Pricing Model with Van Westendorp PSM and Newton Miller and Smith's Extension Template

Pricing Model with Van Westendorp PSM and Newton Miller and Smith's Extension, Price Range, Revenue Max, Marginal prices

Van Westendorp’s Price Sensitivity Meter uses open-ended questions combining price and quality. Since there is an inherent assumption that price is a reflection of value or quality, the technique is not useful for a true luxury good (that is, when sales volume increases at higher prices). Peter Van Westendorp introduced the Price Sensitivity Meter in 1976 and it has been widely used since then throughout the market research industry.

In this methodology, each respondent are asked four questions on the perception of price:

1. At what price would this product be so cheap that you would doubt its quality and not
consider it?
2. At what price would this product be a bargain--a great buy for the money? < “Bargain” price>>
3. At what price would this product seem expensive, but you would still consider buying it?
called the “Get Expensive” price>>
4. At what price would this product be too expensive for you to consider it? >

In this template the data from this four questions are plotted from Low to High price sequence.

Besides PSM, this template uses the Newton-Miller-Smith purchase intent extension that adds two 5-point scale questions, to assess the likelihood of purchase.

So, this Pricing Template, using Van Westendorp pricing (the Price Sensitivity Meter - PSM) and Newton-Miller-Smith extension (NSM), can define price boundaries, as well as estimate the price point that maximize revenue, the purchase likelihood or demand. It is available to download instantly and is ready to use. As it is, the template, it’s fully editable allowing the user to modify it for its specific needs.

Following the NSM, the user can calibrate the purchase probability to cope with the tendency of respondents for exaggerate their purchase intent when asked the standard 5-point purchase intent question (Pricing input sheet). The values are only suggestions and may not be necessarily accurate for a particular research situation.

The user can also define a probability for the too cheap situation (pricing inputs), usually the probability is set to zero.

The user can input data from 5 different products / services to perform Analysis simultaneously.

As outputs of the model you have:

The indifference price point (IDP)
The optimal price point (OPP)
The point of marginal cheapness (PMC)
The point of marginal expensiveness (MDP)
The price range
Probability of Purchase Distribution (Evaluated through Linear Interpolation)
Revenue Index (identify the price that maximizes revenue)
Distribution of acceptable prices (reach)

For any problems or questions regarding this tool, don't hesitate to send me a message via my Eloquens author account.

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Further information

Determining the best price for a product or service, using the Van Westendorp Price Sensitivity Meter and the Newton-miller-smith extension.

Van Westendorp pricing questions offer a simple, yet powerful way to incorporate price perceptions into pricing decisions, namely for new products or services.

Anything else

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