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The Van Westendorp Price-Sensitivity Meter As A Direct Measure Of

Willingness-To-Pay

Article · June 2016

DOI: 10.18374/EJM-16-2.4

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 THE VAN WESTENDORP PRICE-SENSITIVITY METER AS A
DIRECT MEASURE OF WILLINGNESS-TO-PAY

ABSTRACT
In order to determine optimal prices, it is useful to have valid measures of customers' willingness-to-
pay for a product (good or service). Several methods to measure willingness-to-pay have been
discussed and compared in the literature. The authors contribute to this discussion by comparing the
direct and hypothetical Van Westendorp Price Sensitivity Meter to classical, direct willingness-to-pay
measurement methods, namely contingent valuation and the Becker-DeGroot-Marschak mechanism.
Results indicate that the Van Westendorp Price Sensitivity Meter yields biased results because of its
hypothetical nature and its focus on minimum customer resistance. However, the authors find it to be a
method of high predictive quality for eliciting willingness-to-pay since the measurement results are
comparable to those of the incentive-aligned Becker-DeGroot-Marschak mechanism.

Keywords: Pricing, Willingness-to-pay, Van Westendorp Price Sensitivity Meter, Becker-DeGroot-

Marschak mechanism, Pricing Experiments.

1. INTRODUCTION
Of all marketing instruments, the price is the one with the strongest impact on demand and profits.
Price changes can be implemented quickly and customer reactions are often immediate. A common
mistake of companies is that pricing decisions are often based on costs and/or competitors' prices
while customers’ willingness-to-pay is neglected. This usually results in setting a price that is too low.
Moreover, once a low price for a product has been established as a reference point in the mind of
customers, later "corrections" towards higher prices become very difficult. Hence, valid estimates of
customers' willingness-to-pay are essential to design optimal pricing strategies.

A simple, frequently used and practical approach that may deliver cues for (nearly) optimal prices is
the Van Westendorp Price Sensitivity Meter (van Westendorp, 1976). Despite its frequent use in
practice, it is still unclear whether this method is able to provide valid measures for willingness-to-pay,
and how it is linked to classical willingness-to-pay measurement approaches, both empirically and
theoretically.

The authors contribute to the literature on pricing and measuring willingness-to-pay by studying the
link between the Van Westendorp Price Sensitivity Meter and two common other methods to elicit
willingness-to-pay, namely contingent valuation (which is even simpler) and the Becker-DeGroot-
Marschak mechanism (which theoretically yields valid measures of willingness-to-pay but is much
more complex).

In the next chapter, the paper reviews (direct) methods of measuring willingness-to-pay. After that, the
authors conduct a field experiment for a frequently purchased, low-priced chocolate product (i.e.,
Mozartkugel) to compare mean willingness-to-pay and optimal prices across three measurement
methods, i.e., contingent valuation, the Becker-DeGroot-Marschak mechanism, and the Van
Westendorp Price Sensitivity Meter. After presenting and discussing the results and deriving some
implications of the experiment, the paper summarizes and presents some limitations.

2. DIRECT METHODS OF MEASURING WILLINGNESS-TO-PAY

The concept of willingness-to-pay (WTP), also referred to as the reservation price, is based on the
hypothesis that each potential buyer of a product is willing to pay a maximum price which is the
monetary equivalent to the consumer's utility gained by this product (Kalish and Nelson, 1991, p. 32).
In other words, WTP is the price at which a consumer is indifferent between buying the product and
forgoing the transaction. Several methods to measure consumers' WTP have been discussed in the
literature (e.g. Breidert et al., 2006).

WTP may either be obtained from revealed preferences (e.g. observed market transactions) or from
stated preference data (e.g. surveys). Surveys can be further divided into direct and indirect methods.
Another distinction depends on whether stating the WTP entails an actual purchase of the product or if
the task is merely of hypothetical nature (see Table 1). Each approach has different strengths and
limitations and, hence, its application depends on the specific situation.

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 TABLE 1: OVERVIEW OF METHODS TO ELICIT WILLINGNESS-TO-PAY

Stated Preferences Revealed Preferences

Hypothetical
Contingent Valuation,
Direct
Van Westendorp PSM
Indirect Discrete-Choice Analysis
Incentive-Aligned
Market Data,
Becker-DeGroot-Marschak Field Experiments,
mechanism (BDM) Lab Experiments,
Incentive-Aligned Discrete- Auctions
Choice Analysis

A very simple way to forecast consumers’ reactions to price changes is to directly ask consumers
about their WTP. This direct elicitation method, also referred to as contingent valuation (CV) or price
matching, asks respondents to specifically state their WTP for a given product (Backhaus et al., 2005,
p. 545) and has been subject of various studies reported in literature (Abrams, 1964; Stout, 1969,
Gabor et al., 1970).

In spite of cost and time advantages with respect to other elicitation approaches, CV methods also
exhibit problems. An important aspect influencing the results of CV surveys is the hypothetical nature
of the questioning. A hypothetical bias results from the fact that a respondent's statement has no
further implications on his immediate situation (the respondent will neither pay for nor receive the
product). Wertenbroch and Skiera (2002) doubt the external validity of hypothetical surveys as they
provide little incentive to customers to reveal their true WTP (which is then overestimated). Reviews of
discussing the hypothetical bias in the context of CV can be found, e.g., in Diamond and Hausmann
(1994) & Harrison and Rutström (2008).

In contrast, the direct Becker-DeGroot-Marschak (BDM) mechanism by Becker et al. (1964) is

designed as a lottery which is (at least theoretically) incentive-compatible, thereby mitigating the effect
of hypothetical bias. Subjects are asked to name the maximum price they are willing to pay for a given
product (as a bid). The selling price is then determined at random from a lottery with a given
distribution of prices that is unknown to subjects. If the randomly drawn selling price is lower than or
equal to the stated bid, subjects have to buy the product at that random price. Otherwise, if the
random price exceeds the bid, the product cannot be purchased. With BDM, subjects have an
incentive to reveal their true valuation of the product, i.e., revealing their true WTP. Since they do not
have to pay their own bid (but the random price) in case of winning, subjects cannot improve their net
utility by over- or underbidding their true WTP.

Van Westendorp’s Price Sensitivity Meter (PSM) (van Westendorp, 1976) involves direct questioning
similar to CV. It is often applied as an initial exploratory step to determine prices for new and highly
innovative products (Lyon, 2002). The PSM does not ask for a single value but for four different price
points (van Westendorp, 1976; Kupiec and Revell, 2001; Roll et al., 2010):
1. At what price do you consider the product to become inexpensive but you would still consider it to
be a bargain? (Cheap)
2. At what price do you consider the product to become expensive but you would still consider
buying it? (Expensive)
3. Above what price would the product become too expensive so that you would not consider buying
it? (Too expensive)
4. Below what price would the product become so inexpensive that you would doubt its quality and
not consider buying it? (Too cheap)

Responses to these four questions are prices whose frequencies are cumulated and plotted for
analysis. Van Westendorp creates two additional curves, “not cheap” and “not expensive”, which are
the reverses of “cheap” and “expensive”, respectively. Hence, a total of six curves are plotted. Van
Westendorp identifies four critical price points from the intersections of the graphs which are used to
approximate an acceptable price range (Kupiec and Revell, 2001, p. 14).
 Point of marginal cheapness (PMC): The price at which the same proportions of respondents
experience the product as “not cheap” (inverse of “cheap” curve) and “too cheap”.
 Point of marginal expensiveness (PME): The price at which the same proportions of
respondents experience the product as “not expensive” (reverse of “expensive” curve) and
“too expensive”.

2
  Optimal pricing point (OPP): The proportions of respondents deeming the product as too
expensive and too cheap are (quite low and) the same.
 Indifference point: Can be considered as the "normal" price at which the proportions of
respondents that feel the product is cheap and expensive are the same.

Figure 1 shows a PSM as a result of the plots of cumulated frequencies. Note that the indifference
point is not of importance for the current analysis and, hence, the curves “expensive” and “cheap” are
omitted from the graph.

FIGURE 1: THE VAN WESTENDORP PRICE SENSITIVITY METER (BASED ON VAN

WESTENDORP 1976)

The main result from constructing a PSM is an “acceptable price range” for the product which lies
between the points of marginal cheapness and marginal expensiveness. The OPP is considered to be
the best price one can set. PSM is criticized to lack both, sufficient information for a final pricing
decision as well as a theoretical foundation (Roll et al., 2010, p. 185). Roll et al. (2010) propose a new
interpretation of the PSM allowing for a derivation of a price response function from the data. The
authors argue that when considering the four PSM questions, the one asking "At what price do you
consider the product to become expensive but you would still consider buying it?" (expensive) reveals
the respondent’s WTP. Therefore, a price-response function can be obtained by horizontally inverting
the corresponding curve "expensive". After that, profit- and revenue-maximizing prices may be
derived. Opposed to OPP, we call this pricing approach “PSM Expensive” in the following.

3. EMPIRICAL STUDY
Despite the frequent use of the Van Westendorp PSM in practice, this method is often omitted in the
ongoing debates on how WTP should be measured. To the best of our knowledge, a comparison
between classical point-based WTP measurement approaches, such as CV and BDM, and the Van
Westendorp PSM has not yet been reported in the literature. The present study is the first to compare
WTP measures from different methods. An experiment is conducted where WTP is measured by three
direct methods, i.e., the CV, the BDM, and the PSM. In this experiment, the CV is considered to
induce a measurement error, e.g., by the hypothetical bias, and the BDM is considered to be able to
elicit the respondents’ true WTP. Hence, measurement results of the PSM can be evaluated against
the other two measures to derive implications for the predictive WTP measurement quality of the three
approaches (see also the findings of Miller et al., 2011).

3.1 Subjects and Procedure

In our study, CV, BDM and PSM are applied to obtain WTP estimates for a frequently purchased, low-
priced product. A Mozartkugel ("Kugel" = ball), a piece of filled chocolate containing pistachio
3
marzipan as well as nougat cream, is used as a stimulus. A total of N = 253 randomly selected
consumers participated in the three experimental groups of the study: 95 in CV, 68 in BDM, and 90 in
PSM. The study is conducted in the city center of Aachen, Germany, in the vicinity of shops and
stores. All interviews are carried out by the same interviewer who approaches subjects individually and
introduces himself as an academic marketing researcher from the local university.
In order to control for environmental circumstances that might have an effect on the demand for the
product, the study is performed under comparable weather conditions on six days within two
consecutive weeks. Consumers are randomly assigned to one of the three groups to account for
comparability of conditions.

Subjects in each group are shown a packaged Mozartkugel as well as a picture of its cross-section to
reveal the layered structure of the filled chocolate. This is to ensure that each subject received the
same information about the product prior to participating in the study. The brand of the manufacturer
is not explicitly revealed to avoid anchoring effects with market prices. Consumers who indicated that
they do not like Mozartkugeln are not included in the survey as their individual WTP for the product is
equal to zero. The same rule applies to consumers who do not know Mozartkugeln but state that they
do not like one of the main constituents, such as marzipan. In contrast, consumers who do not know
Mozartkugeln but expressed an interest in the product based on the information provided, are included
in the study since they thereby belong to the group of potential customers.

3.2 Questionnaire Design

Each subject who agrees to participate in the study is asked to fill out an anonymous survey form,
based on the individual experimental group. Along with the WTP, sociodemographic (gender, age) and
socioeconomic characteristics (monthly income after taxes in Euro: <1000; 1000-2000; >2000) are
recorded to allow for comparability between groups.

The CV method is conducted in an open-ended format asking the participants to state the maximum
amount of money (in Euro) they would be willing to pay for a single Mozartkugel. In the BDM
mechanism, each participant is offered one Mozartkugel for purchase. The specific instructions are
based on those in the study by Wertenbroch and Skiera (2002). The distribution of prices in the urn is
uniform: Prices ranged from 0.05 Euro to 1.00 Euro in 5 Cent increments. The distribution as well as
the upper and lower bounds are kept secret from the participants to avoid anchoring effects (Bohm et
al., 1997). If participants asked for it, it is merely stated that the distribution resembles a realistic range
of prices that any real buyer is believed to be willing to pay. The Van Westendorp method consists of
the four previously mentioned questions that each subject has to answer with regards to one
Mozartkugel.

3.3 Results
Since the collected data is not consistently normally distributed, the nonparametric Mann-Whitney-U-
Test is used to test for significant differences in WTP between the three experimental groups. No
significant differences between the three groups in terms of sociodemographics and socioeconomics
are found. Hence, differences in WTP are a result of the different measurement methods applied and
not due to sample characteristics. Figure 2 illustrates the cumulative distributions of WTP for CV and
BDM. The curves show the number of respondents willing to buy the product as a function of the sales
price. Additionally, nonlinear regressions are performed in order to predict observed price responses.
The curve for BDM is much steeper than the curve for CV, indicating that subjects’ measurement of
WTP is lower for BDM than for CV.

The individual WTP range for one Mozartkugel is between 0.10 Euro and 3.00 Euro in the CV format
and from 0.10 Euro to 1.00 Euro in BDM. Mean WTP for CV is 0.80 Euro (standard deviation SD:
0.68) and for BDM 0.41 Euro (SD: 0.23). The Mann-Whitney-U-Test yields significant differences (p <
0.0001) between the respective mean WTP (see Table 2 below).

4
 FIGURE 2: OBSERVED DATA (SOLID LINES) AND PREDICTED CURVES BY NONLINEAR
REGRESSION (DASHED LINES): CV (LEFT), BDM (RIGHT)

The results generated by the Van Westendorp PSM are shown in Figure 3. The acceptable price
range located between the points of marginal cheapness and expensiveness is 0.20 to 0.76 Euro. The
optimal pricing point (OPP) lies at 0.40 Euro. Mean WTP determined by the hypothetical CV is located
outside of this acceptable price range toward prices that are considered too high. Mean WTP
measured by BDM lies well within the interval and is also in close proximity to the optimal pricing point
(0.40 vs. 0.41 Euro).

FIGURE 3: VAN WESTENDORP PRICE SENSITIVITY METER (MOZARTKUGEL)

The interpretation of the PSM proposed by Roll et al. (2010) uses the data gathered by the PSM
question “expensive” to obtain a price response function (which is the horizontal reverse of the curve
“expensive”). Figure 4 shows this price response function applied to the PSM data.

5
FIGURE 4: PRICE-RESPONSE CURVES FOR PSM EXPENSIVE: OBSERVED DATA (SOLID LINE)
AND ESTIMATED CURVE BY NONLINEAR REGRESSION (DASHED LINE)

The individual price points range between 0.15 and 3.00 Euro with a mean of 0.79 Euro (SD: 0.59).
These results are very similar to the ones obtained by the CV method. Figure 5 visualizes the
similarities of the results based on the respective predicted price-response functions. For purposes of
comparison, the quantities are normalized by dividing the predicted values by the corresponding
number of respondents in each experimental group. The Mann-Whitney-U-Test (p = 0.567) does not
yield differences in means between CV and PSM Expensive (Table 2).

FIGURE 5: COMPARISON OF ESTIMATED PRICE-RESPONSE FUNCTIONS:

CV VS. PSM EXPENSIVE

The predicted price response functions are now used to estimate the optimal (i.e., the revenue
maximizing) price for each measurement method (see Figure 6). Since information on variable costs
for a Mozartkugel is not readily available in our study, the respective profit maximizing prices are not
calculated.

6
 FIGURE 6: ESTIMATED REVENUE FUNCTIONS FOR CV, BDM & PSM EXPENSIVE

Note that all three point-based approaches result in different revenue-maximizing prices. BDM predicts
the lowest value of 0.36 Euro followed by PSM Expensive at 0.70 Euro (94% higher) and CV with a
price of 0.83 Euro (131% higher). While the prices of PSM Expensive and CV are both located outside
of the acceptable price range of the PSM, the value of BDM lies within the lower half of the interval
close to the OPP. Table 2 provides an overview of the results.

TABLE 2: MEAN WILLINGNESS-TO-PAY [EURO], STANDARD DEVIATION IN PARENTHESES

AND OPTIMAL (REVENUE MAXIMIZING) PRICE [EURO] OF CONTINGENT VALUATION (CV),
BDM AND PSM EXPENSIVE; ACCEPTABLE PRICE RANGE AND OPP [EURO] OF PSM
CV BDM PSM Exp. PSM
(n = 95) (n = 68) (n = 90) (n = 90)
Mean WTPa 0.80b 0.41b,c 0.79c --
(Standard deviation) (0.68) (0.23) (0.59)
PSM Price Range --. -- -- 0.20 – 0.76
Optimal price (Rev.max.) 0.83 0.36 0.70 --
PSM Optimal pricing point (OPP) -- -- -- 0.40
aMann-Whitney-U-Test: CV/PSM Exp (p = 0.567).
b,c
Values with the same superscripts differ at p < 0.0001 in a Mann-Whitney-U-Test.
Note: -- = not applicable.

3.4 Discussion
Differences in mean WTP between BDM and CV have also been reported in previous studies and are
attributed to the existence of hypothetical bias (Wertenbroch and Skiera, 2002; Miller et al., 2011).
Subjects in the hypothetical format tend to state significantly higher WTP than participants who
actually have to face the monetary consequences of their responses in the BDM mechanism.
According to Wertenbroch and Skiera (2002), the key to the BDM performance is the incentive
constraint that helps consumers to determine their WTP on the basis of a point-of-purchase situation
(Wertenbroch and Skiera, 2002, p. 238). Contributing to the literature on measuring WTP, our study
finds that differences in means between a hypothetical and incentive-aligned measurement approach
also hold true when comparing BDM with PSM Expensive (Roll et al., 2010).

The optimal (i.e., revenue maximizing) price is based on the whole distribution of WTP via the price
response function. Hence, it contains more statistical information on WTP than the simple mean. It is
lower for PSM Expensive (0.70) than for CV (0.83). There are at least two possible sources for this
result: First, the direct questioning of participants differs. While in the CV / BDM mechanism subjects
are specifically asked for the “maximum price” they are willing to pay, in PSM Expensive subjects are
asked for an “expensive but acceptable price”. This is not exactly the same as regarded by Roll et al.

7
(2010), but a slightly different question. Hence, we cannot rule out that subjects provide different
answers to these questions.
Second, PSM is constructed by asking subjects to state their respective floor and ceiling prices for the
product, and some price points inbetween. This is in line with the idea of using range-based rather
than point-based methods to estimate WTP which has recently been discussed in the marketing
literature (Wang et al., 2007; Dost and Wilken, 2012). Dost and Wilken (2012) argue that when
consumers are asked about a single WTP (a “point”), they try to state a "best guess" which may be an
average over their experiences and retrieved preferences. When explicitly asked for floor and ceiling
reservation prices, however, respondents state WTP ranges reflecting uncertainty about their exact
preferences, therefore revealing variance in their individual WTP (Dost and Wilken, 2012, p. 160). A
range may be easier to state for subjects and also yield a better characterization of the WTP
distribution. To sum up, the lower optimal price of PSM Expensive in comparison to CV may be due to
this range-based questionnaire design and/or the slightly different phrasing of the price question.

Finally, the optimal price based on the PSM Expensive curve (0.70) is much higher than the OPP
according to the Van Westendorp PSM (0.40). Although not exhibiting an incentive constraint, OPP is
able to produce similar measurement results to those of the BDM mechanism when comparing both
OPP with mean WTP and optimal price, respectively. Technically, the OPP is not the mean or the
maximum of a single function but an intersection of two cumulated frequency distributions. At the OPP,
an equal number of subjects believes the product is too cheap or too expensive (13% for each case in
this study). Hence, a maximum number of subjects, i.e., the remaining 74% (=100%–213%), perceive
this price as “normal”. OPP represents a price at which the resistance against it is the lowest (van
Westendorp, 1976, p. 150). In summary, OPP yields the “price of customers’ least resistance” while
the mathematical optimization yields the “price at which customers’ buying behavior is best” from a
firm’s perspective (resistance does not matter here).

Compared to BDM, OPP yields a similar price recommendation here. Hence, the authors believe that
PSM may be a useful indicator for guiding companies in their pricing decisions while also exhibiting
strong advantages with respect to time and cost efficiency. However, starting at the optimal price
according to BDM which is based (at least theoretically) on unbiased preferences, the OPP according
to PSM is a hypothetically biased price with minimum customer resistance. It seems that these effects
cancel each other out in the data: The hypothetical bias yields higher values for recommended market
prices, and the focus on minimum customer resistance instead of optimized prices lowers
recommended market prices.

4. CONCLUSION
The empirical study for a frequently purchased, low-priced product investigates the Van Westendorp
Price Sensitivity Meter as a method to elicit willingness-to-pay. Van Westendorp’s “optimal pricing
point” is able to reproduce the measurement results of the incentive-aligned Becker-DeGroot-
Marschak mechanism combined with the time and cost advantages of a direct hypothetical survey.
Willingness-to-pay according to the Becker-DeGroot-Marschak format are located in close proximity to
the optimal pricing point of the Price Sensitivity Meter whereas the mean willingness-to-pay and the
revenue maximizing price of the contingent valuation remain outside of the acceptable price range of
the Van Westendorp Price Sensitivity Meter. However, the high predictive quality of van Westendorp’s
optimal pricing point may be the result of two biases cancelling each other out in the data: The
hypothetical bias and the immanent approach to minimize customer resistance. Additional studies are
necessary to further investigate this issue. The study also shows that the interpretation of the Price
Sensitivity Meter by Roll et al. (2010) which proposes isolating the “expensive” curve to analyze its
price response function nearly reproduces the undesired results of the hypothetically biased
contingent valuation and should therefore be omitted in applications.

Empirically, while the present study only considers a single product, more studies are needed that
consider different product categories, especially more expensive and industrial products. Further
studies may investigate whether the result that the optimal pricing point yields similar price
recommendations to the Becker-DeGroot-Marschak mechanism extends to these other products and
categories.
Furthermore, it would be worthwhile to uncover whether order effects exist with respect to the four
questions comprising the Van Westendorp Price Sensitivity Meter that might have a significant impact
on the results. Answers to these research questions will help clarify the predictive quality of the Van
Westendorp Price Sensitivity Meter in a wider range of circumstances.
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