measuring wtp review of methods

7/25/2019 Measuring WTP Review of Methods

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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:

measuring wtp review of methods

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