How Do Consumer Characteristics Affect the Bias in Measuring Willingness to Pay for Innovative Products?

Getting the price right is essential for successful new product introductions. An accurate estimate of consumers' willingness to pay is a crucial part of this task. Measurement of willingness to pay for innovations, however, often yields biased results. In this paper, we investigate consumer-related characteristics and motives that might underlie this bias. We show, conceptually and empirically, that the validity of willingness to pay statements is higher among consumers who show a high ability to assess the new product’s utility and who are truly interested in purchasing the new product. Counter to intuition, we also find that willingness to pay statements from innovators, consumers with good product category knowledge, or consumers who perceive the new product to be highly innovative, are relatively more biased and should be interpreted with caution.

[1]  Richard C. Bishop,et al.  Which Response Format Reveals the Truth about Donations to a Public Good , 1996 .

[2]  Erwin Danneels,et al.  Product innovativeness from the firm's perspective: Its dimensions and their relation with project selection and performance , 2001 .

[3]  Klaus Miller,et al.  How Should Consumers’ Willingness to Pay be Measured? An Empirical Comparison of State-of-the-Art Approaches , 2011 .

[4]  G. Kalyanaram,et al.  Empirical Generalizations from Reference Price Research , 1995 .

[5]  Miyumi Shirai.  An Analysis of Multi-Dimensional Internal Reference Prices , 2003 .

[6]  Richard P. Bagozzi,et al.  Assessing Construct Validity in Organizational Research , 1991 .

[7]  E. Hippel,et al.  Customers As Innovators: A New Way to Create Value , 2002 .

[8]  Rabikar Chatterjee,et al.  Reservation Price as a Range: An Incentive-Compatible Measurement Approach , 2007 .

[9]  Shelley E. Taylor,et al.  Social cognition, 2nd ed. , 1991 .

[10]  C. Fornell,et al.  Evaluating structural equation models with unobservable variables and measurement error. , 1981 .

[11]  A. Tversky,et al.  Choice in Context: Tradeoff Contrast and Extremeness Aversion , 1992 .

[12]  R. Blundell,et al.  Market share, market value and innovation in a panel of British manufacturing firms , 1999 .

[13]  R. Carson.  Contingent Valuation: A User's Guide† , 1999 .

[14]  Min Ding,et al.  Eliciting Preference for Complex Products: A Web-Based Upgrading Method , 2008 .

[15]  Babette Kass,et al.  Book Review: A Comprehensive and Analytical Compendium of a Specialized Branch of Communications: Communication of Innovations, a Crosscultural Approach , 1973 .

[16]  Richard C. Bishop,et al.  Donation Payment Mechanisms and Contingent Valuation: An Empirical Study of Hypothetical Bias , 2001 .

[17]  Terry S. Overton,et al.  Estimating Nonresponse Bias in Mail Surveys , 1977 .

[18]  Daniel C. Smith,et al.  The Effects of Brand Extensions on Market Share and Advertising Efficiency , 1992 .

[19]  C. Lüthje,et al.  Quellen für Neuproduktideen , 2005 .

[20]  R. Cooper,et al.  The Impact of Product Innovativeness on Performance , 1991 .

[21]  B. Skiera,et al.  Measuring Consumers' Willingness to Pay at the Point of Purchase , 2002 .

[22]  J. Payne,et al.  Product category familiarity and preference construction , 1998 .

[23]  David W. Gerbing,et al.  An Updated Paradigm for Scale Development Incorporating Unidimensionality and Its Assessment , 1988 .

[24]  D. Prelec,et al.  Contrast Effects in Consumer Judgments : Changes in Mental Representations or in the Anchoring of Rating Scales ? , 2007 .

[25]  David Gal,et al.  Answering the Unasked Question: Response Substitution in Consumer Surveys , 2011 .

[26]  D. Ariely,et al.  Constructing Stable Preferences: A Look Into Dimensions of Experience and Their Impact on Preference Stability , 1999 .

[27]  Kamel Jedidi,et al.  Willingness to Pay: Measurement and Managerial Implications , 2009 .

[28]  Peter Bohm,et al.  Revealing demand for an actual public good , 1984 .

[29]  N. Pennington,et al.  Human judgment and decision making: Theories, methods, and procedures , 1980 .

[30]  Dale J. Menkhaus,et al.  Using Laboratory Experimental Auctions in Marketing Research: A Case Study of New Packaging for Fresh Beef , 1993 .

[31]  H. Ernst.  Success Factors of New Product Development: A Review of the Empirical Literature , 2002 .

[32]  Steve Hoeffler,et al.  Measuring Preferences for Really New Products , 2003 .

[33]  John R. Hauser,et al.  Design and marketing of new products , 1980 .

[34]  Richard W. Olshavsky,et al.  An Exploratory Study of the Innovation Evaluation Process , 1996 .

[35]  Chris Janiszewski,et al.  A Range Theory Account of Price Perception , 1999 .

[36]  J. Jacoby,et al.  Consumer Behavior , 2024 .

[37]  E. von Hippel,et al.  Sources of Innovation , 2016 .

[38]  Ruud T. Frambach,et al.  Successful New Product Pricing Practices: A Contingency Approach , 2003 .

[39]  Graham K. Morbey,et al.  R&D: Its relationship to company performance , 1988 .

[40]  G. Tellis,et al.  Contextual and Temporal Components of Reference Price , 1994 .

[41]  H. J. Einhorn,et al.  Expression theory and the preference reversal phenomena. , 1987 .

[42]  F. Johne,et al.  Success Factors in Product Innovation: A Selective Review of the Literature , 1988 .

[43]  Scot Burton,et al.  Distinguishing Coupon Proneness from Value Consciousness: An Acquisition-Transaction Utility Theory Perspective , 1990 .

[44]  William O. Bearden,et al.  A comparative analysis of two models of behavioral intention , 1992 .

[45]  A. Tversky,et al.  Choice in Context: Tradeoff Contrast and Extremeness Aversion , 1992 .

[46]  M. Degroot,et al.  Measuring utility by a single-response sequential method. , 1964, Behavioral science.

[47]  T. R. Stewart,et al.  10 – SOCIAL JUDGMENT THEORY , 1975 .

[48]  J. Hoseason.  Pricing: Making Profitable Decisions , 2003 .

[49]  Amitai Etzioni.  Normative-Affective Factors: Toward a New Decisionmaking Model , 1988 .

[50]  John E. Hogan,et al.  Driving growth with new products: common pricing traps to avoid , 2006 .

[51]  John B. Loomis,et al.  Improving Validity Experiments of Contingent Valuation Methods: Results of Efforts to Reduce the Disparity of Hypothetical and Actual Willingness to Pay , 1996 .

[52]  R. Bagozzi,et al.  On the evaluation of structural equation models , 1988 .

[53]  C. Frith.  Social cognition , 2008, Philosophical Transactions of the Royal Society B: Biological Sciences.

[54]  Edward J. Balistreri,et al.  Can Hypothetical Questions Reveal True Values? A Laboratory Comparison of Dichotomous Choice and Open-Ended Contingent Values with Auction Values , 2001 .

[55]  Robert Cameron Mitchell,et al.  Using Surveys to Value Public Goods: The Contingent Valuation Method , 1989 .

[56]  J. W. Hutchinson,et al.  Dimensions of Consumer Expertise , 1987 .

[57]  E. Hippel,et al.  Lead users: a source of novel product concepts , 1986 .

[58]  Glenn C. Blomquist,et al.  Contingent Valuation When Respondents Are Ambivalent , 1995 .

[59]  R. Gregory,et al.  How precise are monetary representations of environmental improvements , 1995 .

[60]  Stephen J. Hoch,et al.  Consumption Vocabulary and Preference Formation , 1996 .

[61]  Glenn W. Harrison,et al.  Chapter 81 Experimental Evidence on the Existence of Hypothetical Bias in Value Elicitation Methods , 2008 .

[62]  Min Ding.  An Incentive-Aligned Mechanism for Conjoint Analysis , 2007 .

[63]  Charles F. Hofacker,et al.  Measuring Consumer Innovativeness , 1991 .

[64]  Christoph Fuchs,et al.  Customer Empowerment in New Product Development , 2011 .

[65]  P. Green,et al.  Research for Marketing Decisions. , 1967 .

[66]  Manoj Thomas,et al.  When Internal Reference Prices and Price Expectations Diverge: The Role of Confidence , 2007 .

[67]  Alexander Chernev,et al.  Reverse Pricing and Online Price Elicitation Strategies in Consumer Choice , 2003 .

[68]  Bruce L. Stern,et al.  Research for Marketing Decisions , 1978 .

[69]  D. Midgley,et al.  Innovativeness: The Concept and Its Measurement , 1978 .

[70]  K. P. Kaas,et al.  Are the Vickrey Auction and the BDM Mechanism Really Incentive Compatible? — Empirical Results and Optimal Bidding Strategies in Cases of Uncertain Willingness-to-pay , 2006 .

[71]  Benjamin L. Campbell,et al.  On the Use of Valuation Mechanisms to Measure Consumers' Willingness to Pay for Novel Products: A Comparison of Hypothetical and Non-Hypothetical Values , 2007 .

[72]  R. Calantone,et al.  New Product Success: Is It Really Controllable by Managers in Highly Turbulent Environments? , 2008 .

[73]  Gary E. Bolton,et al.  INCENTIVE-ALIGNED CONJOINT ANALYSIS , 2004 .

[74]  N. Piercy,et al.  Marketing out of the recession: recovery is coming, but things will never be the same again , 2010 .

[75]  Kent B. Monroe,et al.  Pricing: Making Profitable Decisions -3/E , 2006 .

[76]  James J. Murphy,et al.  A Meta-analysis of Hypothetical Bias in Stated Preference Valuation , 2003 .

[77]  Christina Sichtmann,et al.  An empirical comparison of methods to measure willingness to pay by examining the hypothetical bias , 2005 .

[78]  Trudy Ann Cameron,et al.  Estimating Willingness to Pay from Survey Data: An Alternative Pre-Test-Market Evaluation Procedure , 1987 .

[79]  J. Cacioppo,et al.  Central and Peripheral Routes to Advertising Effectiveness: The Moderating Role of Involvement , 1983 .

[80]  John T. Cacioppo,et al.  The Elaboration Likelihood Model of Persuasion , 1986, Advances in Experimental Social Psychology.

[81]  Gilbert A. Churchill.  A Paradigm for Developing Better Measures of Marketing Constructs , 1979 .