Van Westendorp Pricing Model

The van Westendorp pricing model was created by Dutch economist Peter van Westendorp in 1976. The technique, which utilizes survey-based research, asks consumers to evaluate four specific price points for a particular product or service.

Understanding the van Westendorp pricing model

The van Westendorp pricing model is a survey-based technique that is used to determine consumer price preferences.

Once results have been quantified, a price curve can be constructed to enable the business to determine the most acceptable prices. In essence, the model measures a customer’s willingness to pay and advocates that simply asking them directly yields the most accurate result.

The van Westendorp model is one of tens or even hundreds of different pricing strategies available to businesses. But it is one of the most effective and, in recent decades, has become a staple technique for rectifying price-related issues.

Pricing is a key component of business success and one at which many fail. Small businesses may falter because they are launching a new product and find it difficult to set an optimal price point without a baseline. Some price their products too low and can’t turn a profit, while others set them too high and can’t make any sales.

Van Westendorp pricing model methodology

The methodology starts with four price-related questions. Each question is evaluated as a series of four distributions, with one distribution for each question.

The format of each question may differ between companies, but in most cases take these forms:

At what price would you consider the product or service to be so expensive that you would consider not purchasing it? (Too expensive)
At what price would you consider the product or service to be so cheap that you would associate it with poor quality? (Too cheap)
At what price would you consider the product or service to be on the expensive side but not consider a purchase to be out of the question? (Expensive/High Side)
At what price would you consider the product or service to be a bargain to the point where you felt you received your money’s worth? (Cheap/Good Value)

Plotting the results

Results are then plotted on a graph with price on the x-axis and the distribution of prices expressed as a percentage of all survey respondents on the y-axis. The number of times a price is repeated in the survey results determines how the curve will be constructed and whether a price is considered too expensive, too cheap, or one of the two other options.

Where the four curves intersect then provides several valuable insights:

The Point of Marginal Cheapness – where the “too cheap” and “expensive/high side” curves intersect. This point acts as a lower bound of acceptable prices since more buyers would consider the product too cheap if the price was set any lower.
The Point of Marginal Expensiveness – where the “too expensive” and “cheap/good value” curves intersect. This point acts as an upper bound of acceptable prices since most buyers would consider the product too expensive if the price was set any higher.
The Optimal Price Point (OPP) – the area between the Point of Marginal Cheapness and the Point of Marginal Expensiveness where the “too cheap” and “too expensive” curves intersect. The OPP denotes a range of optimal prices since, at least in theory, the area minimizes the number of consumers who are dissatisfied with the price either way.

Case Studies

Coffee Shop Pricing

A coffee shop owner is introducing a new specialty coffee blend. To determine the optimal price, they use the van Westendorp pricing model. They survey customers with the four price-related questions and plot the results on a graph. The model reveals that customers perceive the coffee as a good value between $4.50 and $5.50. This helps the coffee shop owner set a competitive price that aligns with customer expectations.

Software Subscription

A software company is launching a subscription-based service. They’re uncertain about how to price their plans. They implement the van Westendorp pricing model by surveying potential customers. The model shows that most respondents find the service too expensive beyond $30 per month and too cheap below $10 per month. The optimal price range falls between $15 and $25 per month. The company uses this information to choose pricing tiers that cater to different customer segments.

Clothing Brand

A fashion brand is releasing a new collection of premium clothing items. The brand wants to avoid setting prices that might make customers perceive the products as low quality or overpriced. They employ the van Westendorp pricing model by conducting a survey among their target audience. The results indicate that the perceived value of the items is highest in the price range of $80 to $120. This data helps the brand confidently establish prices that reflect the quality and value of their products.

Hotel Room Rates

A hotel chain is renovating its rooms and plans to increase the rates. To prevent potential backlash from guests, they use the van Westendorp pricing model. They ask customers about their willingness to pay for the upgraded rooms and gather responses from the survey. Analyzing the data, they find that customers consider prices above $200 per night as too expensive. The sweet spot for the new rates is around $140 to $180 per night, balancing value and affordability.

Mobile App In-App Purchases

A mobile app developer wants to monetize their app through in-app purchases. They’re unsure about the pricing strategy for various virtual items. Employing the van Westendorp pricing model, they survey app users to gauge their perceptions of different price points. The model reveals that users are willing to spend between $0.99 and $2.49 on in-app purchases. Armed with this insight, the developer strategically prices their virtual items within this range to encourage user engagement and purchases.

Fitness Membership

A fitness center is launching a new membership plan that offers exclusive perks and classes. They want to find the right balance between affordability and perceived value. By using the van Westendorp pricing model, they survey current and potential members. The results suggest that the optimal price range for the new membership is between $60 and $80 per month. This information guides the fitness center in crafting a compelling offer that appeals to its target audience.

Book Pricing

An author is self-publishing a book and needs to set the price for both physical and e-book versions. Using the van Westendorp pricing model, the author surveys readers to understand their price perceptions. The analysis shows that readers find prices above $25 for the physical book and above $15 for the e-book to be too expensive. The author decides to price the physical book at $18 and the e-book at $10, aligning with reader expectations and maximizing sales potential.

Restaurant Menu Items

A restaurant is redesigning its menu and wants to ensure its prices resonate with customers. Applying the van Westendorp pricing model, the restaurant conducts surveys to gauge customer perceptions of different dish prices. The results reveal that customers view prices above $25 as too expensive for a main course and below $10 as too cheap. The restaurant uses this information to set main course prices between $15 and $20, capturing a balance between value and quality.

Electronics Product Launch

An electronics company is launching a new gadget and wants to determine the most suitable pricing strategy. They employ the van Westendorp pricing model, surveying potential customers about their price preferences. The analysis highlights that customers consider prices above $500 to be too expensive and prices below $300 to be too cheap. The company positions its product in the $350 to $450 range, aligning with customer expectations and market competition.

Spa Services Pricing

A spa and wellness center is introducing a range of new services, from massages to facials. The center uses the van Westendorp pricing model to establish pricing for each service. They survey their client base to understand price perceptions. The analysis shows that clients find prices above $120 for premium services and below $60 for basic services to be unfavorable. The center sets prices in the range of $80 to $100 for premium services and $40 to $50 for basic services, ensuring they cater to varying customer preferences.

Key takeaways:

The van Westendorp pricing model is a survey-based technique that is used to determine consumer price preferences. It was created by Dutch economist Peter van Westendorp in 1976.
The technique utilizes survey-based research and asks consumers to evaluate four specific price points for a particular product or service. These are quantified with four questions, or distributions, that relate to price, cost, and perceived value.
Results are then plotted on a graph with price on the x-axis and the distribution of prices expressed as a percentage of all survey responses on the y-axis. The number of times a price is repeated in the survey results determines how the curve will be constructed and where the optimal price range lies.

Key Highlights:

Introduction to van Westendorp Pricing Model:
- The van Westendorp pricing model was created by Dutch economist Peter van Westendorp in 1976.
- It’s a survey-based technique used to determine consumer price preferences for a product or service.
Methodology of the Model:
- The model involves asking respondents four specific price-related questions.
- Each question is evaluated as a distribution, resulting in four distributions for the four questions.
- Questions focus on perceptions of being too expensive, too cheap, expensive but acceptable, and cheap but good value.
Plotting the Results:
- Survey results are plotted on a graph with price on the x-axis and distribution percentages on the y-axis.
- Intersections of different curves reveal key insights:
  - Point of Marginal Cheapness: Where “too cheap” and “expensive/high side” curves intersect, setting a lower bound for acceptable prices.
  - Point of Marginal Expensiveness: Where “too expensive” and “cheap/good value” curves intersect, setting an upper bound for acceptable prices.
  - Optimal Price Point (OPP): Range between Point of Marginal Cheapness and Point of Marginal Expensiveness, minimizing dissatisfaction.
Use and Importance of the Model:
- The van Westendorp pricing model helps businesses determine optimal price ranges based on customer perceptions.
- It addresses the challenge of setting the right price for a product or service, avoiding pricing too high or too low.
- The model offers valuable insights into customer willingness to pay and guides pricing decisions.

Case Study	Strategy	Outcome
Procter & Gamble	Van Westendorp Pricing Model: Conducted surveys to determine acceptable price ranges and set optimal pricing.	Increased initial sales and customer acceptance by pricing the product within the optimal price range.
Unilever	Van Westendorp Pricing Model: Used customer surveys to find the perceived value and acceptable price points.	Achieved strong market entry with optimal pricing, driving higher initial sales and market penetration.
Philips	Van Westendorp Pricing Model: Surveyed target customers to determine the acceptable price range.	Set a price that maximized perceived value and demand, resulting in successful product launch and sales growth.
Nestlé	Van Westendorp Pricing Model: Conducted surveys to understand the price perception and acceptable price range among consumers.	Priced the product to balance perceived value and demand, leading to strong initial sales and customer satisfaction.
Johnson & Johnson	Van Westendorp Pricing Model: Used customer surveys to determine the acceptable price range.	Set a competitive price that maximized perceived value, resulting in high initial sales and market acceptance.
Samsung	Van Westendorp Pricing Model: Conducted surveys to identify the optimal price range based on consumer perception.	Achieved strong sales and market penetration by pricing the smartphone within the optimal range identified by the model.
Tesla	Van Westendorp Pricing Model: Used surveys to gauge consumer perception and acceptable price range.	Set a price that maximized perceived value and demand, leading to successful launch and high sales volumes.
Coca-Cola	Van Westendorp Pricing Model: Conducted customer surveys to determine the perceived value and acceptable price points.	Priced the product optimally to balance value and demand, resulting in strong initial sales and market entry.
Sony	Van Westendorp Pricing Model: Surveyed gamers to find the acceptable price range and perceived value.	Set a competitive price that maximized perceived value, resulting in high initial sales and strong market acceptance.
L’Oréal	Van Westendorp Pricing Model: Used customer surveys to determine the optimal price range based on perceived value.	Priced the product to appeal to target customers, driving strong initial sales and market penetration.
Adidas	Van Westendorp Pricing Model: Conducted surveys to identify the acceptable price range and perceived value.	Set a price that maximized perceived value and demand, leading to successful product launch and high sales.
Microsoft	Van Westendorp Pricing Model: Used surveys to gauge consumer perception and acceptable price points.	Priced the software optimally to balance value and demand, resulting in strong initial sales and market acceptance.
Nike	Van Westendorp Pricing Model: Conducted surveys to understand the acceptable price range and perceived value.	Achieved strong market entry with optimal pricing, driving higher initial sales and customer satisfaction.
General Mills	Van Westendorp Pricing Model: Surveyed consumers to determine the acceptable price range.	Set a competitive price that maximized perceived value, resulting in high initial sales and market acceptance.
Toyota	Van Westendorp Pricing Model: Used customer surveys to determine the optimal price range based on perceived value.	Priced the car to appeal to environmentally conscious consumers, driving strong initial sales and market penetration.
Apple	Van Westendorp Pricing Model: Conducted surveys to gauge consumer perception and acceptable price range.	Set a price that maximized perceived value and demand, leading to successful product launch and high sales volumes.
PepsiCo	Van Westendorp Pricing Model: Used customer surveys to determine the perceived value and acceptable price points.	Priced the product optimally to balance value and demand, resulting in strong initial sales and market entry.
Ford	Van Westendorp Pricing Model: Surveyed target customers to determine the acceptable price range.	Set a price that maximized perceived value and demand, resulting in successful product launch and sales growth.
HP	Van Westendorp Pricing Model: Conducted surveys to identify the optimal price range based on consumer perception.	Achieved strong sales and market penetration by pricing the printer within the optimal range identified by the model.
Reckitt Benckiser	Van Westendorp Pricing Model: Used customer surveys to determine the acceptable price range.	Set a competitive price that maximized perceived value, resulting in high initial sales and market acceptance.

Expanded Pricing Strategies Explorer

Pricing Strategy	Description	Key Insights
Cost-Plus Pricing	Markup added to production cost for profit	Ensures costs are covered and provides a predictable profit margin.
Value-Based Pricing	Prices set based on perceived customer value	Aligns prices with what customers are willing to pay for the product or service.
Competitive Pricing	Pricing in line with competitors or undercutting	Helps maintain competitiveness and market share.
Dynamic Pricing	Prices adjusted based on real-time demand	Maximizes revenue by responding to changing market conditions.
Penetration Pricing	Low initial prices to gain market share	Attracts price-sensitive customers and establishes brand presence.
Price Skimming	High initial prices gradually lowered	Capitalizes on early adopters’ willingness to pay a premium.
Bundle Pricing	Multiple products or services as a package	Increases the perceived value and encourages upselling.
Psychological Pricing	Pricing strategies based on psychology	Leverages pricing cues like $9.99 instead of $10 for perceived savings.
Freemium Pricing	Free basic version with premium paid features	Attracts a wide user base and converts some to paying customers.
Subscription Pricing	Recurring fee for ongoing access or service	Creates predictable revenue and fosters customer loyalty.
Skimming and Scanning	Continually adjusting prices based on market dynamics	Adapts to changing market conditions and optimizes pricing.
Promotional Pricing	Temporarily lowering prices for promotions	Encourages short-term purchases and boosts sales volume.
Geographic Pricing	Adjusting prices based on geographic location	Accounts for variations in cost of living and local demand.
Anchor Pricing	High initial price as a reference point	Influences perception of value and makes other options seem more affordable.
Odd-Even Pricing	Prices just below round numbers (e.g., $19.99)	Creates a perception of lower cost and encourages purchases.
Loss Leader Pricing	Offering a product below cost to attract customers	Drives traffic and encourages additional purchases.
Prestige Pricing	High prices to convey exclusivity and quality	Appeals to premium or luxury markets and enhances brand image.
Value-Based Bundling	Combining complementary products for value	Encourages customers to buy more while receiving a perceived discount.
Decoy Pricing	Less attractive third option to influence choice	Guides customers toward a preferred option.
Pay What You Want (PWYW)	Customers choose the price they want to pay	Promotes customer goodwill and can lead to higher payments.
Dynamic Bundle Pricing	Prices for bundled products based on customer choices	Tailors bundles to customer preferences.
Segmented Pricing	Different prices for the same product by segments	Considers diverse customer groups and willingness to pay.
Target Pricing	Prices set based on a specific target margin	Ensures profitability based on specific financial goals.
Loss Aversion Pricing	Emphasizes potential losses averted by purchase	Encourages decision-making by highlighting potential losses.
Membership Pricing	Exclusive pricing for members of loyalty programs	Fosters customer loyalty and membership growth.
Seasonal Pricing	Price adjustments based on seasonal demand	Matches pricing to fluctuations in consumer behavior.
FOMO Pricing (Fear of Missing Out)	Limited-time discounts or deals	Creates urgency and encourages purchases.
Predatory Pricing	Low prices to deter competitors or drive them out	Strategic pricing to gain market dominance.
Price Discrimination	Different prices to different customer segments	Capitalizes on varying willingness to pay.
Price Lining	Different versions of a product at different prices	Catering to various customer preferences.
Quantity Discount	Discounts for bulk or volume purchases	Encourages larger orders and repeat business.
Early Bird Pricing	Lower prices for early adopters or advance buyers	Rewards early commitment and generates initial sales.
Late Payment Penalties	Additional fees for late payments	Encourages timely payments and revenue collection.
Bait-and-Switch Pricing	Attracting with a low-priced item, then upselling	Uses attractive deals to lure customers to higher-priced options.
Group Buying Discounts	Discounts for purchases made by a group or community	Encourages collective buying and customer loyalty.
Lease or Rent-to-Own Pricing	Lease with an option to purchase later	Provides flexibility and ownership choice for customers.
Bid Pricing	Customers bid on products or services	Prices determined by customer demand and willingness to pay.
Quantity Surcharge	Charging a fee for purchasing below a certain quantity	Encourages larger orders and higher sales.
Referral Pricing	Discounts or incentives for customer referrals	Leverages word-of-mouth marketing and customer networks.
Tiered Pricing	Multiple price levels based on features or benefits	Appeals to customers with varying needs and budgets.
Charity Pricing	Donating a portion of sales to a charitable cause	Aligns with corporate social responsibility and attracts conscious consumers.
Behavioral Pricing	Price adjustments based on customer behavior	Customizes pricing based on customer interactions and preferences.
Mystery Pricing	Prices hidden until the product is added to the cart	Encourages customer engagement and commitment.
Variable Cost Pricing	Prices adjusted based on variable production costs	Reflects cost changes and maintains profitability.
Demand-Based Pricing	Prices set based on demand patterns and peak periods	Maximizes revenue during high-demand periods.
Cost Leadership Pricing	Competing by offering the lowest prices in the market	Focuses on cost efficiencies and price competitiveness.
Asset Utilization Pricing	Pricing based on the utilization of assets	Optimizes revenue for assets like rental cars or hotel rooms.
Markup Pricing	Fixed percentage or dollar amount added as profit	Ensures consistent profit margins on products.
Value Pricing	Premium pricing for products with unique value	Attracts customers willing to pay more for exceptional features.
Sustainable Pricing	Pricing emphasizes environmental or ethical considerations	Appeals to conscious consumers and supports sustainability goals.