Posted on 13 January 2017
Generally, in economics, marginal willingness to pay (MWTP) forms the basis of price, which is defined as the maximum price someone would pay for an extra good or service. It is also known as marginal rate of substitution of something for money.
Conjoint analysis lets you easily estimate MWTP of product features, that is the amount of money your customers are willing to pay for a feature. The word ‘marginal’ refers to the fact that MWTP is always relative to a baseline. For example, MWTP can be how much customers are willing to pay extra for an upgrade from 500MB data inclusion in mobile phone to Unlimited mobile internet.
Let’s use the example of mobile. The chart below was automatically generated by Conjoint.ly. There are three attributes (mobile data, international minutes and SMS), each with different number of levels (in addition to the price attribute, which is required for MWTP to work). It turns out that customers are willing to pay up to $53 extra a month for the privilege of having unlimited internet when the baseline is 500MB. In contrast, customers appear to place little value on making calls overseas, they are willing to pay an extra only up to $0.50 for 90 minutes and $2.44 for 5 hours. Surprisingly, customers appear willing to pay an extra $14 for unlimited text.
In order for this feature work, a few conditions need to be met:
Please note that MWTP is not currently available for brand-specific conjoint.
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