Responding to Tariffs: Price Sensitivity Using Gabor-Granger and Van Westendorp

In today's volatile global market, tariffs can change suddenly, throwing carefully calibrated pricing strategies into disarray. When these trade policy shifts occur, companies face a critical decision point: absorb the increased costs, pass them on to the consumer, or find a middle ground. But how can you make this decision with confidence rather than guesswork?

The answer lies in understanding your market's price sensitivity with precision. At Highlight, we've seen that companies who quickly deploy price sensitivity research not only survive tariff shocks—they often emerge stronger than competitors who react without data.

Why Price Sensitivity Research Matters When Tariffs Hit

When tariffs increase your costs, you're essentially forced into a pricing experiment. Without proper research, this experiment happens with your actual revenue on the line. Consider these scenarios:

• Absorb all costs: Your margins suffer, potentially threatening business success
• Pass all costs to the consumer: You risk volume loss if price sensitivity is high
• Find the optimal balance: You maintain healthy business metrics by understanding exactly how much of the cost increase your market will tolerate

Companies that understand their consumers’ price sensitivity can navigate these waters with confidence, minimizing damage and sometimes even capitalizing on the disruption while competitors struggle.

Price Sensitivity Research Methods: Gabor-Granger and Van Westendorp

Two methodologies stand out for their effectiveness in measuring price sensitivity: Gabor-Granger and Van Westendorp's Price Sensitivity Meter. Each offers unique insights that can shape your tariff response strategy.

The Gabor-Granger Method

The Gabor-Granger method directly measures consumers’ purchase intent at various price points, creating a demand curve that reveals how sales volume changes with price adjustments.

How it works:

1. Survey participants are shown your product at a specific price (likely your current price) and asked about their purchase likelihood
2. The price is adjusted incrementally, with purchase intent recorded at each level
3. Results are plotted on a demand curve showing the relationship between price and likely sales volume

This method excels at finding the revenue-maximizing price point, accounting for price and demand tradeoffs, making it particularly valuable when tariffs force pricing reconsiderations.

The Van Westendorp Price Sensitivity Meter

While Gabor-Granger focuses on purchase intent, Van Westendorp's method explores the psychology behind price perception, revealing the range of acceptable and ideal prices for your product.

How it works:

Participants answer four key questions:

1. At what price would this product be so inexpensive that you would question its quality? (Too cheap)
2. At what price would this product be a bargain? (Good value)
3. At what price would this product start to seem expensive? (Getting expensive)
4. At what price would this product be too expensive to consider? (Too expensive)

From these responses, four price points emerge:

• Point of Marginal Cheapness: Where "too cheap" and "expensive" curves intersect
• Point of Marginal Expensiveness: Where "too expensive" and "good value" curves intersect
• Optimal Price Point: Where "too cheap" and "too expensive" curves intersect
• Indifference Price Point: Where "good value" and "expensive" curves intersect

Together, these points define your acceptable price range and optimal pricing strategy. This method excels at finding the price range to test in, especially when there is a new product or significant changes to the product or market. 

Choosing the Right Method for Your Tariff Response

Both methods provide valuable insights, but their application differs:

• Use Gabor-Granger when: You need to forecast revenue impact at specific price points, especially when considering exactly how much of the tariff costs to pass on to consumers. When all you are doing is price change without much change to the product, we recommend this methodology
• Use Van Westendorp when: You want to understand the psychology behind pricing and identify an acceptable price range that maintains perceived value. For price changes paired with changes to your product, new products, and new packages, we recommend this methodology to really understand the value of your product and willingness to pay. 

In high-stakes situations like tariff responses, where you may be both maintaining an existing product and offering new formulations, we often recommend using both methods for a complete picture of your pricing options–the Highlight platform is flexible enough to use both methodologies. 

Implementing Price Sensitivity Research: A Step-by-Step Guide

1. Define Your Research Goals and Outputs

Before launching into research, clearly articulate what decisions the research will inform and what outputs you need to inform them, for example:

• What is the revenue-maximizing price point? 
• How much of the tariff-induced cost increase can you pass on?
• How will price changes affect your market share?
• Do different consumer segments show different price sensitivity?
  
  

2. Select Your Sample

Ensure your research sample accurately represents your target market and the segments:

• Include current purchasers, purchasers of your competitor’s products, and prospective consumers
• Size your sample to have enough power for statistical significance
• Screen participants to ensure they're verified purchasers
• Enhance your audience building with demographic and psychographic filters for segmentation insights 
  
  

3. Choose your Methodology

Consult with your research partner to pick the right methodology, for example

• Will you be providing the product to experience (IHUT) or to view digitally? 
• Which pricing methodologies will you deploy?
• How many variants will you be testing? In addition to price points, are you varying anything else (e.g., packaging)?
• Will you plan to do followup studies? 
  
  

4. Design Your Survey

Craft questions that elicit honest responses about price sensitivity:

• Place pricing questions after establishing product value
• Use realistic purchase scenarios
• Make sure the survey is not too long to prevent response fatigue
• Leave room for some open ends for rich texture

Survey design is a science, and should not be rushed or assigned to those without expertise. Be sure to use research-grade methodology in your approach, otherwise you risk generating junk data that may guide you to the wrong conclusions.

5. Analyze the Results

When analyzing pricing strategies, it is essential to look beyond the obvious findings and uncover deeper insights that can drive meaningful decisions. One key approach is to identify price thresholds where consumer behavior shifts significantly, revealing the points at which demand becomes more or less elastic. 

This is also where the power of segmentation comes in. Compare results across different consumer segments to highlight how various groups respond to pricing changes, enabling more targeted strategies. 

Finally, modeling the revenue impact across multiple pricing scenarios provides a clearer understanding of potential outcomes, allowing businesses to optimize pricing for both profitability and consumer satisfaction.

6. Translate Insights to Action

Once you have your data insights, it’s time to transform your research findings into a tariff response strategy. That might include:

• Establish new price points that balance margin protection with volume retention
• Develop segment-specific pricing strategies where appropriate
• Set metrics to monitor the effectiveness of your pricing changes
• Develop a research program to keep responding to market changes with data
  
  

Beyond Pricing: Additional Tariff Response Strategies

While pricing adjustments are often necessary, comprehensive tariff response strategies also consider:

• Product Redesign: Can you adjust specifications to reduce cost impact? Many of our customers are choosing to research the combined impact of new product formulations and pricing. (See: Alienation testing for more information.)
• Packaging Changes: Can different packaging and sizing reduce cost impact while maintaining value perception? This is another popular combination with pricing research.
• Segmented Pricing and Product: Could you introduce Good-Better-Best options to address different price sensitivities and consumer segments?
• Messaging Changes: How should you position tariff-related price changes? Message testing is a critical followup to price change research.
  
  

The Urgency of Data-Driven Action

When tariffs hit, the window for strategic response is brief. Companies that quickly deploy price sensitivity research gain several advantages:

• Protect your core: Assess the direct cost impact of the tariffs on your hero and core products and price to maintain market leadership and revenue
• First-mover opportunity: Implement optimized pricing before competitors to set the market standard vs being boxed in by their pricing
• Customer retention: Minimize customer loss through evidence-based, confident pricing decisions
• Communication advantage: Develop value-focused messaging that really speaks to your target consumers
• Internal alignment: Build consensus around pricing decisions with clear data that gives stakeholders confidence 

The alternative—delayed research or purely gut-based decisions—typically leads to either unnecessary margin erosion, volume loss, or consumer backlash that could have been avoided.

Conclusion: Turning Tariff Challenges into Competitive Advantage

Tariffs represent a market disruption, but also an opportunity for companies with superior market intelligence to build product success. By deploying Gabor-Granger and Van Westendorp research methodologies quickly, you gain the insights needed to respond with precision rather than panic, moving from paralysis to market-winning action.

At Highlight, we've seen leading organizations transform market disruptions into competitive advantages by understanding exactly how their market will respond to price adjustments and pairing other powerful research (product testing, package testing, messaging etc). The companies that thrive won't just weather the tariff storm—they will use it as an opportunity to optimize their overall pricing strategy while competitors scramble.

When tariffs threaten your business model, don't guess—research, analyze, and act with confidence. Your market is telling you exactly how to respond. You simply need to ask the right questions.