Van Westendorp's Price Sensitivity Meter (PSM) is a popular market research technique used to determine the optimal price for a product or service. The method involves surveying potential customers and asking them about cost and their willingness to pay. This approach requires survey participants to engage in critical thinking when completing the survey and helps businesses understand their product’s perceived value in the marketplace.

The Van Westendorp PSM method assumes that four distinct price points interest consumers. These include:

• The Point of Marginal Cheapness (PMC) – the price point at which the product is considered too cheap and its quality is questioned.
• The Point of Marginal Expensiveness (PME) is the price point when the product is considered too expensive, and customers are unwilling to pay that amount.
• The Optimal Price Point (OPP) – the price point at which the product is perceived to offer good value for money.
• The Indifference Point (IP) – the price point at which customers are indifferent to purchasing the product.

To determine these price points, survey participants are asked four questions:

• At what price would you consider the product so expensive that you would not consider buying it?
• At what price would you consider the product to be priced so low that you would feel the quality couldn't be excellent?
• At what price would the product start to get expensive so that it is not out of the question but you would have to consider buying it?
• At what price would you consider the product a bargain, an excellent buy for the money?

The responses to these questions are then used to calculate the four price points mentioned earlier. Marketers can determine the optimal price for their product or service by comparing these points.

The Van Westendorp PSM method requires participants to think critically and objectively when responding to these survey questions. Participants are asked to consider multiple factors, including their perceptions of quality, their willingness to pay for a product, and the value they place on a particular item. This process requires them to think deeply about their preferences and opinions and to make informed decisions about the price they are willing to pay.

In addition, the Van Westendorp PSM method encourages survey participants to evaluate a product's price about its perceived value. This requires them to consider a wide range of factors, such as the quality of the product, its features, and its benefits. Participants must weigh these factors against the price and decide whether or not the product is worth purchasing at that particular price point.

Combining the price responses with the probability responses allows businesses to determine the value of their product within a market and how much consumers are willing to spend to acquire it. This approach helps marketers understand their customer's perceptions of value and can guide them in setting fair and profitable prices to generate revenue.