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How to price your products by using a willingness to pay survey

One could argue that consumers are constantly playing their own version of The Price Is Right.

At any given time, they have a clear sense of what they are willing to pay for a particular product, and what price represents a bridge too far.  

Aptly, in behaviour science and in the business world, this is called willingness to pay. Understanding the concept of willingness to pay and its many implications is vital to pricing products in a way that strikes an ideal balance; you don’t want to charge too little and leave profits on the table, but neither do you want to charge too much and discourage potential customers from opening up their wallets. 

This is critical because you definitely don’t want to find out that your prices are too high after your product is already out in the world. To avoid that, willingness to pay surveys are the most effective tools to identify clear pricing parameters before the price sticker hits your product.  

Willingness to pay, sometimes abbreviated as WTP, is the maximum price a customer is willing to pay for a product or service. Although potential customers are probably willing to pay less than the willingness to pay threshold, in most cases, they won't pay a higher price. Typically, willingness to pay is represented by a pound figure, but in some cases, it can be a price range.

The importance of nailing down your customers’ willingness to pay takes on considerable urgency when you consider that one in two B2C consumers and two in five B2B consumers say that price is one of their top three considerations when making a purchase decision.

Beyond willingness to pay, companies need to understand the concept of willingness to accept.

While willingness to pay focuses on what a consumer is willing to give, willingness to accept refers to what you, the seller, can afford to accept for your good or service. 

These two concepts intersect at the transaction cost, which will be any point between a buyer's willingness to pay and a seller's willingness to accept. This is the sweet spot that keeps the wheels of commerce turning. 

As mentioned, surveys are a critical tool in getting pricing right and identifying the willingness to pay threshold for any product or service. Through willingness to pay surveys, companies can go to market with confidence that a product is priced in a way that encourages consumers to buy, while still maximising profits. Willingness to pay surveys can also help companies adjust prices based on changing trends or other external factors that might be having an impact on consumer buying behaviours. 

Because money can be a sensitive topic, it’s important that you carefully consider how you ask about willingness to pay in surveys. There are also some key considerations that can help you make sure you are getting the most accurate data and feedback via your surveys. Here are two factors to be aware of as you create your willingness to pay surveys:

  1. Specify currency: A pound in the United Kingdom doesn’t have the same value as a yen in Japan. With that in mind, it is critical to make sure that you specify the currency you are looking for in your surveys.  
  2. Cadence: If you are offering an ongoing or subscription service, make sure that your survey specifies the cadence of payments, such as one-off, monthly or annual. And do your market research ahead of time, as it can pay dividends to see the pricing cadence that competitors are using for similar services prior to administering your survey.

Because open-ended questions give respondents an open road to answer questions in their own words, they can lead to all kinds of willingness to pay insights. An example would be the open-ended question “How much would you expect this product/service to cost?” with a text box for respondents to fill in their own answer. Depending on how much you know about your product’s demand, your target market and other related factors, the qualitative results from an open-ended question like this may surprise you and lead to new pricing considerations.  

Open-ended questions work particularly well in willingness to pay surveys that are focused on a new product or service. For instance, if consumers don’t have a set idea about how much your product or service costs, then open-ended questions will allow you to gauge expectations of how much your target audience might be willing to pay, without prompting them with certain answer choices.

Open-ended questions can be ideal when you want to enhance things like:

  • Full detail concepts: Even when you have a fully thought-out concept for a potential product or service, it can be helpful to test the waters with open-ended questions. That way, you can confirm how your details and specifications will resonate with customers.  
  • Concepts with existing competitors: Open-ended questions work well when you are trying to determine the ways in which a new product or service might be differentiated from similar offerings from your competitors, and how your pricing might stack up against what else is on the market. 
  • Limited response set: In a limited response set, respondents are provided with a limited number of answer options to choose from. It can be extremely beneficial to follow up a limited response set with some open-ended context, i.e. a textbox where respondents can explain their choice in more detail.

Bear in mind that because of the freedom of open-ended responses, these questions are considered more challenging to analyse than closed-ended questions. However, text analysis features such as sentiment analysis and world clouds are a powerful way to quickly home in on customer sentiment related to willingness to pay.

Closed-ended questions provide respondents with predetermined answer options; in willingness to pay surveys, these might include specific price points or several different price ranges. Because closed-ended questions are used to collect concrete results and detect trends, they can be useful for answering particular pricing questions and gaining high-level insights. 

Asking “How much would you expect this to cost?” as a closed-ended question would require several answer options, as opposed to an open-ended text box. It’s also important to consider the following:

  • Number of answer options: The number of pricing options that you provide can vary depending on the specific situation and what you aim to achieve. However, a general rule of thumb is to provide respondents with four to six answer options.   
  • Multiple choice or ranges: Consider whether you want your answer choices to reflect specific pound amounts or price ranges. While the former might result in more concrete answers, the latter allows a bit more room for pricing flexibility. 

There are often instances in which the efficiency and clarity provided by closed-ended questions makes the most sense for willingness to pay surveys. Although open-ended expected cost questions are usually preferable because you are not in any way “leading the witness”, closed-ended questions are ideal in situations in which you are limited in the possible price points you can charge. For example, perhaps you have already determined that your service will be offered at one of three price points and you are looking for direction on which one most people are willing to pay. Using a price testing template can offer a shortcut to presenting closed-ended questions with limited, predetermined options.  

Closed-ended questions can be particularly useful when your exploration of willingness to pay involves:

  • High-level (low detail) concepts: Close-ended questions can be a good choice when you are in the very early stages of developing a new product or service and you want some clarity on the direction that would be likely to be most appealing to potential customers. 
  • Concepts without existing competitors: In this case, you are not trying to differentiate from a similar competitor product, but rather develop an entirely new one. With closed-ended questions, you can find out whether consumers would be willing to pay for this type of product and gain a sense of how much they might pay.  
  • Limited response set: In a sense, all closed-ended survey questions offer a limited response set because the respondents’ options are not unlimited. However, there may be instances, such as the price range example cited above, in which it makes sense to only offer three choices to respondents. 
  • Price sensitivity: Price sensitivity is how much impact the price of a product has on the customer’s demand or willingness to buy, and the ability to quantitatively measure price sensitivity is an important factor to consider when you’re aiming to land on that just-right price.

High consumer price sensitivity means that there is a strong relationship between the price and customer demand. When the price increases substantially, sales will fall. In contrast, if the item price is too low, sales may remain largely unaffected by a change in price. 

When it comes to analysing closed-ended responses in willingness to pay surveys, make sure you take advantage of features like crosstabulation and benchmarking, which will help you distil pricing data and make easier, faster decisions.

Van Westendorp’s Price Sensitivity Model is a multi-question model that has proven to be an effective way to indirectly measure willingness to pay instead of directly posing the question to potential buyers.

Rather than asking potential buyers to identify a single price point, the Van Westendorp model helps assess a range of prices.

For this pricing model to work its magic, the following four questions must be posed at the end of the survey:

  1. What price would be so low that you would start to question this product’s quality?
  2. At what price would you consider this product a bargain?
  3. At what price does this product begin to seem expensive?
  4. At what price is this product too expensive?

The Van Westendorp model is highly effective in gauging consumer sentiments about a potential range of prices. By moving away from just a single question regarding pricing, bias is reduced and you get a more comprehensive perspective on the price range consumers are willing to pay for a product or service.

If you want your products and services to sell, and to sell in ways that are profitable, it’s critical that you land on that sweet spot where the price is right. Using willingness to pay surveys makes both you and your customers winners. To get started, sign up for a free SurveyMonkey account.

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