Measuring willingness to pay as a range, revisited: When should we care?

Florian Dost, Robert Wilken

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)148-166
Number of pages19
JournalInternational Journal of Research in Marketing
Volume29
Issue number2
DOIs
Publication statusPublished - 1 Jun 2012

Keywords

  • BDM mechanism
  • Demand functions
  • ICERANGE
  • Monte Carlo simulation
  • Willingness to pay as a range

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