A MODEL FOR ESTIMATING WILLINGNESS TO PAY USING MULTI-FACTORIAL DESIGNS WITH PRICE AS A RESPONSE IN SOUTH AFRICA

Abstract

Knowledge of consumers’ willingness-to-pay (WTP) provides a company with invaluable data for both pricing decisions and product development. Without an understanding of consumers’ WTP for its products, a company may not pursue an optimal pricing strategy or achieve its pricing objectives. There are theoretical and practical shortcomings associated with existing WTP models. The purpose of this study was to develop a model for estimating consumers’ WTP in order to facilitate determination of the optimal price for new products or relaunched products. To address some of the shortcomings of existing WTP models, multi-factorial experiments and direct survey stated preference methods were integrated in a novel WTP model. The proposed model produces predictive equations for six stated price responses, including the WTP price. To empirically establish the validity of the proposed model, the ability of the model to estimate WTP at the individual and group level was evaluated in a representative market. The cell phone handset market was chosen as a representative market. In this market, the proposed model produced statistically significant predictive equations for stated WTP at the individual, group, and subgroup level.