Understanding your customers’ willingness to pay is essential for setting optimal prices and maximizing revenue. But how do you calculate a customers’ willingness to pay, and how can you use that information to set effective prices? In this article, Business Consultant, Kalle Aerikkala explores the concept and shares best practices for using it to inform your pricing strategy.
By calculating your customer’s willingness to pay, you can ensure your product’s price is not too high or too low. If the price is too high, your customers may not buy the product; if the price is too low, you may not make enough profit.
What is Willingness to Pay (WTP)?
Your customer’s willingness to pay (WTP) is the maximum amount of money they are willing to spend on your product or service. It represents the value that your customer perceives in your offering. Perceived valuation is influenced by various factors such as budget, alternatives available in the market, and level of satisfaction with your product.
Market research and data can help calculate your customers’ willingness to pay. This information can then be used to build customer profiles that are then the basis for the pricing strategy you choose.
See descriptions of possible pricing strategies in The Guide to Pricing Strategy.
Factors That Influence WTP
WTP fluctuates based on product attributes, market dynamics, and buyer psychology. Most manufacturers and distributors face these common factors in willingness to pay:
- Product quality and features – Customers are willing to pay more for high-quality products that meet their needs and have features that differentiate them from competitors.
- Brand reputation – Customers are more likely to pay a premium for products from brands they trust and perceive as reliable.
- Supplier relationships – Long-term partnerships built on consistency and transparency foster loyalty and pricing flexibility.
- Customization and personalization – Customers may be willing to pay more for products tailored to their specific needs and requirements.
- Economic conditions – Macroeconomic shifts (e.g., inflation, recessions) influence budget priorities and price sensitivity.
- Market trends and seasonality – Demand spikes during holidays, industry cycles, or trend-driven booms temporarily boost WTP.
- Availability and lead times – Customers’ willingness to pay might be higher for products that are available when they need them and have shorter lead times.
- Service and support – Customers may be willing to pay more for products that come with excellent customer service and technical support.
- Supplier relationships – Customers’ willingness to pay might be higher for products from suppliers with solid relationships and a history of delivering value.
- Marketing and advertising – Effective messaging that highlights ROI, sustainability, or exclusivity shapes buyer perceptions.
Is Willingness to Pay the Same as Marginal Willingness to Pay?
When considering the factors affecting WTP, especially product features, it is essential to differentiate between concepts of willingness to pay and marginal willingness to pay. Marginal willingness to pay indicates the differences that are based on individual features of your product. This makes marginal willingness to pay a key element when creating your portfolio positioning with pricing. Portfolio positioning is most commonly achieved with list prices.
Read about the fundamentals of list pricing in What is List Pricing?
Why is Understanding WTP Important?
With an understanding of what WTP is, you gain value from different price levels across business segments. These segments are not just groups of different customers but consider various dimensions. The highest agreeable price for your customers will vary over time, place, and specific product features. In addition, the method of purchase and the way the product or service is delivered will impact willingness to pay.
It Takes Market Demand into Consideration
In many manufacturing businesses, customer willingness to pay is related to market demand. Suppose customers of your customer are decreasing their purchases and you want to keep your manufacturing at the same level. In that case, you likely need to find new customers with a lower willingness, or try to capture business from competitors which usually means also capturing customers with a lower willingness. Selecting the most profitable from many alternatives is a vital capability of the sales and pricing organization when matching market demand to varying price levels. You need solid capabilities to analyze your business from a profitability angle to do this.
Learn how to plan a course of profit-growing actions in Why is Profitability Analysis So Important?
WTP Can Drive a Pricing Strategy
Which comes first, a pricing strategy that defines the usage of willingness to pay or the willingness to pay approach that guides the selection of pricing strategy? In many practical cases, this does not have to be a big dilemma. For an existing product business, WTP consideration is often an additional approach used to fine-tuning pricing. For brand-new products, the pricing strategy can be designed from scratch using research, including WTP analysis.
WTP Can Navigate Product Development
Researching the marginal willingness to pay, for example, through conjoint analysis, will provide valuable insight into which product- or service features are most valuable and should see the allocation of product development resources. This research is as essential when developing new products as incrementally improving existing ones or deciding which ones to discontinue. Seamless cooperation between the pricing and product management teams is necessary to make the right decisions.
How to Calculate Willingness to Pay
To make operative pricing decisions when using the WTP, quantify the price differential for each segment. When pricing across many segments however, the analysis and pricing must be automated to make it feasible. There are multiple ways you can research WTP. The conjoint analysis method was already discussed as part of estimating marginal willingness to pay and linking that, especially to product development. Other common research methods include surveys, auctions, and price experiments.
The available methods can be broadly divided into two categories—qualitative research, where results will be quantified by some method, and direct quantitative methods based on business data.
Surveys and Market Research
Surveys are the most common method for qualitative measurement of willingness to pay. Different types of surveys are very cost effective, and it is always possible to gather results that can be quantified. But there are downsides as well. Survey results for pricing are often unreliable, especially in a business-to-business context as the respondents have an incentive to skew the results and the possible pool of respondents is limited. Survey results are most useful when they are used to create indications and categories instead of detailed quantified WTP estimates. This approach makes the survey results easy to combine with data analysis that can be the quantitative method of choice.
Sales Data and Customer Behavior
Historical transactional data enriched with customer, product, and deal attributes can be used to identify business segments with similar WTP characteristics. Combining all these elements is a mandatory element in such analysis, as leaving even one perspective out would reduce the applicability of results. The first step in this analysis is to create the relevant business segments that uniquely capture the differences between willingness to pay. This phase in the analysis is recommended to be automated as it can be very time-consuming if done manually. Good analysis of willingness to pay will also include the survey input by classifying those results and the historical sales data to create unique insight into customer behavior.
Gabor-Granger Pricing Method
This iterative survey-based approach identifies the maximum price customers will pay. Respondents are shown a product at a random price and asked if they’d purchase it. If they agree, they’re shown a higher price; if they decline, a lower one. This continues until their highest acceptable price is pinpointed. The results generate a price elasticity curve and revenue-maximizing price point (e.g., $12.00 in a streaming service study). The Gabor-Granger Pricing Method is ideal for established markets, as it balances simplicity with actionable pricing insights.
Van Westendorp Price Sensitivity Meter
This survey method asks four questions to determine acceptable price ranges:
- At what price is this product a bargain?
- At what price is it getting expensive but still reasonable?
- At what price is it too expensive?
- At what price is it too cheap to trust?
Responses reveal the optimal price point (where “too cheap” and “too expensive” responses intersect) and a range customers deem fair. The Van Westendorp Price Sensitivity Meter is useful for new products lacking historical data.
Conjoint Analysis
Respondents evaluate product bundles with varying features and prices, revealing trade-offs they’re willing to make. For example, a logistics SaaS tool might test how much clients value real-time tracking vs. cost. Advanced Conjoint Analysis models estimate WTP for individual features and simulate competitive scenarios (e.g., how a 10% price hike impacts market share). This approach combines well with historical sales data to refine segmentation.
Auction Experiments
Real-world auctions (e.g., eBay listings) observe bidding behavior to gauge WTP. In a classroom experiment, a professor auctioned a chess set to illustrate how emotional attachment (one student bid $150) and resale potential (another capped at $120) shape WTP. Auctions capture dynamic, competitive decision-making but require controlled environments to avoid skewing results.
How to Increase a Customer’s Willingness to Pay
A customer’s WTP hinges on perceived value, trust, and urgency.
To help bolster WTP among target customers, below are actionable strategies that help businesses align pricing with customer expectations while maximizing revenue potential.
Enhance Product or Service Value
Add features or services that solve specific pain points. For example, a SaaS company might bundle AI analytics into its platform to streamline client workflows. Highlight ROI through case studies, for instance, clients who saved 15% on logistics costs using your tool are powerful proof points. Additionally, utilize customer feedback to prioritize updates and ensure investments directly boost perceived value.
Offer Personalization
Tailor solutions to individual needs. For instance, a medical supplier could offer flexible payment terms for startups while providing bulk discounts to hospitals. Dynamic CPQ solutions are valuable tools to effectively automate personalized quotes and ensure pricing reflects each client’s unique usage patterns.
Implement Dynamic Pricing Strategies
With dynamic pricing optimization, you can adjust prices based on demand, customer segments, or market conditions. For instance, manufacturers might lower rates during off-peak seasons to fill production gaps or charge premiums for expedited orders.
“The goal of a dynamic pricing strategy is to enable a business to quickly adjust prices on the fly in response to market demands,” says Mike Slavin, Business Consultant at Vendavo. “One of the keys to successfully rolling out a dynamic pricing strategy is to have an agile and configurable price setting and management system.” Teams can utilize rules-based algorithms to help maintain fairness while capturing maximum value.
Highlight Scarcity and Exclusivity
Scarcity triggers urgency, while exclusivity elevates perceived value. Research shows that exclusive offers increase WTP by 50% when buyers know others are excluded. For example, a chemical distributor might prioritize loyal clients for scarce raw materials, reinforcing their status as high-priority partners. Similarly, luxury automakers like Ferrari vet buyers to maintain exclusivity, a tactic adaptable to B2B through tiered membership programs offering early access to new products or premium support.
To increase customers’ WTP, try pairing scarcity with transparency. Limited-time rebates or “first-access” tiers perform best when tied to clear criteria (e.g., order volume) to avoid alienating customers.
Provide Social Proof and Trust Signals
Showcase testimonials, certifications, or industry awards. Displaying that “90% of Fortune 500 manufacturers use our platform” builds credibility. Partner with third-party analysts like Gartner to validate claims, or showcase certifications (e.g., ISO 9001) to signal quality. Atlassian’s Marketplace integrations, which display user ratings and case studies, demonstrate how social proof can shorten sales cycles by addressing stakeholder objections upfront.
Create an Emotional Connection
Emotions drive B2B decisions: 40–70% of buyers form emotional connections with brands, surpassing B2C averages. A sustainability-focused supplier could emphasize carbon-neutral shipping, appealing to eco-conscious procurement teams. Storytelling – like sharing how your software helped a client navigate a supply chain crisis – humanizes your solution. IBM’s “Smarter Planet” campaign, which framed technology as a tool for global good, boosted engagement by linking innovation to broader societal impact.
Try aligning stories with buyer roles. Finance teams respond to risk mitigation narratives, while operations managers value efficiency-driven success stories.
WTP isn’t static. By blending data-driven tactics (e.g., dynamic pricing) with relationship-building (e.g., personalization), businesses justify premium pricing while strengthening customer loyalty. Platforms like Vendavo’s CPQ and rebate management tools streamline execution, turning theoretical strategies into measurable profit gains.
Applying Willingness to Pay
Applying the willingness-to-pay method in pricing requires effort but usually pays off handsomely. The prerequisite to the benefit is that the analytics is done on a granular enough level to create relevant and actionable business segments. The other crucial building block is using the prices set through the willingness to pay evaluation process. A specific focus should be put on making sure the prices that are being created are then actually being used in those segments.
For Price Setting
The exact price setting using WTP builds on the business segments created. The detailed price setting should be based on defining the optimum price for each segment. Take care to set the price while considering both the opportunity that can be gained, the likelihood of that happening, and the risk of losing business if making too aggressive price changes.
B2B Approach
An example is often drawn from a consumer business context, but good examples can also be found in a purely B2B approach. One iconic example is a discount policy that is found in almost every sales organization. These policies capture some attributes that affect WTP but often stay at a general level causing the price differentiation to be too small. The most critical action, in this case, is to improve the segmentation to consider more attributes.
Willingness to Pay Examples: Real-World Applications
Understanding WTP enables businesses to move beyond cost-based pricing and capture value effectively. Vendavo’s solutions help companies analyze and act on WTP insights through data-driven strategies. Below are compelling examples from Vendavo’s customer success stories:
Global Technology Leader
A multinational marine and energy technology provider faced inconsistent pricing across 200,000+ products. By partnering with Vendavo, they transitioned from cost-based to value-based pricing, grouping products into categories aligned with customer perceptions. For example, spare parts were priced based on operational value (e.g., minimizing downtime) rather than production costs.
Results:
- Centralized pricing logic improved compliance and transparency.
- New global price lists reflected customer value, boosting satisfaction.
- A dedicated pricing team now uses WTP insights to maintain market-aligned strategies.
DeLaval’s Value-Based Pricing Shift
Dairy farming solutions leader DeLaval abandoned outdated cost-plus models after recognizing misalignment with customer expectations. Using Vendavo Pricepoint, they implemented value-based pricing for equipment like automated milking systems, emphasizing ROI (e.g., labor savings and yield increases).
Results:
- Consistent, competitive pricing strengthened customer trust.
- Internal efficiency improved with centralized price governance.
- Customer satisfaction rose as prices aligned with tangible benefits.
These examples demonstrate how Vendavo’s strategic pricing and sales effectiveness tools turn WTP analysis into actionable strategies. By prioritizing customer value over internal costs, businesses justify premium pricing while fostering long-term loyalty. Explore more case studies to see how Vendavo helps companies unlock revenue through WTP-driven pricing.
Summary and Key Takeaways
Willingness to pay is a broad concept that can be approached from different perspectives, and the practical application will differ based on the exact business situation. Are you improving current pricing or pricing something completely new? That consideration will determine available methods and resulting pricing strategy. However, there are a few common elements that are always relevant.
- Combining systematic data from actual customer transactions with qualitative research will provide the best results when setting prices through the willingness to pay.
- Regardless of your current pricing approach, putting focus on understanding customer willingness to pay at a more detailed level will most likely provide high rewards. Create a roadmap of how to improve your pricing to be more closely aligned with customer willingness to pay.
- To make pricing based on customer willingness to pay operational, consider automating parts of the process, like relevant business segment creation and finding optimal price levels. These are tasks where efficiency is vital to allow focus on getting the overall approach and pricing strategy right.