Willingness to Pay: Measurement and Managerial Implications

Accurately measuring consumers’ willingness to pay (WTP) is central to any pricing decision. This chapter attempts to synthesize the theoretical and empirical literatures on WTP. We fi rst present the various conceptual defi nitions of WTP. Then, we evaluate the advantages and disadvantages of alternative methods that have been proposed for measuring it. In this analysis, we distinguish between methods based on purchase data and those based on survey/experimental data (e.g. self-stated WTP, contingent valuation, conjoint analysis and experimental auctions). Finally, using numerical examples, we illustrate how managers can use WTP measures to make key strategic decisions involving bundling, nonlinear pricing and product line pricing.

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