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