New product pricing (Gabor–Granger and van Westendorp)

Pricing determines both adoption and unit economics. The inherited examples claim that fewer than 5 per cent of Fortune 500 companies had a dedicated pricing function and that a 1 per cent increase for an average S&P 1500 company could lift operating profit by 8 per cent if volume held. Treat those figures as historical illustrations, not universal forecasts: demand, mix and customer response rarely stay fixed.

A 1 per cent rise may or may not preserve volume, and additional gross margin of 40 per cent to 60 per cent does not automatically become net profit. The same caution applies to hypothetical rises of 5 per cent, 10 per cent or 15 per cent. Research helps bound a launch price, but no survey method discovers one timeless optimum.

When to use it

• To research price perceptions and purchase intent for a new or existing offer.
• To select price points for experiments, forecasts and commercial review.

Origins

Economists André Gabor and Clive Granger developed their purchase-intent method in the 1960s while studying how consumers’ willingness to buy changed across candidate prices. Their paper The Pricing of New Products documented the approach in the European market-research literature. Dutch economist Peter van Westendorp took a different route: he presented the Price Sensitivity Meter at an ESOMAR congress in 1976, using respondents’ perceptions of prices that seem too cheap, acceptable, expensive or too expensive. The methods therefore share a pricing-research purpose but arise from distinct question designs.

What it is

Gabor–Granger

Show a defined offer to target buyers and ask whether they would buy at a selected price. Repeat across randomised or carefully designed prices to estimate a demand curve and revenue.

Do not automatically start high and walk downward; order can anchor responses and teach participants to wait. Randomise price exposure across respondents where design allows. The inherited chart suggests around $3. and almost 80 per cent purchase intent, but profitability, bias and real behaviour must be tested.

van Westendorp

Ask respondents at what price the offer seems:

• inexpensive;

• so expensive that it becomes unacceptable;

• so inexpensive that quality becomes doubtful;

• expensive but still worth considering.

Plot cumulative response curves and examine intersections as perception boundaries.

The indifference price point (IPP)

The IPP is where equal proportions label a price inexpensive and expensive. It is a perception intersection, not necessarily the profit-maximising or ethically appropriate price.

Developments of the model

The tools have been used for more than 40 or 50 years, but direct stated-price methods have limitations:

• Conjoint or discrete-choice methods can estimate trade-offs among features and price, though they also require adequate design and sample.

• People may say that $25 is implausibly low in one category yet welcome it in another; context and reference prices matter.

• Van Westendorp produces several intersections, not one automatic decision. Gabor–Granger can suffer anchoring and hypothetical bias.

In some applications the methods produce similar ranges to conjoint. The inherited claim that conjoint becomes unreliable around 100 respondents or fewer is not a universal rule; required sample depends on design, heterogeneity, precision and analysis.

How to use it

An ear-defender manufacturer recruited 120 companies using hearing protection daily. Unbranded products A through C were used for up to a week under common instructions. Buyers then answered the four van Westendorp questions.

The analysis suggested three candidate prices and an apparent optimum of $2. The company launched at $4 a pair to preserve room for expected discounts and reflect brand value; realised prices were around $3. per pair. The $2 research anchor and $4 list price show how research, channel economics and negotiation interact. The case does not prove that launching above the survey indication is generally best.

Validate the result with costs, competitor and substitute prices, willingness-to-pay heterogeneity, safety and quality requirements, channel margins and real purchase behaviour. Where feasible, run a controlled market test with consumer protection, fairness and anti-discrimination review.

Some things to think about

• Research price before prototypes when the concept is sufficiently concrete; retest after customers can experience the offer.

• A higher list price may provide discount room, but artificial reference pricing, discriminatory treatment or misleading promotions can be unlawful and damage trust.

Top practical tip

Use Gabor–Granger or van Westendorp to define a testable range, then combine it with unit economics, segmentation and observed purchasing. Preserve uncertainty instead of declaring one optimum.

Top pitfall

Even after 40 or 50 years of use, stated willingness is not a transaction. Anchoring, hypothetical bias, sample composition and missing competitor context can make a precise-looking price wrong.

Further reading

• Gabor, A. and Granger, C.W.J. (nineteen sixty-six). “Price as an Indicator of Quality: Report on an Enquiry.” Economica.
• van Westendorp, P.H. (nineteen seventy-six). “NSS-Price Sensitivity Meter: A New Approach to Consumer Perception of Price.” ESOMAR Congress.