What is Willingness To Pay?

John Spacey, updated on September 20, 2016

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 Individuals

In 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.

Means

An individual's income, disposable income and wealth.

Preferences

Enthusiasts for a particular product may be willing to pay more than those who view a product with indifference.

Values

In 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 Proposition

The 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.

Emotions

A 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.

Quality

Quality such as durability tends to command a higher willingness to pay.

Reviews & Recommendations

Social information such as recommendations and reviews. A primary factor in industries driven by reputation systems such as the hotel industry.

Brand Recognition

Customers may be willing to pay more for a brand simply because they recognize it.

Situation

If 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.

Overview: Willingness To Pay
Area	Pricing Strategy Price Economics Branding Sales
Definition	The price range that a customer is willing to pay for a product or service at a particular time and place.
Related Concepts	Business Ethics Price Discrimination Price Economics Yield Management Marketing Sales