Willingness to pay is a basic economic concept that determines the maximum amount an individual is willing 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. While this notion is essential to understand market demand, it is too frequently ignored by supply chain practitioners.
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 dialogue successfully 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 quantative 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.
00:33 Can you tell us a little more about willingness to pay?
03:29 Which department is classically responsible for this willingness to pay?
04:50 How much can companies actually shape what a consumer is willing to pay?
07:09 How easy is it from a statistical perspective to determine someone’s perspective of value?
10:13 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?
11:52 Are there any verticals where companies are doing this well and taking a more quantitative approach?
12:53 What sort of level of granularity are we looking at? Are companies looking at each individual client’s willingness to pay?
15:09 In terms of ethics, is the idea interesting that the consumer is pushed into paying the maximum possible?
19:35 Should we be analyzing the prices of competitors as well?
20:54 What should a company do to improve their approach to pricing to embrace the willingness to pay philosophy?