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Wednesday, June 20, 2018

Willingness to Pay vs Like What You Buy

This often took a place in research we did. 

Why Willingness to Pay Doesn’t Mean Consumers Like What They Buy in Knowledge@Wharton

Marketers have long relied on willingness to pay as a way to gauge consumer preference for a product, and rightly so. At the height of the Cabbage Patch Kids doll craze in the 1980s, sales passed the $600 million mark, according to Bloomberg News. Now the toy line has an estimated revenue of $50 million a year, indicating a much lower consumer preference. But new research from Alice Moon, Wharton professor of operations, information and decisions, shows that willingness to pay isn’t always a clear indicator of preference. The paper is titled, “The Uncertain Value of Uncertainty: When Consumers are Unwilling to Pay for What They Like,” and was coauthored with Leif D. Nelson from the University of California, Berkeley. She spoke to Knowledge@Wharton about other factors that should be taken into consideration when marketers are trying to price their products.

An edited transcript of the conversation follows.

Knowledge@Wharton: Tell us about your research.

Alice Moon: One of the most critical issues for marketers is how to forecast consumer product interest and consumer preference. One way they frequently do this is by asking consumers how much they’re willing to pay as a measure of their interest in, or value for, that product. I study when that measure insufficiently captures how much a consumer values that product. I find that willingness to pay is informed by many factors, such as what price they think the market is setting for this product. Sometimes those types of factors overshadow the part of willingness to pay that signals preference. Because of that, when you’re trying to understand people’s preferences by looking at how much people are willing to pay for products, you’ll make the wrong assumption about how much they like it.

“[When] you’re trying to understand people’s preferences by looking at how much people are willing to pay for products, you’ll make the wrong assumption about how much they like it.” .... "

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