Van Westendorp Price Sensitivity Technique
What is it? Van Westendorp Price Sensitivity is a quantitative survey technique for understanding the range of acceptable pricing to roughly 80% of a target market. The technique asks four questions after the respondent has reviewed a product:
At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)
At what price would you consider the product 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 starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)
At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)
When do you use it? Van Westendorp Price Sensitivity is best used during the early stages of new product development when the Bill of Materials (BOM) and Cost of Goods Sold (COGS) has not yet been defined. The technique can be applied as a late-stage price sensitivity measure for validating a soon-to-be-launched consumer product, however, there are more precise techniques available like Waterfall Pricing or Choice-Based Conjoint. Van Westendorp is excellent for getting a quick measure of the Rough Order of Magnitude price sensitivity at the early stages. At Trig, we recommend pairing the technique with a Concept Validation Study immediately following an ideation session.
Case Study: A consumer product entrepreneur approached Trig with a problem. Another product development firm had completed the mechanical design of a product without first knowing the target cost. The other firm had delivered a functional design complete with a BOM, but the COGS was out of control and had stalled out the project. It was painful to the entrepreneur to have spent so much time and money going in the wrong direction. The dogged determination of the entrepreneur impressed us and we offered a workable plan forward.
Our first step with the client was to back up to understanding the target customer's pain points and then conduct an ideation session. Coming out of the ideation session, we found four new concepts that were worthy of testing. We added a fifth control product of an existing product with known sales as a reference point. The survey instrument was designed for Monadic Concept Validation, meaning each testable concept was presented in isolation and in randomized page order to respondents. After the respondents answered standard concept evaluation questions, they were then presented with the Van Westendorp series of questions.
As a result of the survey analysis, we had a clear understanding of the target cost and customer likelihood of purchase for each of the five products. The target cost for the original design was indeed significantly lower and would take significant re-work to make it commercially viable. Fortunately, a simplified product concept tested better than the original design and was comparable to the existing product.
By starting with the target cost in mind, the Trig team pursued the mechanical design in a completely different approach, taking advantage of cost-saving materials and manufacturing techniques. We produced a functional prototype at an early stage to test out some mechanisms and usability issues. The lessons learned from that prototype informed the final 3D CAD, presentation renderings, BOM, and COGS information that the entrepreneur could use in their presentations. After evaluating options for a path forward, the entrepreneur is pursuing licensing opportunities rather than building the business from scratch. Trig has been able to make introductions for the entrepreneur to a major manufacturer and potential licensor with a complementary product portfolio. As a result of working with Trig, the entrepreneur now is much further along the product development process with a significantly higher chance for a return on investment. The Van Westendorp technique was critical to helping the entrepreneur pivot to a viable consumer product.