TY - JOUR

T1 - Measuring willingness to pay as a range, revisited

T2 - When should we care?

AU - Dost, Florian

AU - Wilken, Robert

PY - 2012/6

Y1 - 2012/6

N2 - Recent research has conceptualized consumers’ willingness to pay (WTP) as a range rather than as a single point. However, there are important gaps in this research stream: The existing method to measure WTP as a range, ICERANGE, features restrictive assumptions and is rather complex, such that it hampers real-world applications. Furthermore, it is unclear what has been measured in the past with point-based methods, compared with WTP ranges; thus, researchers cannot evaluate “traditional” WTP measurements. Most importantly, why should anyone even care about WTP ranges? In making pricing decisions, aggregate-level information is common, and the add-on information contained in individual WTP ranges would seemingly become obsolete when averaging it across consumers. This article addresses all three issues: We show empirically that traditional point-based methods reveal the midpoint of WTP ranges. Our proposed range-based method, which is simpler and less restricted than ICERANGE, achieves comparable performance. We use a Monte Carlo simulation to show that, except for in rather artificial conditions, point-based methods fail to reproduce the revenue-maximizing prices identified by range-based methods. Together, these results deliver a compelling argument for the use of range-based methods to elicit WTP in real-world applications.

AB - Recent research has conceptualized consumers’ willingness to pay (WTP) as a range rather than as a single point. However, there are important gaps in this research stream: The existing method to measure WTP as a range, ICERANGE, features restrictive assumptions and is rather complex, such that it hampers real-world applications. Furthermore, it is unclear what has been measured in the past with point-based methods, compared with WTP ranges; thus, researchers cannot evaluate “traditional” WTP measurements. Most importantly, why should anyone even care about WTP ranges? In making pricing decisions, aggregate-level information is common, and the add-on information contained in individual WTP ranges would seemingly become obsolete when averaging it across consumers. This article addresses all three issues: We show empirically that traditional point-based methods reveal the midpoint of WTP ranges. Our proposed range-based method, which is simpler and less restricted than ICERANGE, achieves comparable performance. We use a Monte Carlo simulation to show that, except for in rather artificial conditions, point-based methods fail to reproduce the revenue-maximizing prices identified by range-based methods. Together, these results deliver a compelling argument for the use of range-based methods to elicit WTP in real-world applications.

KW - Willingness to pay as a range

KW - ICERANGE

KW - BDM mechanism

KW - Demand functions

KW - Monte Carlo simulation

U2 - 10.1016/j.ijresmar.2011.09.003

DO - 10.1016/j.ijresmar.2011.09.003

M3 - Journal article

VL - 29

SP - 148

EP - 166

JO - International Journal of Research in Marketing

JF - International Journal of Research in Marketing

SN - 0167-8116

IS - 2

ER -