A De-Biased Direct Question Approach to Measuring Consumers' Willingness to Pay

64 Pages Posted: 23 Apr 2020 Last revised: 24 Apr 2020

See all articles by Reto Hofstetter

Reto Hofstetter

University of Lucerne - Faculty of Economics and Management

Klaus M. Miller

HEC Paris

Harley Krohmer

University of Bern

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: April 24, 2020

Abstract

Knowledge of consumers' willingness to pay (WTP) is a prerequisite to profitable price-setting. To gauge consumers' WTP, practitioners often rely on a direct single question approach in which consumers are asked to explicitly state their WTP for a product. Despite its popularity among practitioners, this approach has been found to suffer from hypothetical bias. In this paper, we propose a rigorous method that improves the accuracy of the direct single question approach. Specifically, we systematically assess the hypothetical biases associated with the direct single question approach and explore ways to de-bias it. Our results show that by using the de-biasing procedures we propose, we can generate a de-biased direct single question approach that is accurate enough to be useful for managerial decision-making. We validate this approach with two studies in this paper.

Keywords: Market Research, Pricing, Demand Estimation, Direct Estimation, Single Question Approach, Choice Experiments, Willingness to Pay, Hypothetical Bias

JEL Classification: D40, M21, M30

Suggested Citation

Hofstetter, Reto and Miller, Klaus and Krohmer, Harley and Zhang, Z. John, A De-Biased Direct Question Approach to Measuring Consumers' Willingness to Pay (April 24, 2020). Available at SSRN: https://ssrn.com/abstract=3543473 or http://dx.doi.org/10.2139/ssrn.3543473

Reto Hofstetter

University of Lucerne - Faculty of Economics and Management ( email )

Frohburgstrasse 3
Postfach 4466
Luzern, LU 6002
Switzerland
412295880 (Phone)

Klaus Miller (Contact Author)

HEC Paris ( email )

Paris
France

Harley Krohmer

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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