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Willingness to Pay:

Willingness to Pay: A Technique for Helping Programs Balance the Need for Sustainability with Social Mission Jim Foreit/FRONTIERS. ACT I: What are we talking about?. Two questions in setting prices:. 1. How much should we charge? 2. How much can we charge?.

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Willingness to Pay:

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  1. Willingness to Pay: A Technique for Helping Programs Balance the Need for Sustainability with Social Mission Jim Foreit/FRONTIERS

  2. ACT I: What are we talking about?

  3. Two questions in setting prices: 1. How much should we charge? 2. How much can we charge?

  4. 1. How much should we charge? Revenue and sustainability objectives

  5. 2. How much can we charge? Willingness to Pay (WTP) surveys

  6. WTP surveys ask users and/or potential users how much they would pay for a given product or service

  7. Improves program manager’s ability to predict client reactions to prices beyond the data usually available Why do WTP?

  8. What WTP tells us • Impact of price increase on client volume • Impact of price increase on client characteristics • Impact of price increase on revenue

  9. The WTP methodology is quick,inexpensive, and easy to apply. Why do WTP?

  10. WTP surveys: countries • Bangladesh • Brazil • Ecuador • Egypt • El Salvador • Ghana • Guatemala • Honduras • India • Kenya • Madagascar • Mali • Pakistan • Philippines • Yemen

  11. ACT II: How do we do it?

  12. yes Would you pay moderate increase? What is the most you would pay? Structure of WTP questionnaire What do you pay now? Would you pay high increase? What is the most you would pay?

  13. Would you pay moderate increase? What is the most you would pay? no Structure of WTP questionnaire What do you pay now? Would you pay low increase?

  14. yes Would you pay moderate increase? What is the most you would pay? no Structure of WTP questionnaire What do you pay now? Would you pay high increase? Would you pay low increase?

  15. Plotting the demand curve

  16. ACT III: Sounds great, but does it work?

  17. Findings • Reliability • Theoretical validity • Predictive validity

  18. Reliability • Respondents can answer hypothetical questions • Answers are internally consistent • Even people without education give reliable responses

  19. Theoretical Validity Do the findings conform with basic economic principles? Motivation: SES: Highly motivated respondents should be more willing to pay Higher income respondents should be more willing to pay

  20. Willingness to pay for Pills Pakistan: Potential Users

  21. Willingness to pay for Condoms Mali: Urban Men

  22. Predictive Validity Do the survey results predict future behavior?

  23. Types of Validation Studies • Individual-level • Theoretical evidence: We know WTP predicts when client validates own prediction • 2. Aggregate-level • Program evidence: how accurate are predictions in the “noisy” program environment where individual clients cannot be studied? • Greater relevance to program managers

  24. Individual Predictive Validity: Users of DMPA in Egypt

  25. Individual Predictive Validity: Users of DMPA in Egypt

  26. Individual Predictive Validity: Egypt after Adjusting for Discontinuation Not Related to Price Increase

  27. Program-Level Prediction Ecuador: Accuracy of Predictions Post Increase Behavior: Within +10% of observed percent change: 48% of cases Over-estimated client loss: 68% of cases

  28. Conclusions • The next time you must make a pricing decision, consider a WTP survey • Try to adjust for trends and non-economic drop-outs • Monitor post-price increase service utilization

  29. THE END

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