Generally, marginal willingness to pay (MWTP) is the amount of money your customers are willing to pay for a particular feature of your product (i.e., how much your customers are ready to pay for an upgrade from feature A to feature B, in addition to the price they are already paying now). The word ‘marginal’ refers to the fact that MWTP is always relative to a baseline, which is your baseline product (with various baseline features specified) placed in a market with other competitors.
Conjoint studies are well-suited to the calculation of MWTP. In fact, multiple ways to conceptualise and calculate MWTP have been developed. Conjoint.ly offers two ways to do the calculation:
Market Value of Attribute Improvement (MVAI) was developed in 2002 by Elie Ofek and V. “Seenu” Srinivasan. It is defined as:
Let’s use an example of mobile phone plans. We will consider three attributes (mobile data, international minutes and SMS), each with a different number of levels (in addition to the price attribute, which is required for MWTP to work). First, we need to consider the various offerings that are present on the market. The table below presents a hypothetical set of competitors.
|Brand||Monthly fee||Mobile data inclusion||International calls inclusion||SMS inclusion||Share of preference|
|Telstra||$49.00||500MB||0 min||300 messages||30%|
|Vodafone||$39.00||10GB||90 min||Unlimited text||20%|
|Optus||$45.00||Unlimited||300 min||Unlimited text||25%|
|None of the above||25%|
Once we know who the competitors are, we can analyse MVAI. The chart below was created with the use of Conjoint.ly for the brand “Telstra”. It suggests, for example, that:
Importantly, MVAI is not necessarily how much a particular feature is worth to the current customers of the brand, but rather how much is it worth to the whole market (because the brand may lose some current customers but gain others who might be more willing to pay for the feature).
Standard MWTP is useful in situations where you want to get a directional estimate for willingness to pay for a feature and your study does not include competitive brands. Mathematically, it is defined as marginal rate of substitution of feature for price:
A negative value of MWTP means that the feature is less preferred by the customer than the baseline. Therefore customers need to have a reduction in price to compensate for the downgrade to the inferior feature.
In order for this feature work, a few conditions need to be met:
Please note that MWTP is currently included in generic experiments. If you require to calculate it in a brand-specific experiment, please contact us for a quote.