Price Optimization - A Comparison: Gabor-Granger Method vs. Van Westendorp’s Price Sensitivity Meter

Similarities

• Objective: Both aim to optimize pricing strategies based on consumer feedback, helping businesses understand how much customers are willing to pay for a product or service.
• Market Research Tools: Utilized within market research developed to gather direct input from consumers regarding pricing.
• Data-Driven Decision Making: Provide insights that support informed pricing decisions, ensuring strategies are grounded in consumer perceptions.
• Scalable standardized research models that allow comparison and benchmarking between tests and automation with minimal adaptation between tests.

Differences

Use Cases:

1. Van Westendorp is ideal for:

• Finding the impact of price on a whole category of products.
• Situations where a company wants to understand the reasonable maximum and minimum price of offerings in general.
• Identifying the optimal range of pricing in a category and the mental price barriers to avoid going under or over.

2. Gabor Granger is better suited for:

• Determining price points for specific products/concepts.
• Scenarios require a precise predicted price that optimizes the sales and revenue of a concept.
• Estimating how price increases/decreases of a specific product would change volumes sold.

Methodology:

• Van Westendorp's Price Sensitivity Meter asks consumers to specify price points at which they would consider a product to be too cheap (questioning its quality), cheap/bargain, expensive (but still consider buying), and too expensive (not consider buying).
• This method identifies a range of acceptable prices for a product category.
• Gabor Granger involves asking consumers whether they would buy a product at a specific price point and then adjusting the price randomly up or down based on their responses.
• This method seeks to find a single optimal price point that maximizes revenue/gross margin for a specific concept.

Output:

• Van Westendorp provides a range of acceptable prices and highlights the optimal price where most consumers are likely to perceive the product as fairly priced.
• Gabor Granger identifies the price at which the balance of price and demand is optimal.

Examples of Application

1. Van Westendorp's Method:

• Should Use: A company planning a range of products in a category can use Van Westendorp's method to understand what price range consumers find reasonable to avoid placing offerings under or above mental price barriers.
• Shouldn't Use: It might not be as effective for specific products with well-defined market expectations and prices.

2. Gabor Granger Method:

• Should Use: A company looking to price a new version of an existing product can use Gabor Granger to pinpoint the price that maximizes the revenue and gross margin for that specific concept.
• Shouldn't Use: For broad, completely new categories or products where consumers have difficulty determining expectations and product value delivered, Gabor Granger might not capture the real value and willingness to pay for the specific concept offered.

Choosing the Right Method

The choice between Van Westendorp's and Gabor Granger's methods depends on the specific needs of the client and the product scenario. If the goal is to explore the optimal price range and understand consumer perceptions of reasonable prices, Van Westendorp's method offers comprehensive insights. Conversely, if the aim is to identify an exact price point that maximizes revenue for a defined product offering in a competitive market, Gabor Granger's direct approach provides more specific guidance.

Need to decide between Van Westendorp's and Gabor Granger's methods for your pricing strategy needs? Let's dive deeper together. We're here to guide you through selecting the approach for your needs, data insights, and beyond. Reach out for a consultation and we are happy to discuss the best way forward.