Q&A: The Use of Willingness to Pay (WTP) Studies

Question:  How should  Brands use Willingness to Pay Studies (WtP) as a lens to capturing the optimum price for their target shoppers.  – Chris

 

Answer:  I love wide open questions like this.  I get to choose whatever to talk about.  🙂

 

WTP studies can help companies make decisions around:
  • Price to charge
  • Market segmentation
  • Dynamic pricing
  • New product development
  • Product packaging (Good, better, best)
  • Etc. (useless, I know but I ran out of thoughts at the moment)

Segmentation and dynamic pricing

Price is too easy.  Let’s talk about segmentation and dynamic pricing.  In both of these cases, you need to collect more information than just WTP.   You are looking for categories or metrics that are correlated with WTP.  In the case of market segments, look for industries, regions, applications, problems, and much more.  In the case of dynamic pricing, look for times or situations when WTP is higher.

 

My suggestion is to brainstorm on all of the data you could (or already do) collect. Then collect as much of that data as possible while collecting your WTP data. Once you have all this data, you need to mine it to find which variables are correlated with WTP.

 

There are many statistical techniques you could use, but the simplest is cross-tabs. This is the same thing as pivot tables in excel. Another insightful technique is to create a scatterplot graph for each variable.  You will put the variable under consideration as the x-axis and use WTP as the y-axis.  Sometimes you can visually detect a pattern that wasn’t obvious using a cross tab.

 

As a reminder, you are looking for variables that are correlated with WTP. Once you find attributes, either for market segments or for dynamic pricing, then see if you can find a way to charge customers based on that attribute.

 

For example, if you find buyers in the medical industry have a higher WTP, then you might create a price list for the medical industry. You might create a custom product for them.  You might not let sales discount as heavily in that industry.  Each of these is a way to get medical buyers to pay more.

 

Of course there may still be other factors keeping you from implementing these new pricing strategies, but this may give you an indication of the additional value you could capture if you did implement this new strategy.

 

**Note: Mark Stiving has an active LinkedIn community, where he participates in conversations and answers questions. Each week, he creates a blog post for the top question. If you have a question, head over to LinkedIn to communicate directly with Mark.

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