Measuring Consumer Willingness to Pay at the Point of Purchase

Economists, psychologists, and marketing researchers rely on measures of consumers' willingness to pay (WTP) in estimating demand for private and public goods and in designing optimal price schedules. Existing market research techniques for measuring WTP differ in whether they provide an incentive to consumers to reveal their true WTP and in whether they simulate actual point-of-purchase contexts. Common elicitation approaches are conjoint analysis and contingent valuation-based techniques that directly ask consumers about their WTP as well as simulated test markets. Second-price sealed-bid (Vickrey) auctions have also been proposed in the literature. The authors present an empirical comparison of several procedures for eliciting WTP that are applicable directly at the point of purchase. In particular, they test the applicability of Becker, DeGroot, and Marschak's (BDM, 1964) well-known incentive-compatible procedure for measuring the utility of lotteries to measuring consumer WTP. In three studies, they explore the reliability, validity, and feasibility of the procedure and show that it yields lower WTP estimates than non-incentive-compatible methods such as open-ended and double-bounded contingent valuation. Studies one and two are field studies of inexpensive grocery items that examine the performance of these methods under quasi-monopoly conditions in realistic everyday purchase situations. Study three applies the methods to an inexpensive durable and shows experimentally that differences in WTP estimates arise from the incentive constraint itself rather than the cognitive effort required in responding. This experiment also controls for strategic response behaviour.