Faculty of Economics and Business Administration Publications Database

Measuring Consumers' Willingness to Pay: Which Method Fits Best?

Hofstetter, Reto
Krohmer, Harley
Zhang, John Zhong
Volume: 4
Number: 1
Pages: 42 - 49
Month: May
ISSN-Print: 1865-5866
Link External Source: Online Version
Year: 2012
Keywords: Market Research; Pricing; Demand Estimation; Willingness to Pay; Hypothetical Bias

Gauging the maximum willingness to pay (WTP) of a product accurately is a critical success factor that determines not only market performance but also financial results. A number of approaches have therefore been developed to accurately estimate consumers’ willingness to pay. Here, four commonly used measurement approaches are compared using real purchase data as a benchmark. The relative strengths of each method are analyzed on the basis of statistical criteria and, more importantly, on their potential to predict managerially relevant criteria such as optimal price, quantity and profit. The results show a slight advantage of incentive-aligned approaches though the market settings need to be considered to choose the best-fitting procedure