Measuring Consumers’ Willingness to Pay. Which Method Fits Best?

Abstract

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