We have seen studies on what the average customers say they are willing to pay for:
These studies are based on polls conducted with customers, asking questions of the type (examples, not specific to any one poll):
- How likely are you to pay 5%, 10%, 15% … price premium for factors X, Y or Z?
- The current product you buy is priced at $12, will you pay $14, $15, $16 … for the same product that are produced in green/socially responsible way?
The results from these polls are quoted in the form of “the price premium the average customer is willing to pay for the same products only enhanced”.
There are two big issues I find with any poll based study of willingness to pay:
- They can only measure customer’s attitudinal willingness to pay, not behavioral. That is, what the customers say and not what they actually will do. There is a huge attitude to behavior gap. Customers will say what they think is the right answer or what they think the poll taker is interested in hearing. By the time the customer gets to the point of purchase the stated WTP may not materialize.
- There are no average customers just like there are no families with 2.1 children. The studies do not take into account that different segments value different benefits and hence have different willingness to pay. There is no point in providing the same product or same great customer service to all the customers.
These arguments should not be interpreted as, “no one is willing to pay premium for product or service enhancements”. After all there are at least 250 people willing to pay $33,000 for their mattresses. It is just that we cannot make business decisions based on what an average customer is saying about what they are willing to pay. For the results to be actionable, we need to find out what the segments are, how to target them, what benefits they value and what they are willing to pay for these benefits. For that we need point of sale data or at the very least a conjoint study.
There is no average customer and if there is one, what he/she says about their willingness to pay is not reliable.