The Fallacy of the van Westendorp Methodology

The Fallacy of the van Westendorp Methodology, in general, and especially in Pharmaceutical Pricing

If you want to get a pharmaceutical pricing expert’s blood boiling, present the results from the van Westendorp method and then expect the same pricing team to scale the results into the pending (demand/board/plan) forecast. The reason this angers us is that it’s not possible.

For those of you not as familiar with van Westendorp, I will provide a summary: Van Westendorp was a true genius. I’m speculating, but I don’t think he ever thought his method would be applied to complex products in dynamic markets. He proposed that products could be priced by asking the same consumer the following questions:

  • At what point is this product too cheap, such that you’d question the quality?
  • At what point does the product provide value, such that you’d seek it out?
  • At what point would you find it expensive, but still pay for it?
  • At what point is the product too expensive, such that you’d seek alternatives?

Dr. Bruce Isaacson, from MMR Strategy Group wrote this excellent post in 2013.

The results from the methodology look like this:


The Y axis represents percent of respondents at any given (unit) price, shown on the X axis

The result of this methodology is AREA where the product provides value. Demonstrated as ‘Pricing Space’ in the above graphic. Conceivably the manufacturer can select any price in the acceptable area and be successful. But where to price? Where in that AREA provides the profit maximizing price? You need more research. But the graph is actually just a confusing mess – what does it say about pricing at £5.50? Why is that a price we should consider? A full 50% of respondents think it’s CHEAP! Thus, maybe we should start looking at the RIGHT most point of the grey area – but even that doesn’t work, because you have equal number of consumers thinking it’s CHEAP and TOO Expensive…confusing.

So…Some pricing experts (mainly consultants who want to bill you to produce the van Westendorp) say that this methodology gives them a good starting point in which to ask questions during qualitative interviews. And I suppose this is true. It’s completely unnecessary, of course, because we have cognitive and actual pricing comparator analogues for almost any developmental product, service, or device in health care. These analogs readily provide the groundwork for our pricing studies. One only needs to be creative in seeking these out when designing qualitative studies. And it is precisely against these cognitive and actual comparators that we’ll be selling against…so you’d better know where you stand.

My favorite counter-example that demonstrates the ridiculousness of Van Westendorp is a beer at a sporting event. I’m a behavioral, analytical pricer. I don’t give as much credence to what people think they WOULD do, especially in instances where I can measure what they actually do. I’ve never done the experiment, but I’d be willing to bet a month’s salary that 90%+ of fans in line to buy beer at sporting events would describe the beverages as “too expensive” – they’d much prefer to buy an alternative; but in that context, they can’t, so they readily buy a product that they KNOW is overpriced.

But there are two more problematic and fundamental problems with this method. First, despite being intuitive, there’s NEVER been an academic study that has confirmed that van Westendorp works as well as other methods (like discrete choice or conjoint).1 And furthermore, it’s extremely unlikely that one could be designed in the pharmaceutical arena – at least under the current global pricing landscape.

Think about it – ALL BRANDED PHARMACEUTICAL products are ‘too expensive’ for global payers. There’s a term for drugs that aren’t expensive: Multi-source Generics. Even more acutely, in the United States, where byzantine buffers between WAC and Net are required to appease PBMs and maximize profitability, payers will blanche at LIST prices that they will gladly ‘pay’ once discounts are put on the table. United States pharma pricing is simply too complicated to test using this overly simplistic method. Ah, but you say, we test the NET price in our van Westendorp. Well then, you’ve just lumped a plan with 100,000 lives in with CVS Caremark, ESI, and United. Pricing products with those mega payers pari passu to ‘Northeast Newark Carpet Associates Plan’ defeats the purpose of performing the research in the first place. Furthermore, doing weighted average pricing using a never-substantiated pricing methodology is akin to doing high-level probabilities for soothsaying.

So why do we see it used? Because the graph looks pretty. And it SEEMS analytical. It’s the difference between junior level, in-the-trenches pricing and Senior Executive box-checking. And it’s extremely difficult to put that much faith into the knowledge and expertise of the interviewers performing the study. But that’s what you must do. Pharma companies are at the mercy of these interviews. Payers ‘game the system’ and it’s much easier to put your faith in a pretty graph that SEEMS empirical, than to seek out the best, most knowledgeable interviewers you can find. (see below for quantification of how much van Westendorp might cost you…~35%? Yikes!)

Key takeaways:

  • Van Westendorp has never been academically confirmed
  • If your pricing people love it, ask tough questions and consider replacing them if they don’t understand this post
  • Resist the temptation to go with something that ‘feels right’ but doesn’t add to the discussion
  • Consider cognitive and actual comparators – in the end these are mental competitors to your product’s value proposition
  • It’s not tied to competitive response or net profit generation (even if weighted by lives)
  • Unfortunately, we actually buy things we think are outrageously expensive more often than we’d like – and this is especially true for U.S. payers
  • Find the best interview moderators you can find – they will generate better discussion guides too, but with the right interviewer the subtly will be captured and appropriate ‘push-back’ will be made

1 Comments are active. I will edit this post – and credit the commenter if anyone proves this claim false. If, for nothing else, that I’d love to see the academic reference. Note also, that if the reference is in the Pharma industry, I will post a redaction and delete the post. You might also wanna check with these guys at Pricing Solutions, who found van Westendorp to be ‘biased…and 35% low’.

Ask the Expert: Pharma Pricing Methodologies

AtE Pricing Methodologies

What makes a good United States pricing project? I’ve had the chance to see what passes for pricing work by folks who don’t typically do payer research and it’s opened my eyes considerably. My conclusions: 1. Experience Matters, 2. Careful push-back at the right time is key, 3. Perspective and Context of results are EVERYTHING.

  1. Experience

In order to save one pricing research (it doesn’t make sense to try to cut corners on pricing research, but that’s a blog for another day) one of my clients asked me to support their physician researcher in the payer space. What resulted wasn’t horrible, but the guide needed revision and the moderator kept asking questions that the payers had already answered. You don’t want to pay for this kind of research twice, why not hire a moderator who’s expert at interviewing payers and PBM P&T committee members, rather than one who’s doing physician interviews between calls?

2. Careful Push-Back

These days, all new products are going to be NDC blocked until P&T review. What’s harder to understand is the specific tools that payers can use to thwart access. In areas with substantial generic (Gx) alternatives, liberal use of Step Edits can be expected. At the same time, such step edits are less effective if your target population has already past the hurdle through previous treatments. Understanding these dynamics and pointing out the likely patient flow through due to previous treatment is important. See bullet #1, if you don’t have the experience and the confidence, you’re more likely to take payers statements at face value, even when they don’t match the realities of the market.

This is particularly important in areas like anti-infectives, where payers don’t always keep product stewardship in the front of their minds – and are actually too quick to suggest Gx parity when such positioning is neither clinically sensible nor profit maximizing due to physician’s restrictive use.

3. Perspective and Context Matter

In a recent study that I performed, a simple error that MOST payer researchers make would have resulted in an overstatement of 12.5% market share. While we can NEVER reveal the organizations that we’ve spoken to, nor assign responses to individuals, it’s critical to present the findings of your payer research in a manner than can easily be used in forecasting. In my last two home office positions we forecasted directly from our payer research with MONTHLY accuracy within 3% at the gross-to-net level. Can you do that from you payer research? We can’t promise that your results will be as good as these, but we can use the same methodology that’s proven to be this accurate in the past.

Discussion guides are important, but even the best discussion guide, if read by some who lacks the experience to push-back won’t get you the results that you need. Pricing in pharmaceuticals is an incredible lever. Further the recent focus on restricting annual price increases has increased the importance on Launch pricing. Chiral Logic can help you identify the price maximizing price as well as provide strategies to bridge that gap between launch and NDC block removal. We have the real world expertise to separate the wheat from the chaff and we’d be glad to help you solve your hardest pricing and market access challenges.

Wait! This isn’t how it’s supposed to work…

As large hospital systems buy up independent medical practices, the cost of health care rises

This piece is worth listening to for a number of reasons. One of my pet peeves since our children’s birth is that consumerism doesn’t apply well to births in the United States. I’m all for women who elect to have a C-section. Personally, for our family that wasn’t the right choice, as my wife did extensive research that suggested that natural births produce better outcomes for the babies.

You can dispute that finding, but what you can’t dispute is that ELECTING to have a C-Section drives up the cost of care in a way that should justify increased costs to the family of the woman making that decision. Planned C-sections are easier to schedule for the doctor and provide an increased revenue stream – as per the report. Thus patients should bear the differential price, thus driving down costs for the rest of us.

This doesn’t apply to C-sections for medically necessary reasons. However, again we could look to the Finland and other developed nations with much lower C-Section rates AND higher infant and maternal survival rates. Nobody should be financially penalized for interventions that are medically necessary.

So why are reimbursements twice as high for OB-GYNs associated with large group practices? Oligopoly Power of course. And herein lies the pathway to truly reducing the (out sized) costs in our healthcare system – remove the perverse incentives for doctors to join these groups, and you’ve taken one step closer to reducing overall costs.

The increase of high deductible health plans SHOULD contribute to reducing costs – but only if healthcare consumers are smart enough to ask questions about cost and become educated enough to make informed decisions.

The most interesting part of this piece for me was the suggestion, toward the end, that consolidated group practices don’t improve the quality of care:

But Kristof Stremikis, associate director for policy at the Pacific Business Group on Health, which represents employers, said that studies suggest that is not the case. “All of the evidence that we see shows that the quality in these larger systems is the same or worse,” he said.

Jenny Gold aught to be careful not to bite the hand that feeds her. But a strong tip of the hat to the impartiality and independence of Kaiser Health News as I’d imagine that the Kaiser organization would argue that they make every effort to improve the quality of the care that they provide.



The Future of Pharmaceutical Pricing…(it’s not what you’re being told)

Novartis’ launch of Kymriah has opened up a number of discussions about pharmaceutical pricing. Perhaps surprising to many, I’m going to completely sidestep that discussion. But a lot of the talk of Kymriah returns to ‘value-based’ pricing. So today I want to go back and reinforce the points I’ve been making about the potential that the future will look more like it does today. While it’s tempting to see a future, where indication-based pricing dominates, I think this marks complexity for complexity’s sake. What other industry can we think of where the WAY a product is used determines its value. What we need to successfully differentiate pricing is differentiation – think Avastin and Lucentis, for starters.


Photo credit Zach Dischner

Yes, stock quotations vary depending upon the time duration of their delay. “Live” quotes are most costly, slight delays moderately priced, and 15-minute delay cheapest (often included for free).

You’d walk out of your luxury car dealership if the price that you paid depended upon HOW you were going to use the car. So why the tendency to think that this is the future of pharma? “Well health care is different” you hear the proponents saying.

How so? Healthcare buyers have every right to use the products as they see fit. Worst still, doctors in the U.S. have the explicit ability to use FDA approved drugs for any use they see fit – further complicating payers’ decisions as to how to cover products, and what to cover. So, the current conversation goes, the way to decrease drug prices, while balancing Pharma profits is indication-based pricing. But this simply provides doctors and insurers the incentive to document the use of the product for the lowest cost indication. Unless, of course, the manufacturer pays for the testing required to document the actual indication – and this introduces all sorts of privacy concerns…

And what about complexity? Healthcare is complex. To demonstrate the various and complex value of pharmaceuticals, the industry has hired numerous highly educated and brilliant health economists & pharmacoeconomic experts. I argue that during this period we’ve seen a HUGE increase in prices and an ever-decreasing value of these medications to the GENERAL population. Certainly, we can’t BLAME the PHDs. for this. They are a symptom, not the disease. But who’s stepping back from this insanity and asking whether this is the kind of system we want to have. I don’t want to be the only dissenting voice here.

Now that the industry has all these ‘value justifying professionals’ there’s a huge need to justify value.

My suggestion is, and will always be, to simplify pricing. To stick to simple, intuitive pricing schemes with some sometimes-I-win-sometimes-you-win outcomes. As I’ve argued, there’s more areas of complexity in value-based contracting than there are rays of light – at least now.