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:

1. At what price would you consider the product or service to be so expensive that you would consider not purchasing it? (Too expensive)
2. At what price would you consider the product or service to be so cheap that you would associate it with poor quality? (Too cheap)
3. 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)
4. 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.

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.

Read Next: Pricing Model.