WTP (Willingness to pay): Unique tactics to improve it for your Shopify store
Pricing is one of the most important factors for every business. High cost can scare your customers away, while too low price can affect your business. Therefore, it’s great to know customers’ willingness to pay ( WTP). Thanks to this, you can set the right price point for your products. Now, let’s look into WTP.
What is WTP?
WTP stands for willingness to pay. It is the highest amount customers want to pay to get your products or service.
On the other hand, willingness to accept ( WTA) is the minimum price you want to set for your product or service.
If you’re running your business, it’s best to match WTP and willingness to accept. This will grant you the number of customers and profit margin
How you can get the perfect WTP?
WTP is crucial for every business, therefore, many shop owners want to measure their customer willingness to pay. Then, we’ll provide some tips for you to get the perfect WTP for your products.
Analyze market data
You can estimate WTP through previous information. Data reported from customer panel and historical sales record will be useful in this situation. Real-life data can give you helpful information when analyze and foresee the case.
However, it might be costly to collect and evaluate all the information. Moreover, if you’re releasing new products, there will be no previous data.
Learning your targeted customers
Your products will not suitable for everyone. Therefore, rather than focus on wide range of customers, you’d better segment them. Learning about their common demography, behavior as well as geography. Such information will help you set perfect WTP.
You won’t know how well your pricing strategy work unless you implement it. Therefore, experiment pricing will be very helpful to get the optimized WTP. There are two type of experiment.
You invite some people. Then, you provide them with money and multiple buying options to assess their buying behaviour in different pricing and environment.
This method will give you the result in a short time. However, a small number of consumers’ behaviours can reflect all your targeted customers’. Secondly, since people invited already know they’re in an experiment, the result might be bias and even, invalid.
This is a more risky one. You will implement your pricing into real stores and assess customers reaction. Surely, you won’t get the result in a short term. However, the outcome is far more effective compared to Lab’s one.
Direct/ Indirect survey
One of the best tool to help you get the perfect WTP is survey. You can either choose direct survey or indirect one.
With direct survey, you will ask customers how much they willing to pay for certain products or services. You can utilize open-ended or closed-ended question. However, open-ended is more preferable in this case since you’ll get more data.
Moving to indirect survey, you will give customers a series of different products with different price. Then, ask them which one they are most willing to pay for
What factors can affect your WTP?
Market and customer perspective is always changing. As a result, there will be several factors can affect your WTP. Now, we’ll list down some elements that can influence your WTP
Current situation of the economy
When the economy is doing well, WTP will be higher. On the contrary, during recession period, you can’t expect WTP to be high since few people can afford your pricing. Remember to consider the situation and shift of the economy before setting your price
In this COVID-19 pandemic, the economy is running low all over the world. If you want to release new products in this time, you’d better consider the price carefully.
Customer’s demands will change from season to season. For example, people will be willing to pay higher price for sweater in winter. Or during travel seasons, you can charge customers higher price of tours or flights.
Sometimes people don’t buy products for their usage, they buy them for branding. Researches show that well-known brands often sell products with higher price. Frequently, design and branding will cost more than the quality itself. However, customers still willing to buy them since they think that product is worth their money just by looking at the brand.
You get what you pay. This thought often lingers in people mind. As a result, if you charge customers very low price, they’ll think there are reasons behind it. On the contrary, with high-cost products, customers will assume that they’re costly for some good reasons.
Here is one tip for setting the right price. If too many people complain about the price, your pricing is too high. If there is no complaint, you pricing is too low. You’ll know it’s the perfect WTP when there are some complaints.
Feelings and self-expression
People don’t buy products, they buy better version of themselves. Some customers buy goods based on their preference and express themselves through what they wear. As mentioned above, learning about your customers is a great way to set perfect WTP. You’ll know their common styles, demands and financial situation. Then, you can charge them the right price.
The rarer the products, the more value it will have. Customers might not be willing to pay high price for a products when they can find some alternatives. Then, if you’re releasing a unique products, then you can charge customers higher WTP. Or you can increase the rareness by labelling limited edition to make it more valuable to customers. However, remember to keep the price attainable for your targeted customers
Thanks to the expansion of Internet, people now can know the average price of certain products. Then, when they see your price, they’ll know whether it worth the price or not. Of course you can’t change their internal reference price, but you can make some influence on them. If you want to set the price higher, you can use the tips above.
Pricing is very important for every business. If you need to some help from experts, you should contact ArrowHitech. ArrowHitech is the leading outsourcing IT company in Vietnam. Having 12+ years in e commerce, we can confidently give you helpful advice to enhance your online business, from planning to setting optimized WTP. Moreover, our company also provide you with professional-looking themes and Shopify apps to build your dream web shop. You want to customize your store? Contact us here or via email: email@example.com or hotline +84 243 7955 813