Pricing research: Van Westendorp and Gabor-Granger

Price is the marketing lever with the most direct effect on profit, and the one companies research least. Asking “What would you pay?” gives unreliable answers. Two survey methods do much better: the Van Westendorp price sensitivity meter, which finds the range of acceptable prices, and the Gabor-Granger method, which estimates how demand falls as price rises.

The Van Westendorp price sensitivity meter

After describing the product, ask four questions:

1. At what price would you consider the product to be so expensive that you would not consider buying it? (too expensive)
2. 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)
3. 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)
4. At what price would you consider the product to be a bargain, a great buy for the money? (cheap)

Plotting the cumulative distributions of the four answers gives four curves, and their intersections define the price points.

Reading the price points

The acceptable price range runs from 16.05 to 34.02. Below 16, more people doubt the quality than see a bargain; above 34, too many reject the price as too expensive. At the OPP (24.02), the fewest people reject the product for being either too cheap or too expensive. The IPP (23.98), where as many people call the price cheap as expensive, is often close to the normal market price.

Data quality matters: 17 of 260 respondents (6.5%) gave answers in an illogical order (for example, a “too cheap” price above their “expensive” price) and were excluded. Always check and report this.

The Newton-Miller-Smith extension

Van Westendorp tells you what is acceptable, not what people will buy. The Newton-Miller-Smith extension adds two questions: how likely would you be to buy at your “cheap” price, and at your “expensive” price (on a five-point scale). The tool calibrates these into purchase probabilities and finds the price that maximises trial (22.04) and the price that maximises revenue (25.02, where 22.6% are expected to buy).

Gabor-Granger

The Gabor-Granger method asks directly: “Would you buy the product at a price of X?” for a series of prices, typically five to eight, in random order or starting in the middle. The share who would buy at each price traces a demand curve.

In the example, 220 respondents answered at seven prices from 19 to 49. Demand falls from 94.1% at 19 to 7.3% at 49. Revenue (price × share buying) peaks around the middle: among the tested prices, 24 gives the highest revenue, and the smooth logistic demand curve puts the revenue-maximising price at 24.48, where 81.7% would buy. With a unit cost of 12, the profit-maximising price is higher, at 28.00, because each sale earns more margin even though fewer people buy. At the revenue maximum the price elasticity is −1.01, as theory predicts: a 1% price rise loses exactly 1% of buyers.

Which method when?

• Van Westendorp for new products without a clear reference price, to find the acceptable range early in development.
• Gabor-Granger when you have a short list of candidate prices and want to estimate demand and revenue.
• Conjoint analysis (Lesson 7) when price must be traded off against features and competing products.

The hypothetical bias

Survey respondents overstate their willingness to buy: saying yes costs nothing. Use the results to compare prices relative to each other rather than to forecast absolute sales, calibrate with real sales data where possible, and validate the final price in a market test or A/B test (Course 5).

Reporting

A Van Westendorp analysis (N = 243 after excluding inconsistent answers) indicated an acceptable price range from 16.05 to 34.02, with an optimal price point of 24.02. In a Gabor-Granger test (220 respondents, seven prices), purchase intent declined from 94.1% at 19 to 7.3% at 49; revenue was maximised at 24.48 and profit, at a unit cost of 12, at 28.00.