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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?. - PowerPoint PPT Presentation
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Willingness to Pay: Willingness to Pay:
A Technique for Helping A Technique for Helping Programs Balance the Need Programs Balance the Need for Sustainability with Social for Sustainability with Social
MissionMission
Jim Foreit/FRONTIERSJim Foreit/FRONTIERS
ACT I:ACT I:
What are we What are we
talking about?talking about?
ACT I:ACT I:
What are we What are we
talking about?talking about?
Two questions in Two questions in setting prices:setting prices:
1. How much 1. How much shouldshould we charge? we charge?
2. How much 2. How much cancan we charge? we charge?
1. How much 1. How much shouldshould we charge? we charge?
Revenue and sustainability Revenue and sustainability objectivesobjectives
2. How much 2. How much cancan we charge? we charge?
Willingness to Pay (WTP) Willingness to Pay (WTP) surveyssurveys
WTP surveys ask users WTP surveys ask users and/or potential users and/or potential users how much they would how much they would pay for a given pay for a given product or serviceproduct or service
Why do WTP? Why do WTP?
Improves program Improves program manager’s ability to manager’s ability to predict client reactions to predict client reactions to prices beyond the data prices beyond the data usually availableusually available
What WTP tells us
• Impact of price increase on client volume
• Impact of price increase on client characteristics
• Impact of price increase on revenue
The WTP methodology is The WTP methodology is quickquick,, inexpensiveinexpensive, and , and easy easy to applyto apply..
Why do WTP? Why do WTP?
WTP surveys: countries • Bangladesh
• Brazil• Ecuador
• Egypt• El Salvador
• Ghana• Guatemala• Honduras
• India• Kenya
• Madagascar• Mali
• Pakistan• Philippines
• Yemen
ACT II:ACT II:
How do we do it?How do we do it?
ACT II:ACT II:
How do we do it?How do we do it?
Structure of WTP Structure of WTP questionnairequestionnaire
What do you pay now?
Would you pay high increase?
What is the most you would pay?
Would you pay moderate increase?
What is the most you would pay?
yes
Structure of WTP Structure of WTP questionnairequestionnaire
What do you pay now?
Would you pay low increase?
What is the most you would pay?
Would you pay moderate increase?
no
Structure of WTP Structure of WTP questionnairequestionnaire
What do you What do you pay now?pay now?
Would you Would you pay high pay high increase?increase?
Would you Would you pay low pay low increase?increase?
What is the What is the most you most you would pay?would pay?
Would you pay Would you pay moderate moderate increase?increase?
yesyes
nono
0
10
20
30
40
50
60
70
80
90
100
Price
% w
illing t
o p
ay
Plotting the demand curvePlotting the demand curve
ACT III:ACT III:
Sounds great, Sounds great,
but does it work?but does it work?
ACT III:ACT III:
Sounds great, Sounds great,
but does it work?but does it work?
Reliability
Theoretical validity
Predictive validity
FindingsFindings
• Respondents can answer hypothetical Respondents can answer hypothetical questionsquestions
• Answers are internally consistentAnswers are internally consistent
• Even people without education give Even people without education give reliable responsesreliable responses
ReliabilityReliability
Do the findings conform with basic Do the findings conform with basic economic principles?economic principles?
Theoretical ValidityTheoretical Validity
Highly motivated respondents Highly motivated respondents should be more willing to payshould be more willing to pay
Higher income respondents Higher income respondents should be more willing to payshould be more willing to pay
MotivationMotivation::
SESSES::
50
60
70
80
90
100
3 10 15 25
Price (in Rupees)
Pe
rce
nt
wil
lin
g t
o p
ay
Strong motivation
Weak motivation
Willingness to pay for PillsWillingness to pay for PillsPakistan: Potential UsersPakistan: Potential Users
0
25
50
75
100
0 25 50 75 100 125 150 175 200 225 250 275 300 325
Price (in Francs)
Per
cen
t w
illin
g t
o p
ay
Low SES
High SES
Willingness to pay for CondomsWillingness to pay for CondomsMali: Urban MenMali: Urban Men
Do the survey results predict Do the survey results predict future behavior? future behavior?
Predictive ValidityPredictive Validity
Types of Validation StudiesTypes of Validation Studies1. 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
Individual Predictive Validity: Users of DMPA in Egypt
Client said she would return for next injection after price increase
Client returned for next injection Total
YES NO
YES 294
(71.0%)
89
(21.5%)
383
(92.5%)
NO 21
(5.1%)
10
(2.4%)
31
(7.5%)
Total 315
(76.1%)
99
(23.9%)
414
(100%)
Individual Predictive Validity: Users of DMPA in Egypt
Client said she would return for next injection after price increase
Client returned for next injection Total
YES NO
YES 294
(71.0%)
89
(21.5%)
383
(92.5%)
NO 21
(5.1%)
10
(2.4%)
31
(7.5%)
Total 315
(76.1%)
99
(23.9%)
414
(100%)
Individual Predictive Validity: Egypt after Adjusting for Discontinuation Not Related to
Price Increase
Client said she would return for next injection after price increase
Client returned for next injection Total
YES NO
YES 294
(89.6%)
11
(3.4%)
305
(93.0%)
NO 21
(6.4%)
2
(0.6%)
23
(7.0%)
Total 315
(96.0%)
13
(4.0%)
328
(100%)
Program-Level Prediction Program-Level Prediction
Ecuador: Accuracy of PredictionsEcuador: Accuracy of Predictions
Post Increase Behavior:Post Increase Behavior:
Within Within ++10% of observed percent 10% of observed percent change: change:
48%48% of cases of cases
Over-estimated client loss:Over-estimated client loss:
68%68% of cases of cases
WTP Helps Protect Program From Under-Estimating Client Loss
Over-estimated loss68%
Under-estimated loss >10%
14%
Under-estimated loss 5-10%
4%
Under-estimated loss < 5%
14%
1.1. The next time you must make a The next time you must make a pricing decision, consider a pricing decision, consider a WTP surveyWTP survey
2.2. Try to adjust for trends and Try to adjust for trends and non-economic drop-outsnon-economic drop-outs
3.3. Monitor post-price increase Monitor post-price increase service utilizationservice utilization
ConclusionsConclusions
THE ENDTHE ENDTHE ENDTHE END