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Blog - Psychological & Consumer Behavior in Pricing - 6 August 2020

9 Factors That Affect A Customer’s Willingness To Pay

WTP (Willingness to Pay) is the amount that the customer is willing to pay for the product or service. The transaction amount will be between the amount that the buyer is willing to pay, and the seller is willing to accept. When a business learns about the price that the customer is willing to pay, […]

WTP (Willingness to Pay) is the amount that the customer is willing to pay for the product or service. The transaction amount will be between the amount that the buyer is willing to pay, and the seller is willing to accept. When a business learns about the price that the customer is willing to pay, then they come up with strategies to set a price that can be used during the negotiation process. The sales representatives will use their knowledge, experience, and skill set to learn about the amount that the customer is ready to pay based on their previous data and with the help of value-based pricing technologies. These technologies can be used to recognize how a customer is evaluating the product’s value.

Here are the nine factors that will affect the WTP for a product:

Price v Quality Effect

The buyer would show interest in paying for the product if they believe that the higher correlates to a higher quality.

Unique value effect

If the buyer perceives that the product has unique features, then they would show interest in buying the product.

Expenditure effect

This effect details how buyers are less willing to buy items that have a high total expenditure, regardless of their income.

Effect of customer characteristics

Many studies reveal that customer characteristics would have an impact on their willingness to pay. This would rely on behavioural, demographical, and psychographic traits. The demographics would include age, income, sex, marital status, educational qualification, and location. The psychographic characteristics would consist of lifestyle, interests, activities, and opinions of the individual.

Environment effect

The economy of the customer’s location will have an impact on the amount that the customer is willing to pay for the product.

Fashion effect

There are many products and services that experience frequent increase in sales due to particular trends in fashion.

Fairness effect

If the customers learn that the price of the product is fair enough compared to similar products in the market, then they will show more interest in buying the product that is sold at a reasonable price.

Customer research effect

If the customer learns that the price of the product is higher or lower for the time being, then they would show interest in buying the product when the price of the product drops.

The two-for-one effect

Many customers would like to bargain while buying a product. They show more interest in buying the products in a bundle over a single product.

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