Van Westendorp Price Sensitivity Meter
The Price Sensitivity Meter (PSM) helps determine the psychologically acceptable range of prices for a single product or service. It is a frequently used pricing research method proposed by the economist Peter van Westendorp in the 1970s. It is particularly useful when:
- You want to assess what price range the market considers to be fair for your product.
- Your product is the only such product on the market or the number of competitive offerings is very large.
- You need quick, directionally correct results.
Main outputs of Van Westendorp
Price Sensitivity Meter (PSM)
The PSM is a chart of four lines with four intersections. The range between the leftmost intersection (of the lines “too cheap” and “expensive”) and the rightmost intersection (of the lines “cheap” and “too expensive”) is the psychologically acceptable range of prices.
For example, this chart suggests that the acceptable range of prices is $5 to $10, with the so-called "optimal" price of $6.75.
Price elasticity chart
Conjointly also provides Newton, Miller and Smith’s extension, which charts an approximated price elasticity of demand curve. The steeper the demand curve, the more price-sensitive customers are in relation to this product.
Revenue vs. price chart
Newton, Miller and Smith’s extension also models the approximate “revenue vs. price” curve, identifying revenue-maximising price points.
For example, this chart below suggests that the revenue-maximising price is around $10.
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The Price Sensitivity Meter helps determine psychologically acceptable range of prices for a single product and approximately estimate price elasticity.
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