Simply approach your existing customers, ask them these four questions and draw the graph: you will get the answer you want. How do you price your products?
The year was 2021.
The situation: We were preparing to launch a new men’s body wash that promised to deliver the freshest shower experience yet.
The problem: It was the first time we were launching a shower gel for men.
Our team had no experience in marketing men’s shower products.
Naturally, we did what most hobbyists would have done in this situation: take the products of our closest competitors and match the marketing they had done for them.
That includes copywriting (finding the best shower-related terms), campaigns (more in-store activations than you can dream of), and pricing.
And the result?
The new product was a complete failure. It was one of the biggest marketing failures in the history of our company.
It wasn’t until many months later, when we conducted our annual consumer focus group, that we discovered the main reason for this catastrophe.
It’s not that the product wasn’t good; in fact, users said they loved it.
It wasn’t that the marketing wasn’t good: everyone easily understood our unique selling point.
It was the price.
They all expressed the same complaint: the price was too high for them.
“Didn’t our competitors have a similar price? What went wrong?”
And more importantly, how the hell does one know what the perfect price is for their products?
If the above situation sounds familiar to you, don’t worry: you’re not alone. Thousands of marketing professionals suffer from the same headache every day.
And it’s even worse when it comes to a category you’ve never ventured into. After all, you can only work with a limited amount of reliable data.
So the golden question is: how can you price your new products exactly to what consumers are willing to pay for them?
Van Westendorp’s price sensitivity meter.
Hailed as one of the best business pricing models ever created, this meter is designed to help you find that sweet spot for your product through four simple questions to ask your consumers.
And in case you have any doubts, don’t worry: I have personally tested this price gauge in my marketing launches over the past three years with great success.
Thanks to this pricing model, the aforementioned liquid soap series was successfully relaunched and is now one of our best-selling shower products to date.
Okay, enough rambling, let’s get to the quiz:
To make it more effective, conduct it with a research company on a focus/consumer group of at least 30 people or more. This will increase the reliability of the results.
«At what price would you consider the product to be so expensive that you would not consider buying it?»
The aim of the first question is simple, but fundamental: to find out what the consumer’s maximum spending limit is. In other words, if the price of the product exceeds that limit, there is nothing to be done: no one will think twice before rejecting it.
Let’s take the previous body wash as an example. Initially, the 18-ounce bottle was sold for $9. Compared to Method Men (an established brand of men’s shower products), a similarly sized bottle was only around $8. Worse, we were barely established in this space, making our consumers less willing to spend more on us. Through this survey, we found that our consumers wouldn’t spend a penny more than $7 on our product. Just imagine: a mere $2 difference was the sole driver of our marketing campaign. Price really matters. But we’re just getting started:
Once you’ve found the upper limit of your product’s price, the next natural step would be to find the lower limit. But wait, the lower limit? Is there such a thing? After all, you can set the lowest price possible to maintain the greatest competitive advantage, right?
Well, no. You’ll understand when you see the second question: “At what price would you consider the product to be so low that you would feel the quality can’t be very good?” Yes, too low a price is actually a bad thing. Think of a $100 Louis Vuitton bag. Or a $50 pair of AirPods. You’d be suspicious of these products, right? Because it implies that the quality of the product may be questionable (even if that’s not necessarily true) and that in turn will damage the brand image.
This question is essential because it helps you discover the lower price limit for your products, one that tells your customers that your products are reliable.
Let’s move on to the third question.
Ok, so we know the upper and lower price limits for our product.
It’s a good starting point, but we need to know more. After all, the range between the maximum and the minimum can be enormous.
That’s why we need this third question:
“At what price would you consider the product to be expensive, so it’s not out of the question, but you’d have to think about it a bit before buying it?”
The goal of this question is simple: we want to find the price point at which people will start debating whether or not your product is worth it.
It also happens to be the price point at which you can potentially make the most profit from your product, simply because this point represents the maximum limit at which you can price your product.
For example, with body wash, we found that at $6.50 a bottle, people said they would continue to buy our product, but they would also start looking at other options in the market.
You may have also noticed that the difference between the answers to the first and third questions is just $0.50 – yes, that’s how price-sensitive some products can be.
Which brings us to our final question:
We all love a bargain.
In fact, many of the everyday items we buy are often bargains (think toilet paper, frozen meat, etc.). We want to know we’re getting a good deal.
So the last question is:
“At what price would you consider the product to be a bargain, a great buy for the money?”
It’s that simple. This question exists only to help you see if you can lower the price of your product a little (at the expense of profit, of course) to sweeten the deal for your consumers.
Now that we have answered these four questions, how do we use them to get the perfect price?
Once you have plotted your survey results, you will end up with something that looks like this.
How do you read this graph?
Well, first, you can check your price range by looking at what’s between the intersections of (expensive, too cheap) and (cheap, too expensive). (Essentially, the range between the leftmost intersection and the rightmost intersection.)
In this case, it is between $6.60 and $11.
Now let’s move on to the most important question: what is the perfect price point?
Just check the intersection of Too Cheap and Too Expensive. In this case, it’s $8.20.
And the reason for this is because, at this point, you’re going to have the least amount of people saying that your product is too expensive and/or too cheap.
Survey completed!
Four simple questions and you already have the perfect price for your product.
The best thing about this methodology is that it can be carried out with hardly any resources.
Simply approach your existing customers, ask them these four questions and draw the graph – you will get the answer you want.
How do you price your products?
