Price Sensitivity Measurement (PSM) is a tool used to measure the preferences of customers to identify the optimum pricing of goods and services to maximize profit. This involves a process of presenting customers with different prices for a product and recording their response. From the observations, marketers can analyze the willingness of customers to purchase certain goods and services, and adjust pricing and strategies accordingly.
This tool is especially useful for companies, who usually have to make decisions about the prices of their goods. This is because prices and demand are linked, so companies should adjust prices to meet customer preferences in order to maximize their profits. For this reason, PSM gives marketers a greater understanding of customers’ price-sensitivity, which helps them to make more informed decisions about product placement and pricing.
To accurately measure price sensitivity, it is important that the survey properly simulates the real-life purchase situation. This means that respondents should be asked to choose products between two predefined prices, with the opportunity to opt out of products that are too expensive. The survey should also consider the impact of price on perceived quality, as well as the consumer’s expected trade-off between quality and price.
There are several different methods for conducting a PSM survey. These include:
• Van Westendorp Price Sensitivity Meter (VWS) Method: This is the most commonly used PSM method which involves the respondent being asked to consider a maximum and minimum price they are willing to pay for a product.
• Discrete Choice Experiment (DCE): This method involves presenting the respondent with a set of choices which analyze how customers respond to different price points when presented together with different levels of product quality and features.
• Adaptive Conjoint: This method involves an examinator asking the customer to answer a series of questions which are pattered to their preferences.
• Choice-based Conjoint: This method involves the respondent being presented with a range of options with different features and prices, and then asked to select the option most preferred for them.
PSM is a versatile tool for executives, who can use feedback from surveys to make more informed decisions about product placement, gaining an understanding of customers’ preferences when it comes to price points. It is also a cost effective way to get feedback from customers and improve planning, as it requires minimal resources for administration and analysis.
Moreover, PSM surveys can be used to gauge the marketability of new products. By collecting feedback from a selection of customers, companies are able to gain an understanding of the market position of their product, and make adjustments to the product range, price and positioning accordingly.
Ultimately, PSM is a powerful tool that can help any company become more competitive and profitable, by understanding exactly what customers are willing to pay for their products. By adjusting price points and product features to meet customers’ expectations, companies can benefit from increased sales, higher margin and greater market penetration.
