"algo-price-van-westendorp"

Van Westendorp Price Sensitivity Meter

Overview

Van Westendorp PSM uses four price perception questions to identify an acceptable price range through intersection analysis. Produces: Point of Marginal Cheapness (PMC), Point of Marginal Expensiveness (PME), Indifference Price Point (IPP), and Optimal Price Point (OPP). Requires survey data from 100+ respondents.

When to Use

Trigger conditions:

• Setting initial price for a new product or service
• Identifying the acceptable price range from consumer perception
• Quick pricing research without complex experimental design

When NOT to use:

• When you need to measure attribute trade-offs (use conjoint analysis)
• When you need demand curve estimation (use price elasticity)

Algorithm

IRON LAW: Van Westendorp Identifies an ACCEPTABLE Range, Not Optimal Price
It doesn't account for competition, costs, or willingness to pay at
scale. It tells you WHERE prices are perceived as reasonable, not
what maximizes revenue. Use as input to pricing strategy, not as the
final answer.

Phase 1: Input Validation

Survey 100+ target customers with four questions at various price points:

1. Too cheap (quality suspect)? 2. A bargain (great deal)? 3. Getting expensive (but would consider)? 4. Too expensive (would not buy)? Gate: 100+ responses, all four curves plottable.

Phase 2: Core Algorithm

1. For each price point, compute cumulative percentages for each question
2. Plot four curves: "too cheap" (descending), "cheap/bargain" (descending), "expensive" (ascending), "too expensive" (ascending)
3. Find intersections:
   • OPP = intersection of "too cheap" and "too expensive" (optimal price point)
   • IPP = intersection of "cheap" and "expensive" (indifference price point)
   • PMC = intersection of "too cheap" and "expensive" (marginal cheapness)
   • PME = intersection of "cheap" and "too expensive" (marginal expensiveness)
4. Acceptable range = [PMC, PME]

Phase 3: Verification

Check: PMC < OPP < IPP < PME (expected ordering). All intersections exist within surveyed range. Gate: Four-point ordering is logical, range is commercially viable.