Careful what you ask for in WTP studies

In a seminal work titled “How the questions shape the answers” published in American Psychologist (1999), Norbert Schwarz describes how responses are influenced by question wordings, format and context. Schwarz writes,

“Self reports a fallible source of data and minor changes in question wording, question format or question context can result in major changes in the obtained results”

This is especially a more pronounced problem when it comes to survey questions that ask customers for their willingness to pay (WTP) for a product. When you directly ask a customer questions like:

  1. will you buy this product at  10?
  2. how much will you pay for product?  a) $4   b) $8   c) $10   d) $10    e)  $12
  3. will you buy this product if this were not offered free any more?

The researcher run the risk of getting answers that are not in any way  a true representation of what the customers will actually do. These kinds of questions assume that customers know how much they value the service and  customers are willing to disclose it. Another flaw in WTP studies is treating customer WTP as a fixed number in the minds of customers while it has been shown to be malleable (Thomas and Menon, Journal of Martket Research, 2006).

I saw a report from Forrester research on US customer WTP for online newpapers.  I admit I have not read the report but only their promotional blog post about it. The report claims 80% are not willing to pay for content From what I read I am not satisfied with study or its methods. The survey question was:

If the Web sites for the newspapers and magazines you read were no longer free, how would to prefer to pay for that content?

  1. Wouldn’t access them if I have to pay
  2. Subscription access to access all online content
  3. Subscription that combined print, web, and mobile device access
  4. Individual payment for each article read

The biggest flaw I find is anchoring – the question clearly reminds that the content has been free. The question  was too generic, asking  about newspapers and magazines you read and not about a specific newspaper or magazine. The respondents could be thinking of all newspapers, even those they read occasionally while answering this question.  There were no questions reminding respondents of value they get or to rank the online news sources by importance.   If the question had been,

If your most favorite newspaper cannot financially support the free online access, would you be willing to pay in one of the following ways?

  1. Subscription access to access all online content
  2. Subscription that combined print, web, and mobile device access
  3. Individual payment for each article read
  4. Wouldn’t access them if I have to pay

… the results would have completely different.

Based on their survey, Forrester  recommends:

  1. Publishers should continue to offer free, ad-supported products to the 80% of consumers who won’t pay for content online; and
  2. Publishers should offer consumers a choice of multichannel subscriptions, single-channel subscriptions, and micropayments for premium product access.

I do not agree. Even if we assume the 80% number is correct, does providing free provide higher profit than charging?  Do newspapers rally want higher reach (because of the Ad revenue)?

If a newspaper publisher really wants to find customer willingness to pay for content they need to do more targeted study of their readers,  use methods like Conjoint analysis to tease out the segments, how much customers in each value the product and focus on methods that help improve customer reference price before charging for content.

The net is the results are unreliable and Forrester’s recommendations are plain wrong.

Profit Not Attention

Milton Friedman said, “the business of business is business”. Assuming  every legal and ethical  i-s are dotted and t-s are crossed, a business’ goal is to make profit on the  investment. However this seem to be ignored increasingly in favor of gaining attention. The catchy phrase for this is “attention economics”. This is not different from the “eyeball economics” of the first Internet bubble.  The first bubble and its aftermath showed us one cannot take number of eyeballs to the bank.

Newspapers fell into this trap by making their online content available for free. The business justification was the Ad revenue generated from page views and non-business justification was, “to be part of the web conversation, to be linked and commented on”. After making the online versions free they rationalized their decision by looking at other newspapers that made their offering free and the big jump in the number of page views over the paid version.

But they failed to ask whether making the service free will deliver incremental profit over the current offering. They only looked at the new Ad revenue generated and ignored lost revenue from subscription, limits of Ad revenue growth and the effect of  a $0 price on their print media offering. For example, if WSJ were to make its online offering free its new Ad revenue must be more than $80 million. This number does not take into account lost revenue from loss in print subscription due to free online offering. Considering that most newspapers are suffering we can infer that the free model delivers net incremental loss and not profit.

The question is not whether or not a newspaper should be free or freemium or whatever fad name, rather the question is  what path they should take that will deliver the best return on their investment over the long term.