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Estd 4.22.2023
Introduction
Setting the right price for your SaaS product is one of the most critical business decisions you'll make. Price too high, and you risk alienating potential customers; price too low, and you leave revenue on the table while potentially devaluing your offering. The Van Westendorp Price Sensitivity Meter (PSM) offers SaaS companies a methodical approach to finding that pricing sweet spot where customer acceptance and revenue potential intersect. This research methodology, while developed in the 1970s, has proven remarkably effective for subscription-based business models where perceived value plays a crucial role in purchase decisions.
What is the Van Westendorp Price Sensitivity Meter?
The Van Westendorp Price Sensitivity Meter is a market research technique developed by Dutch economist Peter van Westendorp in 1976. Unlike simple willingness-to-pay questions, this methodology uses four carefully crafted questions to identify a range of acceptable prices for a product or service.
This pricing methodology is particularly valuable for SaaS companies because it:
- Identifies price thresholds where customer perceptions shift
- Reveals psychological pricing barriers
- Helps discover the optimal price point where maximum adoption meets revenue goals
- Provides insight into how different market segments perceive your value proposition
The Four Core Questions of Van Westendorp
The foundation of this pricing analysis technique consists of four essential questions:
- Too Cheap: "At what price would you consider this product/service to be so inexpensive that you would question its quality?"
- Bargain: "At what price would you consider this product/service to be a bargain—a great buy for the money?"
- Getting Expensive: "At what price would you say this product/service is starting to get expensive, but you still might consider buying it?"
- Too Expensive: "At what price would you consider this product/service to be so expensive that you would not consider buying it?"
When implementing for SaaS research, these questions must be adapted to reflect the subscription pricing model most SaaS companies employ, typically framing them around monthly or annual pricing.
Step-by-Step Implementation Guide for SaaS Companies
Step 1: Define Your Research Objectives
Before launching your pricing research, clearly define what you hope to learn:
- Are you pricing a new product or reassessing an existing one?
- Do you need to understand price sensitivity for different market segments?
- Are you investigating pricing for different tiers or packages?
- What competitive alternatives exist in your market space?
Step 2: Identify Your Target Respondents
For meaningful results, your respondents should represent your actual or intended customer base. Consider:
- Current customers (for existing products)
- Prospects in your target market
- Decision-makers with purchasing authority
- Users from different company sizes or industries if you serve diverse markets
According to research by Price Intelligently, a minimum of 100 respondents is recommended for reliable results, though larger samples provide more statistical confidence.
Step 3: Design Your Survey
A well-designed survey is critical for accurate pricing analysis:
- Provide context: Ensure respondents understand your product's value proposition with clear descriptions and possibly a demo video or screenshots.
- Frame questions appropriately: Convert the core Van Westendorp questions to fit your SaaS offering and pricing model.
- Include qualifying questions: Add questions that help segment respondents based on company size, role, industry, or other relevant characteristics.
- Consider additional metrics: Questions about feature importance can help with value-based pricing strategies.
For SaaS products, your survey might ask:
"At what monthly subscription price would you consider [Your SaaS Product] to be so inexpensive that you would question its quality and functionality?"
Step 4: Collect Data
Distribution channels for your survey might include:
- Email campaigns to your prospect database
- Customer interviews or feedback sessions
- Professional research panels
- Social media or community forums where your target users gather
Many SaaS companies use survey tools like SurveyMonkey, Typeform, or specialized pricing research platforms like PriceIntelligently or Conjointly.
Step 5: Analyze the Results
The analysis of Van Westendorp data involves plotting cumulative frequency distributions for each of the four price points:
- Plot the "Too Cheap" responses in ascending order (% of people who think the price is too cheap at each price point)
- Plot the "Too Expensive" responses in descending order
- Plot the "Bargain" responses in ascending order
- Plot the "Getting Expensive" responses in descending order
The intersections of these curves reveal four key insights:
- Point of Marginal Cheapness (PMC): Where "Too Cheap" and "Expensive" intersect
- Point of Marginal Expensiveness (PME): Where "Too Expensive" and "Bargain" intersect
- Indifference Price Point (IPP): Where "Too Expensive" and "Too Cheap" intersect
- Optimal Price Point (OPP): Where "Bargain" and "Expensive" intersect
The range between PMC and PME is often called the "acceptable price range" or "range of acceptable prices."
Step 6: Segment Your Analysis
One of the most valuable aspects of pricing research is the ability to segment results:
- By company size (SMB vs. Enterprise)
- By industry vertical
- By user role (technical vs. business)
- By geographic region
According to a study by OpenView Partners, B2B SaaS companies often find price sensitivity varies dramatically between market segments, with enterprise customers typically having a higher acceptable price range than SMBs.
Step 7: Incorporate Findings into Your Pricing Strategy
Your Van Westendorp analysis should inform, not dictate, your final pricing decisions:
- Use the optimal price point as a reference, not an absolute rule
- Consider different pricing tiers that correspond to different segments' acceptable ranges
- Align pricing with your broader business strategy and positioning
- Test whether feature bundling can justify prices at higher points in the acceptable range
Common Pitfalls and How to Avoid Them
When implementing the Van Westendorp method for SaaS pricing research, watch out for these common issues:
1. Respondent Bias
Problem: Respondents often anchor to existing market prices or their current spending.
Solution: Provide clear product value descriptions without mentioning current market prices. Consider using the Gabor-Granger method alongside Van Westendorp for validation.
2. Hypothetical Responses
Problem: What people say they'll pay often differs from actual purchasing behavior.
Solution: When possible, validate findings with actual purchase data or A/B testing of different price points with small segments of your market.
3. Oversimplification
Problem: The method only examines price, not the complex value equation that includes features, service, and brand perception.
Solution: Combine Van Westendorp with feature preference analysis or conjoint analysis for a more complete picture.
Real-World Success: A Case Study
Drift, a conversational marketing platform, used Van Westendorp pricing research when transitioning from a single-tier model to a multi-tiered approach. Their research revealed:
- Enterprise customers had a significantly higher acceptable price range than mid-market customers
- Certain features (like advanced analytics) could command premium prices
- Their optimal price point for their core tier was actually 30% higher than they had initially planned
Using these insights, Drift implemented a three-tier pricing strategy that increased their average contract value by 22% while maintaining their conversion rates.
Conclusion
The Van Westendorp Price Sensitivity Meter provides SaaS companies with a structured methodology for understanding how potential customers value their offerings. When properly implemented, it reveals not just price points but psychological thresholds that impact purchasing decisions.
For SaaS executives, this pricing methodology balances the art and science of pricing. The data-driven approach helps move pricing discussions beyond gut feelings while still accounting for the psychological aspects of how customers perceive value in subscription products.
Remember that pricing research is not a one-time exercise. As your product evolves, your market matures, and competitive dynamics change, revisiting your pricing analysis ensures your strategy remains optimized for both customer acquisition and revenue growth.
Next Steps for SaaS Pricing Optimization
- Combine Van Westendorp with feature value analysis to develop tiered pricing structures
- Test pricing hypotheses with controlled experiments on small customer segments
- Revisit your pricing research annually or when significant product or market changes occur
- Consider how your pricing aligns with your customer acquisition costs and lifetime value models
By implementing rigorous pricing research like the Van Westendorp method, you position your SaaS company to make confident pricing decisions backed by customer insights rather than guesswork.