Question

Topic: Research/Metrics

Making Sense Of Van Westendorp Pricing Data

Posted by gogolski on 12/30/2019 at 12:31 PM ET 125 Points
I realize that the Van Westendorp pricing sensitivity model is not used much these days, but my company used an agency that employed it in a survey to 1,200 people (before I came on board) and provided pricing suggestions that I want to verify. I'm not very familiar with the model and not confident in the results I'm seeing.

Hoping that someone in this community can walk me through the process. Here is what I did:

Step 1
Original results from the raw data
Price Too Cheap Bargain Expensive Too Expensive
100 77% 25% 0 0
150 15% 45% 12% 10%
200 5% 19% 31% 20%
250 2% 8% 26% 29%
300 1% 1% 18% 21%
400 1% 1% 9% 13%
450 0 1% 3% 7%

Step 2
I did a cumulative adding of values for each column (started adding together from the bottom for TC and B, adding from top down for E and TE)
Price Too Cheap Bargain Expensive Too Expensive
100 100% 100% 0% 0%
150 24% 75% 12% 10%
200 9% 30% 43% 30%
250 4% 11% 69% 59%
300 2% 3% 87% 80%
400 1% 2% 96% 93%
450 0% 1% 100% 100%

Step 3
Change Bargain and Expensive to Not Bargain and Not Expensive by reversing order of values in those two columns
Price Too Cheap Not a Bargain Not Expensive Too Expensive
100 100% 1% 100% 0
150 24% 2% 96% 10%
200 9% 3% 87% 30%
250 4% 11% 69% 59%
300 2% 30% 43% 80%
400 1% 75% 12% 93%
450 0 100% 0% 100%

When I plug the data into a chart, I get a narrow margin of cheapness/expensiveness, and the Optimal and Indifference prices fall outside the margin.

I'd be grateful to anyone who can give me pointers or correct where I'm going wrong in the process.
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RESPONSES

  • Posted by mgoodman on 12/30/2019 at 4:33 PM Moderator
    I created and delivered a pricing strategy seminar that included the Van Westendorp price sensitivity model a few years ago. I will see if I can find the notes and examples. I am also going to refer this question to an associate who worked on that seminar material with me. Stay tuned.

    We also included a tool we developed on our own that relies on input from front-line sales people that we've found to be quite effective (and gets instant buy-in from the Sales Department). It's a lot less technical-sounding than Van Westendorp.
  • Posted by joy.levin on 12/30/2019 at 4:38 PM Accepted
    Hi there - If you could send over a copy of the chart you've come up with, I could take a look. Please feel free to email me, or send the chart to joy.levin@alliumresearch.com. I have used the VW pricing model for other clients - a shame it's not used more often! Joy Levin
  • Posted by mgoodman on 12/30/2019 at 5:34 PM Accepted
    A common error/problem with pricing models: They tend to focus on sales revenue, not on profitability. You need to be clear about your objective and make sure the methodology and results deliver on the objective.

    More advice: Take Joy Levin up on her offer. She is a true expert at this stuff. Maybe even retain her for a few hours of her expert consultation. Outside experts often see things the rest of us don't, and Joy is well-known in market research, analytics and quantitative analysis.
  • Posted by gogolski on 12/31/2019 at 11:38 AM Author
    Thanks to you both. Joy, when I graph the data shown above, the chart looks like this:
    https://i.postimg.cc/C5vm38zq/Original-Survey-VW-Price-Chart.png

    I'm wondering if I'm doing the cumulative of each column correctly. Same goes for changing Bargain to Not a Bargain/Expensive to Not Expensive.
  • Posted by joy.levin on 1/3/2020 at 3:56 PM Member
    Hi gogolski,

    It looks to me like you have graphed the frequencies correctly - I think the problem is in your labeling. I did not check your math, but I believe the 'too expensive' line is the line in red, and the 'not a bargain' line is in green. That is how the typical VP plot is built. Therefore, the PMC, or point of marginal cheapness, should be at the intersection of the blue and green lines, which you have currently labeled as "Optimal Price." The PME, or point of marginal expensiveness, should be at the intersection of your yellow and red lines, which you have currently labeled as "Indifference Price." Your range of acceptable prices would be between the two ($172-$315).

    I hope this helps to clarify! VP is actually a great tool, and it's a shame it is not more widely used. While it is certainly not perfect (as no tool is), it has great value. One of the challenges in using it is that the graphing can be tricky and therefore the results can be misunderstood (as you have experienced). I hope this experience won't prevent you from using it in the future!
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