Price Sensitivity Measurement
Price Sensitivity Measurement (PSM for short) is a method for measuring consumers’ price expectations that has been tried and tested for many years. It very reliably determines a price range – usually for products or services already launched on the market – within which the greatest expected acceptance lies. A PSM analysis is useful, for example, when a price increase is planned or in comparison with competing products.
The PSM not only shows the price range that reflects the price-performance perception of the consumers of a certain category. It also determines an optimal price point, which can serve as an important indicator for a pricing strategy. To determine this data, consumers are asked about prices they perceive as either too low or too high for a product or service. The results are graphically displayed to show price thresholds for low and high prices and the optimal price.
The PSM is not only suitable for optimizing the price of an existing product. The analysis is also suitable for determining a price for a newly developed product in an existing category. The results can be used to derive strategies for aggressive pricing policies to enter a market, or to maximize prices of an existing product.
For the test subjects, the survey is as simple as it is entertaining. The subjects are asked to indicate a total of four price points for each product. These are broken down as follows: The price that, from the subject’s point of view,…
- …is too expensive, so that a good/service is not purchased or used.
- …can still be considered, although it is expensive
- …is appropriate, thus represents a bargain
- …is so cheap that they doubt the quality of the product/service and therefore do not buy it.