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Measuring WTPSantosh Prusty
Based on Article; Review of Methods for Measuring WTP
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Introduction
Intuitive Pricing
8-15% of companies do pricing based on analytics
WTP and Value Estimation leading to Pricing Strategy
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Classification of Methods to Measure W
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Analysis of Market Data
Panel Data
individual purchase data reported by members of a customer panel
Store Scanner Data
sales records from retail outlets
Past Data for Future Estimation
However, historical data do not contain the necessary price variation
Data is aggregated
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Experiments
Laboratory Experiment
Not match with real buying behavior
Field Experiment/ In-store Purchase Experiment
Test marketing through Systematic Price Variation Sample is Predictor of Population
Auction
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Auction
Price optimization without knowing the perceived value of product
Vickery Auction: Incentive for buying
Second Highest Price to the Winner
But, Optimal Bidding strategy was not clear
However, First-price-auction (Eg.: Ebay) and Vickery auction ovethe customersWTP
Winner, strategically place high price over WTP to win the auction
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BDM Vs Vickery Auction
BDM Auction
Simultaneous bidding by participants
Sale price is randomly drawn from the distribution of bid prices
Bidders whose Bid>Sales Price are offered the good @ Sales Price
Study says: BDM dont suffer from Over-Bidding Bias
Vickery auction is GOOD for private good
Vickery Auction: Narrowed Dispersion of price
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Reverse Pricing Auction
Not incentive compatible
Participants name their Price
Seller set a Threshold Price (Buyers dont know)
Participants having Bid Price > Threshold Price are offered to Buy @Bid Price
If Each Buyer submits several bids, then WTP Distribution can be f
Followed by Priceline.com for rentals, cars, vacation packages, etc.
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Direct Surveys
WTP based on Revealed Price:
Does not take care of customers willingness to pay before product is desdifferentiating factor
the number of possible differentiated products is large and not all candid
tested under justifiable budget and time restrictions
Expert Judgment
Customer Survey
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Expert Judgment
Time and cost efficient
Sales or marketing managers serve as experts in projectingcustomersWTP
However, opinion of sales people might be biased because of conflictingof the marketer and the sales force
Number of experts in one domain may bias the WTP estimation
Best applicable in a market environment with only small numbers of custo
Difficult in case of larger and more heterogeneous customer base
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Customer Surveys
Direct Question: Maximum and minimum price for each product which can bedirectly asking the customers.
Above which price would you definitely not buy the product, because you cant afford iyou didnt think it was worth the money?
Below which price would you say you would not buy the product because you would stathe quality?
Two additional questions: Would you buy:
on a reasonable cheap price and
a reasonable expensive price of the product under consideration
Practiced by GfK, a pan American market research company
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BASES Price Advisor by ACNielsen for products can be inconceptual phase or already marketable
Subjects are then asked to nameprices at which they consider a product to hgood value, an average value, and a somewhat poor value
From the responses purchase probabilities for different prices are derived
A somewhat poor value could be interpreted as reflecting a respWTP
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Flaws of Directly Surveying Custom
Unnatural focus on price which can displace the importance of a produattributes
Customers do not necessarily have an incentive to reveal their true Wmight:
overstate prices because of prestige effects or
understate prices because of consumer collaboration effects.
Valuation does not necessarily translate intro real purchasing behavior
Cognitively challenging task for respondents for complex and unfamiliar go
Perceived valuation of a product is not necessarily stable
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Indirect Survey
Cognitively easier to decide whether a specific price for a product is accepto directly assign a price
Preference rating or ordering to a competing product alternatives and their
Asking to indicate whether they would purchase the good at that prishowing them product profiles with systematically varied prices
Across the selection of product scenarios, the investigator is free to varythe proposed price, but also the levels of all other product attributes.
Each consumerswillingness or unwillingness to purchase the specific proddesignated price is recorded
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Conjoint Analysis
A technique for measuring individuals preference structures via systvariations of product attributes in an experimental design.
Example: