In our last action guide, we explored “Will I” vs. “Which One” products. Understanding which type of product you offer is key to accurately determining the next critical step: Willingness to Pay (WTP).
What is Willingness to Pay?
WTP is the highest price a customer is willing to pay for a product, reflecting its perceived value. By understanding WTP, you can capture the maximum value your product delivers.
Calculating WTP for a “Will I” Product:
-
Economic Value Pricing: Set your price as a portion of the economic value your product provides. For example, if your product solves a $100,000 problem, pricing at 10% of that value could be effective.
-
Monadic Experiments: Survey four groups, each with different price points. Gauge their likelihood to purchase on a scale from "extremely unlikely" to "extremely likely".
-
Price Sensitivity Meter: Survey one group by asking them to input price points that feel Expensive, a Bargain, Too Expensive to Consider, and Too Cheap to Consider. Analyze the intersection of responses.
Calculating WTP for a “Which One” Product:
-
Economic Value + Competitor Analysis: Identify the price of the second-best option (SBO). Add half the difference in economic value between your product and the SBO to determine WTP.
-
SBO + PDV - NDV Formula: Start with the SBO price. Then, adjust for Positive Differentiation Value (PDV) and Negative Differentiation Value (NDV) to account for your product’s relative strengths and weaknesses. Use the Value Exercise to assess your PDV and NVD.
Guarantee Success:
-
Use Pragmatic’s Compass to review calculation formulas, ask for examples and dive into the methodology of measuring value.
-
Join the Product Strategy community group. Tag expert-instructor Mark Stiving for advice or pose questions to peers.
Determining WTP ensures you're capturing the full value your product delivers, helping you optimize pricing strategies and maximize revenue.