It’s easy to say we want to buy a particular thing but when reality’s limitations make themselves felt, our priorities are affected. Prognosesenteret offers Willingness to Pay (WTP) studies that address this problem. The result is a truthful estimate of the right price in a given situation.
WTP is calculated by forcing the customer to choose
Since many years, Prognosesenteret works with WTP studies where everyday constraints are present. By letting people make repeated choices between various combinations of offers at alternative prices, actual WTP can be calculated.
At a given price level and competitive situation, a certain number of people will buy. If there are a sufficient number of potential customers to fill a project, then the price is right. If more customers are needed you just follow the price curve down until the right number is found. Different market situations can be simulated to identify the offer that provides the greatest income.
The results of our WTP studies can be summed up as follows:
- Estimates of what different groups are prepared to pay for a particular offer, providing in turn the ability to choose the right price in relation to the size of customer base required.
- Knowledge of the price level at which one offer is more sought-after than another.
- A view of the prevailing price elasticity i.e. the price sensitivity of the target audience.
- A certain percentage of the market will never buy (within the current price range); this proportion is shown in the survey.
- Simulations of what happens if the offer or competitive situation changes.
- Knowledge of how important the various components are in the buying decision.
Often the order of priority is enough
Knowledge of how important a certain thing is in a decision helps us focus on the right things. WTP studies assume that price is a component that is weighed in the decision. But in many situations it is enough to identify the target group’s priorities. In these cases we work with research methods that provide information about how much more important a particular thing is than another.
For example a housing developer benefits from knowing that a large balcony is three times as important as smart storage, which in turn is just as important as extra luxurious interior design choices. With that knowledge, the residential developer can weigh customer value against increased production costs in order to build the most sought-after homes at a profit.