For quite some time now, I've been teaching entrepreneurs about the benefits of value pricing.

(Check out Does Size Really Matter to learn why this strategy makes so much sense for small businesses.)

But, I was today years old when I learned about Dutch economist Peter van Westendorp's Price Sensitivity model, which he developed in the 1970s.

To determine psychologically acceptable price ranges for products or services, he created 4 research questions to ask target audiences.

If you've ever conducted customer research yourself or been part of someone else's research, then you're probably familiar with one of the most common questions asked—

How much would you pay for this?

I've said before how useless I think this question is because people tend to low-ball the value to them for a variety of reasons. (See Breakthrough Techniques for more on this.)

But Westendorp's questions are designed to help you find the sweet spot of your target audience's price sensitivity without actually asking them to name their 'ideal' price.

Here's my version of his 4 key questions to ask your audience to gauge their price sensitivity:

1. At what price is this offer too cheap to trust its quality?
2. At what price is this offer a bargain to you?
3. At what price does this offer start to feel expensive?
4. At what price is this offer too expensive for you to consider purchasing?

By analyzing responses to these questions, you'll be able to identify patterns that will reveal:

• An acceptable price range for your target audience
• An optimal price point, and
• The outer limits of your audience's perceptions of value.

I particularly appreciate the simplicity of this approach to evaluate what is a rather complex and difficult to measure topic, but oh so critical to understand.

It's important to note that you can't just go out and ask people these four questions and find your magic pricing bullet.

You need to make sure that through your research prep and the other questions you're asking leading up to pricing that you communicate the deep value and impact of what you're selling.

Otherwise, the answers will be just as useless to you as if you asked them to name their price.

Need some help defining a pricing strategy that works for both your customers and your business, book a session with me today.

Until next time,

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P.S. If you missed it, last week I explained how not to get trapped playing The Waiting Game.
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