Van Westendorp Pricing Research: Best Practices and a Worked Example

okay i will go ahead and get started thanks again for joining us um my name is courtney fabit i am the senior project manager um over at accelerant research um i've been doing research either academic or professionally in the industry for almost 20 years which makes me feel old um i also want to thank accelerant and bill just for giving me this opportunity and for my colleagues maureen and sierra for for helping me out on this um so to get started table of contents it's a little long but we'll get through it so um when i'm when we think about pricing research um i immediately go back to my marketing professor days um thinking about price because it's one of the strongest um it has some of the strongest impact on demand and profits um of the four ps in marketing price product placement and promotion it is the only one that is easy to change relatively and can be done quickly and where you can get nearly immediate consumer reactions to that change but when looking out at corporations and out in the business world lots of companies don't really consider consumers willingness to purchase um a lot of times pricing decisions are based on the cost of the product or maybe with competitive pricing in mind as well but really using all three is very important so when we think of pricing analysis i think of the gold standard as being conjoint analysis conjoint is i think considered the gold standard throughout the industry um it was designed to simulate the actual process and the trade-off decisions that consumers go through um when making a decision in the real world yeah as much as you know we can simulate it in a survey and just in case you don't know a conjoint um is where a person answers in a survey they're presented with a bunch of different options in different groupings um and asked to choose which grouping they would buy so say it's on uh cell phones um you might you're gonna include price obviously for doing a pricing analysis um but you might include physical size how big or small it is um the camera specs as different features and attributes and the memory size grouped into different choices and offerings and then respondents go through a series of questions looking at those groupings and choosing which one they're most likely to buy so in that trade-off it reveals the most preferred features for the consumer um and their willingness to purchase with those features however while it's popular um isn't always the best choice um there are times where other pricing analysis are more appropriate um i came up with seven reasons you may have more um but here are seven reasons controlling sometimes isn't the best pricing analysis um one it's just not feasible for the client it could be due to cost control analysis is generally much more expensive um it could be for a lack of understanding either the client the main clan themselves or a difficulty in socializing it um throughout the corporation if it needs to go to sales people or it's going to go you know some information is going to go their customers whatever it may be they just may want something easier two the attributes are not defined so it may be that the client is too early in the product development process um and doesn't know what features or attributes are important to consumers um there's a lot of features they just don't know which ones are important or what options would be available for what features uh how what colors are actually available that kind of thing um so they don't know enough yet the third reason is that the attributes are too complex um you could have a ton of important features um think of me when i'm choosing you know when i chose to buy my house um and you could leave some of those features out but you may leave out relevant ones and there is a limit to how many groupings and how many um you know actual questions you want to show a respondent in a conjoint analysis four on the opposite end of the spectrum the attributes are too limited the product is too simple um you may only have one to two options of one to two features maybe in something like commodities where nothing but price is really of importance to the consumer number five the attributes can't be changed so for instance the product is already made um there's really not budget to change any of the features based on the results um so there's really not a lot of point in looking at attributes in relation to price uh six the attributes are intangible um for some products uh consumers evaluate them based on intel in intangible features um a lot of times where emotions drive more than rational thought um i think of things like luxury products or products that have a very strong brand image where consumers are actually purchasing that name that brand um and then number seven um if the client doesn't know have any idea what the price should be um they have a product where you know based on cost they could sell it for ten dollars but it could be such a product that they could you know they could earn profit at ten dollars but it could be such a product that they really you know consumers are willing to pay a hundred dollars um and enough consumers you know would would be more of a profit so if they don't have an idea on that because there's no competitors out there with similar products they don't have an idea of their target market and they have no clue of price okay so when conjoint is not um appropriate um here at accelerant research we we like our van west indoor uh hence van westy is my bestie um just kind of an overview on van westendorp it is named after its creator dutch economist um peter van westendorp um it's also called the van west store pricing meter or the van western park pricing analysis um it's frequently used um in pricing research by research firms um it is specifically focused on finding an acceptable price um as an indicator of quality and of value of the product it is a survey-based technique um uh used to find a range of acceptable prices so when we do a van western or we concentrate on that range of prices specifically in a van western derp survey respondents are asked to enter specific price points at four four questions we have um what price is so cheap that you question um the quality of the product that would be what we call too cheap um and when we get to actually doing the analysis um it's inverted the cumulative of it is inverted to get our price curves there is what is a low price but still a good value that's what we call bargain a lot of times you'll see it called cheap um or not cheap and things like that um that is accumulative um over to the right you see the price curves table um the third question is what is the price that is expensive but it's worth paying that price the quality is such the value is such that it's actually worth it and that's are not expensive and again we invert that unaccumulative for the um graph of the price curves and then what is a price so expensive that you wouldn't buy this product um and that is our too expensive uh column there again accumulative um from this information we graph the the the price curves that you see there um after we've done the cumulatives and grouped them and all that done the analysis and we we're looking for an optimal price point and the acceptable price range um to determine that okay we have some best practices that we do um when we are doing event western work for a client um after i go through the best practices i'm going to go through an actual example of um research we actually did not for a client just for this um so you can see kind of these best practices in an actual presentation so our first one is to provide lots of product information um before the respondents are asked to price we show a concept or we show uh multiple concepts competitor concepts or a magnetic design of concepts but we provide a lot of product information so the consumers have a sense of what the product is worth if they don't have that product information um they're not gonna be able to enter you know what what we would consider a realistic price um so we provide them with enough product information it's kind of a goldilocks thing you want to provide them with enough information for you know an estimate but you don't want to go too far and provide too much information because as we all know respondents will skip and skim and and all that so best judgment there number two uh do not use van westendorf as a standalone analysis um we put a lot of caveats in our actual presentation in regards to this we like to use vendetta western dwarf in conjunction with additional pricing analysis we use um a willingness to purchase um using different given price points which you'll see in the uh presentation to come or in the report to come number three validate the responses um depending on your software you can do this in real time or do it after while you're cleaning you just want to be sure that too expensive is greater than not expensive is greater than bargain is greater than cheat sheet despite putting instructions as we all know instructions aren't always followed so we eliminate those number four um we make or have made um an expel excel workbook um where we can copy and paste the actual answers the data into that and we have formulas in there for analysis that are done automatically so our um we you know our grouping and our um inverting and accumulation of percentages and graphing into van west and are very much a plug-and-play kind of situation in that spreadsheet so we don't have to do the same work over and over again um number five we're starting here like with client communication so some of our best practices are how we communicate with our client we provide a lot of explanation of the analyses of the terms in those analyses um because the clients are often lay people um when it comes to research or pricing research so we provide detailed explanations in our methodology section so that the client at any point can reference those number six we provide a summary of analyses so in our key findings where we summarize all the findings of the research because of course we're asking evaluated questions as well we also include a summary slide with data from the pricing analyses in a very visual form so the clients have a big picture overview yay or a of what the pricing analyses showed number seven um and this goes for for all research right um customize the report for each client um the client's level of knowledge level of understanding um can differ um as far as research goes and pricing analyses um it may be deep maybe non-existence um or they may you know need to socialize the results we had a client that had trouble with the optimal price points in regards to socializing the results with their sales team um they didn't want the sales team to focus on or their customers for that matter the sales team was talking to to focus on that opp on the optimal price point um they so we removed it and we just focused on that range of acceptable prices um you know we've had clients that are confused by the willingness to purchase analysis um looking at that graph where we were kind of using it to um you know make sure everything in the van western door looks okay we want those two to be consistent um sometimes they get wrapped up because there's exact prices in it so just depending on the client we like to customize the report and go in along with that we want to use visualizations that are suitable for the audience um we created for one of our clients and it's standard now in all of our reports um an additional graph so in addition to the traditional um downwestern door curve um we added in a visualization that to us and to our clients is more understandable of the pricing analyses which you'll see so our actual example of fan western door oh and as you as we go through this if you have questions please put them in the chat and q a and i'll answer them at the end if we have time okay so looking at we start obviously our report with a methodology section so this is the methodology used um for this specific analysis um i made up a product and uh it's uh you know it is an actual product on the market it's relatively new i did not use that name um it is for making cocktails the methodology was just a 10-minute survey nice and short um we didn't want any fatigue or anything like that we surveyed 501 u.s consumers um and going to that validation point well we looked at 501 in the evaluative criteria when we got to the pricing analysis eight of those didn't meet the validation um so they're removed from the pricing analysis um kind of did that on purpose just to emphasize that validation point um this is in our best practices when i talked about including all the terms and information for the methodologies um we have two slides we have the methodology of the van weston north going into detail what questions we ask how we um you know estimate the the optimal price point what the acceptable price range is um we also do an additional kind of look at what we call the desired but expensive desired expensive but worth it price um and that's just a norm we created to analyze the medium too expensive price um we want to see you know we would like to see that desired expensive but worth it be below that too expensive price and be within that range um and things like that and then we also look at the medians of all the analyses and then on our willingness to purchase again we have our caveats um obviously wtp as we all know is very often usually overstated by respondents in a survey so um we do you know tell the clients this is not you know yes we're giving a price um but it's all about relative values and not um actual those actual numbers so the concept itself uh like i said this concept is uh based on a newer product out in the market it was introduced in 2019 um typically in the situation our client provides the concept or concepts um we don't actually make them um you can present the content we present the concept to responders we do not respondents we do not give a price we have open-ended price questions for the van westendorf when we do not want to buy us or have them have a reference to price in their head most of the time again you can do a single concept like i did here very simple you can look at it against competition you can do multiple concepts in a magnetic design whatever you know is best for the client and then after the concept is viewed we ask a series of evaluative questions so for this one looking at the key findings again this was a short and sweet survey so this is a short and sweet key findings um one of the things we asked was you know we wanted consumers to actually enjoy someone in their household actually drink cocktails to take the survey um we found that one-third of consumers drink one to two cocktails per week another three drinks three to six cocktails per week nine percent drink cocktails every day and one quarter drink less than one cocktail in any given week um i don't know where you fall i know where i fall i'm in the one quarter um that's just because cocktails are not my drink of choice um 53 percent of consumers said so when they actually viewed the concept before they had any price and without bias 53 said the hey we are likely extremely likely are likely to purchase this um but once we gave them a price in our willingness to purchase analysis um it decreased to 13 so uh that's a 75 decrease the price we gave is the actual price of the real product on the market um so i didn't just come up with it um 80 of consumers uh said that the concept was much or somewhat better than anything comparable on the market we had a lot of consumers you know compared in their mind um to the keurig um which was or you know the what's the soda maker so to stream something like that um so and we had some open ends in there that they did that relation in their head um and then 73 percent of respondents agreed that the concept was personally relevant to them um obviously this probably makes you know this is why we asked the cocktail question and it makes intuitive sense uh those who drink less than three cocktails per week per week rated um the product significantly lower on all of those measures compared to those who enjoy cocktails more frequently so we'll look at that data in in just a second um from the best practices um this is when i said we do a summary of the pricing analysis and the key findings this is generally what we do what's on the left-hand side may change based on the client and what they want to know and obviously across the top would change based on the cuts that we do here the pricing analyses indicated that neither the total population or any number of drinks those who drink fewer or more cocktails are receptive to that testing price of 369.99 um that testing price was actually much higher for any of the optimal price points for any of those three groups found in the study um those who drank three plus cocktails per week versus those who drink less than three cocktails were willing to pay more um for for the the concept uh but neither one was even close to the test price so looking at the detailed findings um how often cocktails are enjoyed rarely went through but looking at the the three evaluative questions that we asked after uh the concept was viewed um you can see likelihood to purchase before the price was 53 total 64 for three or more cocktails 45 for less than three cocktails um again three plus is is significantly higher than less than three cocktails a week for all three um which again intuitively makes sense okay and then for the good stuff the pricing analyses okay i'm gonna go through the total sample then i'm gonna go through the cut of um cocktails per week so we include another pricing summary for for both of the analysis at the front of this generally when i'm presenting to the consumer or to the client i kind of skip over this one um it's more probably for socialization purposes or if they just need to see something really quick and i just go through the detailed because all this information is in the next couple of slides so the willingness to purchase analysis that we do we look at different price points we start with the test price and depending on their answer whether they answer yes or no um we ask them you know would you pay this as an increase or would you pay this as a decrease um 13 of 13 of the total sample so that they'd be willing to purchase um when the price increased by five percent 388.49 um it resulted in a six percent percentage point decline of um a willingness to purchase and that's a 45 decrease you can see that it's quite a steep decrease um and it drops off very very fast um which is not you know obviously saying price is way too high uh looking at the van weston door this is the traditional graph um we do always show this um for the main client how they socialize it may be different they may use the other one but looking at this you can see on the left we include the medians table and using the information that they gave us looking at the median um the median answer for low but still a good value was 70 um the median value for the price is so cheap i don't think the quality is that good is 35 uh the median expensive but worth it um is 119 where yeah it's expensive but okay worth it at that price um which is vastly lower than our 10 increase in price um and then so expensive would not buy um was the median was 161. so in the traditional graph we show the estimated range of acceptable prices um up there um and then we show you know the optimal price point there which in this case was 95 for total the additional graph that we like to use um is this um it shows i think because it shows all the medians as well as the optimal price point and all that um our clients seem to have found it more understandable um just overall um you can see that the arrows that the arrow represents that acceptable range of prices um each tick mark um the in between is ten dollars so we always even it out in this case the price was so high i kind of had to put an ellipsis in there because the last tick mark before the ellipsis is 170 and then the first tick mark after the ellipsis is 370. so that's accounting for about 200 um and you can easily see you know the optimal price point and the difference between what we tested that visual there's a great distance there um which for me visually graphically um is much easier to intuit than the traditional okay and then looking at the pricing analysis for number of cocktails per week um intuitively you know if you drink more you're gonna be willing to pay more um and that that came out as true consumers who drank more cocktails per week um had higher price points than those who drank fewer so looking at that willingness to purchase analysis um again starting at the the test point there's a seven percentage point difference between the two uh those who drink more 19 said they would buy those who drink less 12 said they would buy um the those who drink less declined quicker um but both are steep declines um when prices increased um and you can see not so steep increases um when prices decreased um just because of that again that vast difference we see between the medians and um the tested price in the van west indoor so those two are backing each other up the information from the wtp is um showing you know consistent information with the van west and dwarf analysis um the range of acceptable prices for our people who drink more cocktails per week um was a larger range um so it's 100 range started at a higher price ended at a higher price than those who drank less cocktails the optimal price point was 105 for those drink more and 85 for those who drink less cocktails and you can see the differences in the medians table there on the left and then looking at the other graph um again slightly easier to intuit at least for me um just showing you can see right off the bat some of the differences um they do start off at different points one starts at 31 starts at 40. beats are 10 increments um and definitely difference in in their prices and um easily seen okay that is pretty much um the information we give to our clients we also of course include our demographic information um for them to take a look at um just to give them ideas they may want certain cuts based on demographics and things like that which they may ask for after seeing this so we always provide that information and that's it that's our best practices for van westendorf and uh you know why we like it uh if we can't do a con joint um plus it's just fun to say and western dork so there's that um thanks for listening um our contact info is here it's my contact info and as well as accelerants um if you have any questions um you can always uh contact us um i don't see if you have any let's see i'm gonna go through chat um generally arlene asks um is conjoint the first choice and then then western door the alternative when you can't do conjoint it depends um if conjoint is not appropriate van west north is our first one it really depends on what information the client is seeking um if we i mean if they want to look at trade-offs between different attributes and price we're all conjuring all the way um if they are looking at you know a product that is new that is um you know there's not a lot of attributes there's not you know that kind of thing we prefer van west and north or other pricing analysis out there um and different firms may use different analyses we just happen to like them less and more um can you walk through how you identify the optimal price from the cumulative curves yeah so once we have done and figured out the cumulative and um inverted cumulative uh we actually um you know you graph those and the optimal price point is that point where uh too cheap and too expensive cross um and you see the approximate sign before the dollar because you're literally using that graph and approximating the price of where those two cross uh cindy s are the contrary in the van westerner the two main methods they are the two main methods we use um there are other methods of pricing like arbor granger um and a few newer uh ones that i'm not as familiar with um that absolutely you can use and it all depends on what the client wants um uh you know what's appropriate um my thoughts on garber granger um who's asking that let's see vanessa asks what my thoughts are on the garbage ranger and when it should be used um i like van westendorf because of its simplicity i think one of the um best features of van west and warp is that it is much easier uh for the client to understand it's much easier for us to present it's much easier for them to socialize and actually use the analysis um than garber granger um honestly the only time i would like to use garbage rangers if the client asked for it um i just prefer and western door pence is my bestie stephen asks do you approach b2b product services any differently to b to b if so what's your approach shift you know um i think the biggest difference at least for me when looking at a b2b um is this information is going to be used by their sales team probably to talk to their customers right uh there's going to be probably a much more um emphasis on uh socializing it and that that respect um and the information is going to be used slightly different in b to c i'm using it to determine a price there in b to b i'm still determining the price but it's the price that my customer is going to be selling to the consumer so oftentimes i'm using this as information to show them you can increase the price um we've been charging this for you know we've been charging twenty dollars for 20 years and consumers you know recognize that inflation and other costs have gone up and they're actually willing to pay 35 um or their price range is anywhere from 15 to 45 that kind of thing um so we present it differently because they're going to present it differently so there is a bit of a shift there gail oh thank you gail she likes our alternative visual i do too i just find it much more easy um and my buddy michael is there an obvious scenario where you wouldn't want to consider using van west endorp um when conjoint is appropriate uh would probably be my answer there so um when you know we are looking at a given set of um features um and each feature has you know enough different combinations that it's going to fit in a conjuring it's going to look good i think yes absolutely that's going to provide a much more realistic information the end the end product is fun because the the the client themselves get to play with the price and kind of see how it would differ um and the features and how the price would differ and things like that at the end um so yeah when it's appropriate that i definitely that's the gold standard if you you know um have any questions in the future again feel free to email me um i'm more than happy to to share my thoughts um i'm an open book uh so um again thank you thanks excellent thanks bill thanks sierra thanks maureen um i appreciate you guys listening i appreciate your questions that's fantastic um and i hope you all have a great day