Willingness To Pay - Ep 62

Willingness to pay is a basic economic concept that determines the maximum amount an individual is happy to pay for a specific good or service. This can be affected by many factors such as marketing and trends, and can often vary massively from consumer to consumer. One of the major factors that affects a customer's willingness to pay is quite obviously pricing. In this episode of LokadTV, we learn why pricing strategy decisions should definitely involve a company's supply chain department and the ways you can actually measure how much people are willing to pay through the use of statistics, in order to understand a potential customer's perception of value.

Typically, pricing points are decided by the marketing department; some companies even have their own specific pricing team, yet more often than not, a company's supply chain practitioners are sadly missing from these discussions when they should in fact be taking part. In addition, the situation frequently ends up getting segmented by the sheer number of teams: pricing, planning, production, forecasting, etc., and these teams don't always communicate well between themselves.

Although it appears highly complex to evaluate an individual's perception of a product's worth, there are certain elements that can be leveraged, such as seasonality. However, many companies are not analyzing seasonality to its full potential, with only a small number of verticals managing to do so. We go into more detail about why from a consumer's point of view it would actually be beneficial for the market. It in fact makes the market more democratic for consumers when a company can, and does, master its customers' willingness to pay. To conclude, we underline the importance of quantitative modelization within your supply chain for an all-round better perception of your client base's willingness to pay and the fact that your supply chain experts should absolutely play a crucial role in evaluating this willingness to pay.

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Episode Map
0:00:00 - Introduction
0:00:33 - Sounds basic, perhaps tell us a little more about this concept?
0:03:29 - What department is classically responsible for setting this pricing point and for determining how much someone is willing to pay?
0:04:55 - How much can companies actually shape what a consumer is willing to pay?
0:07:15 - How easy is it from a statistical perspective to determine someone's perspective of value?
0:10:19 - Are fashion companies not looking at the seasonality of willingness to pay with end of season sales? Is that not why they introduce these prices?
0:11:52 - Are there any verticals where companies are doing this well and taking a more quantitative approach?
0:12:51 - Seems certainly very personal, what sort of level of granularity are we looking at here? Are companies looking at each individual client’s willingness to pay?
0:15:10 - Bit worrying from a consumers perspective that being pushed into paying the maximum possible, is this idea interesting in terms of ethics?
0:19:38 - It’s so easy to check out what competitors are doing online. So I assume that we should be analysing the prices of competitors too?
0:20:55 - What should a company do to improve their approach to pricing to embrace the willingness to pay philosophy?

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