Choosing the Right Pricing Strategy

Setting the right price for your product is one of the most critical decisions you’ll make as a business. A well-thought-out pricing strategy not only determines how customers perceive your product but also directly impacts your profitability and growth. Two widely used methods for pricing research are Van Westendorp’s Price Sensitivity Meter and the Gabor Granger Pricing Model. Each offers unique insights to help you find the sweet spot that balances customer value with revenue goals. Let’s break down these approaches to help you decide which is best for your needs.

Van Westendorp Price Sensitivity Meter

When you are exploring pricing for a new product or want to understand perceptions of pricing rather than exact sales estimates, choose the Van Westendorp Pricing Model. This approach uses a set of four simple survey questions to understand what customers perceive as an acceptable price range for a product. 

Advantages:

• Quick and Easy: Great for early-stage pricing to explore acceptable price ranges.
• Customer Perception Focus: Highlights how price impacts perceived quality.
• Cost-Effective: Involves fewer survey questions, so it’s faster and cheaper to implement.

Respondents answer:

1. At what price would this product be too expensive to consider?
2. At what price would this product be expensive, but still worth considering?
3. At what price would this product be a bargain (cheap)?
4. At what price would this product be too cheap to trust its quality?

How It Works: The answers are plotted on a graph, creating curves that reveal the “optimal price point” (where most customers feel the price is reasonable) and an acceptable price range (bounded by “too cheap” and “too expensive” thresholds).

Disadvantages:

• Limited Precision: Doesn’t directly predict sales or demand at specific price points.
• Assumes Rationality: Relies on customer self-reported thresholds, which may not reflect actual purchase behavior.

Example: Imagine you’re launching a new organic skincare product. Van Westendorp can help you identify an acceptable price range where customers feel the product is good value without being suspiciously cheap.

Gabor Granger Pricing Model

If you are refining pricing for an established product or if sales forecasts and revenue estimates are a critical component of your research objectives, choose the Gabor Granger Pricing Model. This method measures how likely customers are to buy a product at various price points. Respondents are shown a product description and asked how likely they are to purchase it at prices like $10, $15, $20, etc.

Advantages:

• Sales Prediction: Offers a clearer picture of demand and revenue potential at each price.
• More Precision: Helps pinpoint a price that maximizes revenue or profitability.
• Actionable Insights: Enables scenario modeling for different pricing strategies.

How It Works: Responses are analyzed to create a demand curve, showing the percentage of customers likely to buy the product at each price. From this, you can estimate revenue and profitability at different price points.

Disadvantages:

• More Complex: Requires more survey questions and programming logic, increasing cost and time.
• Product Understanding Needed: Assumes customers fully understand the product’s value.

Example: If you need to decide what price to offer customers an upgrade to an existing service, the Gabor Granger approach can show how many customers might choose the upgrade at different price levels, helping you maximize revenue.

Final Thoughts

Both Van Westendorp’s Price Sensitivity Meter and the Gabor Granger Pricing Model offer valuable tools to guide your pricing strategy, but the best choice depends on your specific needs. Van Westendorp is perfect for uncovering how customers perceive price and quality and is a straight-forward approach you can even do yourself in Prodege’s Pollfish platform! Gabor Granger, while more complex, provides precise, data-driven insights to forecast demand and revenue. By understanding the strengths and applications of each method, you can confidently determine the right pricing approach for your business. 

At Prodege, we go beyond the numbers, offering innovative solutions that bring your customers’ voices to life. Whether you’re exploring price ranges or optimizing for revenue, we’re here to help you make informed, strategic decisions tailored to your goals and budget. Let us help you turn data into actionable insights that drive success.

Written by Victoria Stevens, Director, Client Solutions at Prodege