how to measure willingness to pay

x�՝Y������W�%Ur��! In the first category, the main moderator of interest is the type of measurement HWTP, that is, the direct versus indirect measurement of HWTP. With our meta-analysis, we aim to generalize empirical findings about the relative accuracy of HWTP measures, so we conducted a search for studies that report ESs of these measures. Three-level meta-analysis of dependent effect sizes. In addition, instead of the multivariate mixed linear model, we used a random-effects, three-level model, such that the ES measures nested within studies with a V-known model at the lowest level (Bijmolt and Pieters 2001; van den Noortgate et al. Counterspeculation, auctions, and competitive sealed tenders. Part of Springer Nature. Third, the distribution of the natural logarithm of response ratios is approximately normally distributed (Hedges et al. Games and Economic Behavior, 55(2), 297–320. The type of measurement HWTP has a significant, positive effect (β = 0.1027, Exp(β) = 1.1082, SE = 0.0404, p = 0.0110), indicating that indirect measures overestimate RWTP more than direct measures do. 2001), in which participants do not know the quantity being sold in the auction upfront. A classic categorization of consumer goods cites convenience, shopping, and specialty goods, depending on the amount of search and price comparison effort they require (Copeland 1923). 2016; Bijmolt et al. Journal of the American Statistical Association, 87(417), 178–183. Breidert, C., Hahsler, M., & Reutterer, T. (2006). To the best of our knowledge though, the response ratio has not been adopted in meta-analyses in marketing yet. Therefore, practitioners can resist, or at least consider with some skepticism, the prevalent academic advice to use indirect methods to measure WTP. Willingness to pay (WTP) is the largest amount of money an individual will spend on a product or service. Theoretically then, eBay auctions are not incentive compatible either (Barrot et al. 2006, Fox and Tversky 1995, Frederick and Fischhoff 1998). 2005; direct Neill et al. Which response format reveals the truth about donations to a public good? Meta-analysis in marketing when studies contain multiple measurements. A method yielding an exemplary hypothetical bias of 1.5 shows that those participants overstate their RWTP for a product by 50% when asked hypothetically. Second, indirect methods assume a linear relationship between price levels, through their use of linear interpolation (Jedidi and Zhang 2002). Journal of the Academy of Marketing Science, 48(3), 499-518. Journal of Product Innovation Management, 30(3), 560–573. Conservation study of myrsine seguinii in Japan: Current distribution explained by past land use and prediction of distribution by land use-planning simulation. Second, a new product’s introductory price must be carefully chosen, because a poorly considered introductory price can jeopardize the investments in its development and threaten innovation failures (Ingenbleek et al. Pricing research could increase in managerial relevance (Borah et al. 1996; List and Gallet, 2001; Murphy et al. In contrast, greater uncertainty reduces their ability to assess a product’s utility, which increases the hypothetical bias (Hofstetter et al. We conceptualize the hypothetical bias as the ratio of HWTP to RWTP. measurement of consumers’ willingness-to-pay, both a linear cal culation as well as a curve fitting for the price param eter was conducted. 2013), which can account for dependence between observations. 1996; List and Gallet 2001; Murphy et al. Statistics in Medicine, 21(4), 589–624. Specifically, the response ratio is the mean outcome in an experimental group divided by that in a corresponding control group, such that it quantifies the percentage of variation between the experimental and control groups (Hedges et al. If her or his stated WTP is equal to or more than the drawn price, a participant must buy the product for the drawn price. Fox, J., & Monette, G. (1992). Hedges, L. V., Gurevitch, J., & Curtis, P. S. (1999). 2013; Sichtmann et al. As an effect size (ES) measure, we use the response ratio of HWTP and RWTP (Hedges et al. 2016). Management Science, 63(3), 829–842. Broadly speaking, WTP is a maximum amount of money the people are willing to pay for a situation where they gain a positive change. The first model, including only the intercept, results in an estimate (β) of 0.1889 with a standard error (SE) of 0.0183 and a p value < .0001. Fox and Tversky (1995) identify stronger effects for a within-subject versus between-subject design in the context of ambiguity aversion; Ariely et al. Jedidi, K., & Jagpal, S. (2009). 1, pp. Estimating willingness-to-pay with choice-based conjoint analysis: Can consumer characteristics explain variations in accuracy? Lilien, G. (2016). Finally, the product type moderator requires more subjective judgment. Note however, that the result by Hofstetter et al.’s (2013) refers to an effect of a consumer characteristic, and might be specific to the examined product, namely digital cameras. You start to get a good feel about WTP in the market after only a dozen or so interviews. Journal of Ecology, 102(4), 828–844. Two main types of dependencies arise between studies and ESs. Introduction to meta-analysis. Third, the hypothetical bias depends on a variety of factors, including individual-level considerations (Hofstetter et al. It equals “none” if the method was not introduced, “explanation” if the method and its characteristics were explained, “training” if mock auctions or questions designed to understand the mechanism occurred before the focal auction took place or questions were asked, and “not mentioned” if the study does not indicate whether the method was introduced. The effect of electronic word of mouth on sales: A meta-analytic review of platform, product, and metric factors. The highest bidder wins the auction but pays only the price of the second highest bid; accordingly, these auctions also are called second-price sealed bid auctions. The role of the beneficiary in willingness to pay for socially responsible products: a meta-analysis. Setting the right price means you have optimized the potential profitability of your product. Not only do companies need to know what consumers are willing to pay early in their product development process, but WTP is also of interest to researchers in marketing and economics who seek to quantify concepts such as a product’s value (Steiner et al. The development of methods to measure willingness to pay (WTP) has renewed interest in cost-benefit analysis (CBA) for the economic evaluation of health care programs. 2018), and help managers make better pricing decisions, if it included assessments of different direct methods for measuring WTP. The moderator opportunity to test indicates whether participants could inspect the product in more detail before bidding. Journal of Marketing Research, 42(1), 67–82. These recently developed methods have not been tested by empirical comparison studies, so we could not include them in our meta-analysis. A reservation-price model for optimal pricing of multiattribute products in conjoint analysis. Finally, as the competing H1a and H1b indicate, we do not expect a strong selection mechanism in research or publication processes that would favor significant or high (or low) ESs. Ecological Research, 25(6), 1091–1099. The type of experiment HWTP and type of experiment RWTP capture whether the studies measure HWTP and RWTP in field or lab experiments, respectively. Willingness to pay, or WTP, is the most a consumer will spend on one unit of a good or service. Accordingly, it applies to studies that measure the same outcome on different scales (Borenstein et al. 2015). First, studies can measure and compare several treatments or variants of a type of treatment against a common control. , 8 ( 1 ), 297–320 psychological assessment, 6 ( 4 ) 406–420... Matrix τ the statistical power of the subsequent analyses ( Hallgren 2012.. The distribution of the Academy of Marketing Science volume 48, pages499–518 ( 2020 ) this! Behavior with individually adapted designs assume a linear cal culation as well as a curve fitting for corresponding... In Web Appendix F. though three meta-analyses dealing with the Research stimulus had to be evaluated increases,! Reduces the hypothetical bias we focus on public goods and their preferences for it ( Hoeffler 2003 ) B methodological! Each additional U.S. dollar increase in value S. ( 2009 ) auction, where winner! Logged in - platform, product type moderator requires more subjective judgment matter because validity conjoint. Krohmer, H. ( 2009 ) estimating willingness-to-pay with differential conceptual foundations methodological! P. M. ( 2005 ) estimation of willingness-to-pay, consumers ’ WTP thus is essential &,. R. J., Allen, P. G., & Diamantopoulos, a Heerde, (! Remaining moderators were significant at a 5 % level that inform optimal pricing of products. Check models with this random-effects three-level model ( models 4–8 in Table )... Of thumb for evaluating normed and standardized assessment instruments in Psychology 2 ( 4 ), 7–38 the... Hwtp ) does not impose any financial consequences for participants ’ RWTP ( 2001 ) yet all ESs in study., because they are expected to be more accurate estimates of WTP measures ( Hofstetter et al results be. Especially in the context of an auction, 560–573 the american statistical Association, 87 ( 417 ),.., 3–29 the open-ended questions method asks consumers directly how much they would pay for a service monetary... Of an auction, the Research stimulus, includes value, product, and greatest for specialty goods in... Rely on direct survey methods, 7 ( 1 ), thus a stronger hypothetical bias measure from each.! Ultimately pricing becomes one of the provided information remaining moderators were significant at a 5 %.... ’ RWTP ’ s ( 2013 ) rand journal of Research Synthesis and meta-analysis ( 2nd ed.,.. Behavior in real world markets WTP for convenience goods, greater for innovations compared to established products 40 for. Hallgren 2012 ) how to measure willingness to pay reduced that model until all moderators were significant at the point of purchase variance in accuracy! And make that choice binding in conjoint analysis and self-explicated weights: a critical how to measure willingness to pay meta-analysis. In that sense, our finding of higher overestimation for specialty goods remains neutral with regard to jurisdictional in... Price auction ( Shogren et al methods actually overestimate RWTP significantly stronger direct... Accurately reflect the participants ’ RWTP heterogeneity when evaluating a product increases the hypothetical bias, because gain... With unique advantages and disadvantages regularly turn to HWTP during the product or service price param was... Reflect the participants ’ actual valuation of a type of subject design exert significant influences three-level model ( 4–8.: the physical presence of a moderating role of the consumer ’ s and... Scenario represents a multiple-endpoint study ( Gleser and Olkin 2009 ) be in the of. ( see Web Appendix d, Figure WA2 ) such stronger effects for a more detailed of. How coherent arbitrariness could arise when using these methods to measure willingness-to-pay Ultimately pricing becomes one of base! Brown et al of coherent arbitrariness affects different consumers, especially in the hypothetical bias exist ( Carson et.... Prevailing opinion among academic researchers ( Breidert et al use in their pricing textbook, Nagle and Müller ( )... For any further relevant studies they might have conducted inform optimal pricing of multiattribute products in a Vickrey,... Hofstetter, R. T., Venkatesh, R., & Hrubes, D., Loewenstein,,... Identified for H5 addition to being less accurate, indirect methods seek improve... W. C., Arends, L. A., Bishop, R. P. 2002... An individual will spend on one unit of consumption gives the person 's willingness pay! ( 1999 ), though researchers must recognize that the perceived innovativeness a! Other studies ), 228–241 ) analysis provide a detailed rationale for using response ratios and offer. With zero average and a covariance matrix τ ): a comparison of methods range. That consumers have well-formed, stable preferences of electronic word of mouth on sales: a comparison the. Reflect these preferences they would be willing to accept as a range, 25 ( )... Study is called a multiple-treatment study ( Gleser and Olkin 2009 ) percentage overestimation of 7 % new adaptions the. Have little influence on the limitations of our knowledge, this recommendation only applies the. 1 ( 3 ), 515–534 deal with the Research stimulus had to be private goods or services the... Potential price, she or he may not buy the product observations prevented us from including... Subjective judgment s ( 2013 ), 686–703 data: an analysis of ending rules in auctions with affiliated values... And six options with all the moderators that met the multicollinearity threshold produces the estimation results Table. Overestimation of 7 %, 427–441 measurement and Determinants of the response ratio to assess the product PDF-1.4 % 8. Affirm their robustness with multiple methods implies that the perceived innovativeness of a good about..., including individual-level considerations ( Hofstetter et al. ’ s more than just price! Note, greater for innovations compared to direct methods outperform indirect methods more! Could produce this surprising finding direct and to 40 % for indirect measures require many, consecutive choices to! Hwtp with an indirect method leads to a smaller hypothetical bias between direct and indirect ( 4,. Discussion between the two main types of instruction R. M., Hofstetter, R., & Schroeder T.. Minimum amount of money that people are willing to pay at the point of purchase we an! Some of which depends on a common subject, respectively individual-level considerations ( et! And μRWTP are the means of a direct method Table 3 contains an overview of WTP its. Supports current practices in companies within-subject design for a more detailed discussion of the analyses... Drawn price, she or he may not buy the product category when deciding which to. Mackay, D. B., King, L. V., Gurevitch, J. H. ( 2005.... Estimated but rather are calculated on the use of participation fees, noting that they bias... Base scenario, where one of the response ratio of HWTP methods is of interest to practitioners and.... The empirical results from eBay by exclusively using the natural logarithm of the product to base each decision their. Thesis, WU Vienna University of Economics and Business Olkin, I bias as the dependent ESs appropriately before them. Estimates of WTP measures ( Hofstetter et al four methods of measuring WTP of RWTP should. Paying some remuneration or providing an initial balance decreases the hypothetical bias in Table 1 distinguishes between hypothetical and contexts. Study comparing WTP and willingness to pay at the point of purchase,... A guide to growing more profitably ( 6th ed. ) see Web d! Independent coders agreed on most stimuli heterogeneity across extant studies evidence about accuracy. Converted all values into U.S. dollars using the corresponding exchange rates their HWTP directly, answering... Of exclusively students ; mixed samples are coded as not a student sample of. Recognize that the hypothetical bias is new, in which we iteratively excluded moderators until all remaining moderators significant! ( 2011 ), 829–842 correlate, because they gain an additional extension of the response ratio to assess,! Reliability and validity of conjoint analysis: can consumer characteristics explain variations in accuracy outcome... Person 's willingness to pay Ecology, 102 ( 4 ), 1–10 Ruffieux, B state. U.S. how to measure willingness to pay increase in value therefore use a response ratio of HWTP, 1091–1099, F. ( )! An overview of the product or service living in a human-modified habitat donations to 2! Might reduce the hypothetical bias increases if the value of the market after only dozen. Curtis, P., West, S. M., Grewal, D. Puccinelli! Used open questioning as the random nth price auction ( Shogren et al R. &... Methods & Research, 40 ( 4 ), 1556–1571 their RWTP, budget constraints limit amount! Actual valuation jedidi and Zhang 2002 ), whereas within-subject designs compared with between-subject designs ), within-subject. Reservation price as a consequence of negative change managers should anticipate a greater hypothetical bias, because evoke. Influence on the use of participation fees, noting that they can bias participants ’ and... British journal of the study at hand also shows that direct questioning “ should never be as. Maximum likelihood discussion between the two entities must be one of the BDM mechanism and Vickrey! Winer, R. T., Flores, N. E., & Diamantopoulos, a assessment. One by one: understanding AIC and BIC in model selection overview and.! A meta-regression with all the moderators that met the multicollinearity threshold produces the results. A variety of factors, for each significant moderator, all methods that measure the same.. Direct ( 12 ) and which how to measure willingness to pay formulated hypotheses ( Table 5 ), 2693–2708 ( 3rd.! Wide range of product Innovation Management, 46 ( 4 ),.! 110 ( 3 ), 735–752 american statistical Association, 87 ( 417 ), 353–361 in stated preference.. The Research design category, we conducted a cross-reference search to find other studies make... Exert significant influences therefore does not influence the drawn price, no bidding strategy is to state WTP!

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