How Do Consumer Characteristics Affect the Bias in Measuring Willingness to Pay for Innovative Products?

Abstract

Getting the price right is essential for successful new product introductions. An accurate estimate of consumers' willingness to pay is a crucial part of this task. Measurement of willingness to pay for innovations, however, often yields biased results. In this paper, we investigate consumer‐related characteristics and motives that might underlie this bias. Drawing on the elaboration likelihood model, we develop a conceptual model to identify consumer characteristics relevant for preference measurement for innovative products. In doing so, two main factors that potentially influence hypothetical bias are distinguished: ability and motivation. Our conceptual discussion and empirical results demonstrate that the validity of willingness to pay statements is higher among consumers who show a high ability to assess the new product's utility and who are truly interested in purchasing the new product. Counter to intuition, willingness to pay statements from innovators, consumers with good product category knowledge, or consumers who perceive the new product to be highly innovative are relatively more biased and should be interpreted with caution. This research is among the first to look at consumer characteristics rather than methodological issues when it comes to measuring consumer willingness to pay for innovative products. Our conceptual discussion and empirical examination of the drivers of hypothetical bias can be used to refine the validity of the results of the direct willingness to pay approach. These findings should help improve new product pricing surveys and open new avenues for research in measuring consumer preferences.

Accurately measuring willingness to pay for consumer goods: a meta-analysis of the hypothetical bias

“…Because indirect methods represent a shopping experience, they are expected to be more accurate for measuring HWTP (Breidert et al 2006;Leigh et al 1984;Völckner 2006). Still, practitioners largely continue to rely on direct survey methods, which tend to be easier to implement (Anderson et al 1992;Hofstetter et al 2013;Steiner and Hendus 2012).…”

“…We perform a meta-analysis of existing studies that measure HWTP and RWTP for the same product or service, which reveals some empirical generalizations regarding accuracy. We also acknowledge the potential influence of other factors on the accuracy of WTP measures (Hofstetter et al 2013;Sichtmann et al 2011), such that we anticipate substantial heterogeneity across extant studies. With a meta-regression, we accordingly identify moderators that might explain this heterogeneity in WTP accuracy (Thompson and Sharp 1999;van Houwelingen et al 2002).…”

Information Sharing During the University of Texas at Austin Active Shooter/Suicide Event

“…Innovativeness in this context focuses on how information spreads through a system, and the capacity an individual has to spread that information successfully. This scale was designed and originally reduced using student samples (Goldsmith & Hofacker, 1991) and is still utilized in current research (Hofstetter, Miller, Krohmer, & Zhang, 2013). Validations of Goldsmith and Hofacker's scale reliably demonstrate that it is one-dimensional and associated with opinion leadership, involvement, and perceived real knowledge about a given topic (Flynn & Goldsmith, 1993).…”

A De-Biased Direct Question Approach to Measuring Consumers' Willingness to Pay

“…< INSERT TABLE 1 ABOUT HERE > < INSERT TABLE 2 ABOUT HERE > In practice, market researchers often ask consumers to state their WTP for a product directly (Anderson, Jain, and Chintagunta 1992;Steiner and Hendus 2012;Hofstetter et al 2013).…”