Van Westendorp PSM

Also known as: PSM, Price Sensitivity Meter, Van Westendorp Model

Pricing technique using four questions to define acceptable price ranges, the optimal price, and the indifference price.

Van Westendorp's Price Sensitivity Meter (PSM) is a pricing research technique that uses four questions to identify psychologically acceptable price ranges for consumers: (1) At what price would the product seem so cheap you'd doubt its quality? (2) At what price is it cheap but still reliable? (3) At what price does it start to seem expensive? (4) At what price is it too expensive to consider buying?

The intersection of the resulting curves identifies the Optimal Price Point (OPP) and the Acceptable Price Range (APR). It is a relatively quick and low-cost tool that provides an initial price sensitivity diagnosis.

Its main limitation is that it doesn't simulate the real decision context with competitors. For that, it is complemented with Gabor-Granger or Conjoint Analysis.