How Should Consumers' Willingness to Pay Be Measured? An Empirical Comparison of State-of-The-Art Approaches

Journal of Marketing Research, Vol. 48, No. 1, pp. 172-184, February 2011

14 Pages Posted: 15 Feb 2010 Last revised: 14 Oct 2017

See all articles by Klaus M. Miller

Klaus M. Miller

Goethe University Frankfurt

Reto Hofstetter

University of Lucerne - Faculty of Economics and Management

Harley Krohmer

University of Bern

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: February 1, 2011

Abstract

This study compares the performance of four commonly used approaches to measure consumers’ willingness to pay (WTP) to real purchase data (REAL): the open-ended question format (OE), choice-based conjoint analysis (CBC), the incentive-compatible mechanism proposed by Becker, DeGroot, and Marschak (1964) (BDM), and incentive-aligned choice-based conjoint analysis (ICBC). With this five-in-one approach, we test the relative strengths of the four measurement methods, using REAL as the benchmark, on the basis of statistical criteria as well as decision-relevant metrics. Our results indicate that BDM mechanism and incentive-aligned conjoint analysis can pass statistical and decision-oriented tests. We find respondents to be more price sensitive in incentive-aligned settings than in non-incentive-aligned settings and the real purchase setting. We further find a large number of none-choices under incentive-aligned conjoint analysis in comparison to hypothetical conjoint analysis. Our study also uncovers an intriguing possibility: even when the open-ended question format and choice-based conjoint analysis generate hypothetical bias, they may still lead us to the right demand curves and right pricing decisions.

Keywords: Market Research, Pricing, Demand Estimation, Willingness to Pay, Hypothetical Bias

JEL Classification: D40, M21, M30

Suggested Citation

Miller, Klaus and Hofstetter, Reto and Krohmer, Harley and Zhang, Z. John, How Should Consumers' Willingness to Pay Be Measured? An Empirical Comparison of State-of-The-Art Approaches (February 1, 2011). Journal of Marketing Research, Vol. 48, No. 1, pp. 172-184, February 2011. Available at SSRN: https://ssrn.com/abstract=1520927

Klaus Miller (Contact Author)

Goethe University Frankfurt ( email )

Frankfurt
Germany
+49(0)69-798-33865 (Phone)
+49(0-69-798-35001 (Fax)

HOME PAGE: http://www.marketing.uni-frankfurt.de/en/professoren/miller/prof-dr-klaus-miller.html

Reto Hofstetter

University of Lucerne - Faculty of Economics and Management ( email )

Frohburgstrasse 3
Postfach 4466
Luzern, LU 6002
Switzerland
412295880 (Phone)

Harley Krohmer

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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