSM model suitable? Why?
A: Yes. For intangible services with unclear value perception, the PSM model clarifies price acceptability. By asking about willingness to purchase at various price points, it identifies the "best price" (where "too expensive" and "too cheap" intersect) and acceptable range, helping set prices that balance customer perceived value and business revenue.
Q5: How does the PSM model assist in competitive pricing analysis?
A: In competitive pricing, the PSM model compares customer sensitivity to your product vs. competitors. By including competitor prices in the price scale, it reveals how your acceptable price range overlaps with competitors'. This helps position your price (e.g., slightly lower if customers find competitors "too expensive") or justify a premium by ensuring your maximum price point aligns with perceived added value.
