Friday, January 30, 2009

What is your Willingness to Pay?

I recently wrote about a new pricing scheme, "Pay all you can afford" adopted by a Boulder Spa, Sensorielle. The underlying premise is customers will disclose (willingly) how much they are willing to pay for a service. In the case of Sensorielle spa, they will disclose it after they have had a chance to consume the service. Getting everyone to pay their maximum willingness to pay is every marketer's dream. The hard part is, a rational customer has no incentive to disclose their willingness to pay and would want to pay as low as possible. For a longer discussion on this topic see this article I wrote awhile back.

While the consumer behavior could be acting to maximize their benefit when making a product purchase with no possibility of repeat interaction and with comparatively less human touch, their behavior is bound to be different in a high touch (no pun) service exchange environment like in a Spa. In a spa after a hour or so of interaction with the service provider people will feel less inclined to capture all the value for themselves. When the services they received is effective and useful the customers are also bound to use them again in the future. Paying a token amount for the service makes no sense as they know they may not receive the same value from the service provider in the future.

The main question, will such pricing schemes bring back customers who decided to cut down on spa expenses due to economic downturn? I will talk more on this in future posts.

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