Willingness to pay is the price range that a customer is willing to pay for a product or service at a particular time and place. It is a basic concept of price economics that has implications for marketing in areas such as pricing, branding and sales. The following are factors that are known to impact willingness to pay.
Businesses vs IndividualsIn many cases, businesses are willing to pay more than individual customers. For example, airlines make great efforts to charge business travelers more with yield management techniques.
MeansAn individual's income, disposable income and wealth.
PreferencesEnthusiasts for a particular product may be willing to pay more than those who view a product with indifference.
ValuesIn many cases, customers are willing to pay more for products that align with their values. For example, a customer may be willing to pay more for solar electricity than electricity generated with a fossil fuel.
Value PropositionThe value that is offered by a product or service. For example, a dog walking service may represent freedom and be extremely valuable to some customers.
EmotionsA brand that is able to instill positive emotions may command a higher price point as customers purchase with emotions as opposed to cold logic. For example, a pleasing customer experience may lead to emotions such as gratitude that make a customer less price sensitive towards a business.
QualityQuality such as durability tends to command a higher willingness to pay.
Reviews & RecommendationsSocial information such as recommendations and reviews. A primary factor in industries driven by reputation systems such as the hotel industry.
Brand RecognitionCustomers may be willing to pay more for a brand simply because they recognize it.
SituationIf you're stuck at the airport with nothing to drink, you may be willing to pay more for coffee. Brands may avoid charging more in this situation as it can build a sense of resentment. Charging more in a desperate situation such as a disaster is ethically questionable and potentially a compliance issue.
This is the complete list of articles we have written about pricing.
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