How to Use the PSM Model for Accurate Product Pricing Decisions

1. What Is the PSM Model

The Price Sensitivity Measurement (PSM) model, created by Van Westendorp in the 1970s, measures target users' satisfaction and acceptance of different prices to identify an acceptable price range and reasonable pricing interval.

Originally used for single‑product price testing without considering competitors, costs, or pricing strategies, the PSM model suits new products with few competitors or market‑leading products.

With the rise of the internet, PSM has been applied to various scenarios such as app membership pricing, user tolerance for daily push notifications, and preferred push timing.

Below is a step‑by‑step guide on how to operate and use the PSM model.

2. Operation and Usage

2.1 Steps

The PSM process generally includes the following steps:

1) Conduct preliminary research to obtain multiple price points or a rough price range, using user interviews or existing pricing strategies.

2) Collect quantitative data via questionnaires, asking respondents to classify each price as "a bit high but acceptable", "a bit low but acceptable", "too high and unacceptable", or "too low and unacceptable".

3) Analyze the collected data, calculate cumulative percentages for each price, and plot them on a chart (price on the X‑axis, cumulative percentage on the Y‑axis).

2.2 Questionnaire Design and Sample Selection

Example: A company plans to launch an app membership service with a price range of 50‑100 CNY, selecting six price points (50, 60, 70, 80, 90, 100 CNY) for the PSM test.

The questionnaire is designed accordingly (see image below).

After questionnaire design, select samples. If the sample size is limited, prioritize target or high‑potential users, possibly including competitor users, based on demographics, purchase behavior, and experience. If the sample size is sufficient, random selection is acceptable, with later stratification during analysis.

2.3 Data Cleaning

Assuming 200+ questionnaire responses, clean the data by filtering based on response time, consistency, and the logical relationship among the four price options.

Samples that give contradictory answers (e.g., marking 50 CNY as acceptable but also marking 70 CNY as "too cheap") are removed.

2.4 Table Processing

Summarize the cleaned data into a table where the "too cheap" and "a bit cheap" options are accumulated from high to low price, while "a bit expensive" and "too expensive" are accumulated from low to high price. The sum of the four options for each price equals the total sample size.

2.5 Chart Drawing

Plot charts using the processed table: X‑axis is price, Y‑axis is cumulative percentage. Individual option distribution charts are shown below.

Finally, overlay all four options on a single chart for easy comparison.

2.6 Price Interval Selection

From the summary table, four price points can be identified:

Acceptable Minimum Price (point of marginal cheapness): intersection of "too cheap" and "a bit expensive".

Acceptable Maximum Price (point of marginal expensiveness): intersection of "a bit cheap" and "too expensive".

Optimal Price Point: intersection of "too cheap" and "too expensive", where the proportions are equal.

Indifference Price Point: intersection of "a bit cheap" and "a bit expensive", indicating a neutral perception.

Typically the optimal price is chosen as the reference, but adjustments can be made between the minimum and maximum points based on other considerations.

3. Summary

Product price testing is a common user‑research need. Besides the PSM model, other models such as the Garbor‑Granger model, BPTO model, and conjoint analysis are available. While these alternatives share a focus on price, conjoint analysis also incorporates competitor pricing and product feature importance. The PSM model remains popular due to its simple questionnaire design, low data‑analysis complexity, and broad applicability.

Readers are encouraged to leave comments with questions or experiences, and future articles will cover additional pricing models.