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Conditional pricing and WTP analysis


I already have seen similar topics on this question, but I still do not quite understand. I have used conditional pricing (a standard increase in price per increment in level per attribute + price as a separate attribute with the levels: low (-30%), medium or high (+30%)).

Now I want to calculate the WTP per attribute/level. I have used the HB analysis to estimate utilities as this was recommended. But how do I get my WTP through your lighthouse software? Should I define price as linear in the analysis instead of path-worth? And then just do -1*(attribute coefficient/price coefficient)

Please help me :).

Kind regards,
related to an answer for: Conditional Pricing and Willingness to Pay
asked Jun 2, 2020 by Ireen92 (205 points)

1 Answer

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Best answer
With conditional pricing, each brand or SKU (if you made price conditional on another attribute such as brand or SKU) has a different set of prices.  

For computing WTP, we strongly advise to use the competitive simulation approach rather than estimating the algebraic approach.  When using conditional pricing, this is even more a concern.

The competitive simulation approach involves putting a test product (for which WTP will be estimated) into the market simulator in competition with a large set of realistic competitive products.  Perhaps that's 8 or 10 products, plus an additional "product" in the None alternative.

Let's imagine you want to estimate the WTP for "has sunroof" versus "doesn't have sunroof".  You first specify your product (the product for which WTP will be estimated) in competition with the realistic set of competitors as would be seen in the marketplace where your product does not have a sunroof.   Write down the share of preference for the test product (perhaps it is 12%).  

Next, change the test product to have a sunroof.  Keep the competition constant.  Run the simulation and write down the share of preference, perhaps it is now 15%.

Next, increase the price for the test product with the sunroof until its share is driven back down to 12%.  That difference in price that leads to indifference in share of preference for having or not having a sunroof is the estimated WTP for sunroof.

This approach takes into account the conditional pricing table, as the market simulator knows how to map actual prices to the conditional pricing table for simulating share of preference for products.
answered Jun 2, 2020 by Bryan Orme Platinum Sawtooth Software, Inc. (198,715 points)
selected Jun 7, 2020 by Ireen92
Thank you for your response. I understand your approach but I am not sure how to run this competitive simulation approach in the lighthouse studio after I already did my CBC test?
If you are working in Lighthouse Studio, you should click Analysis + Analysis Manager.  Then, to run HB estimation, click the "Add" icon, then change the "Analysis Types" in the Analysis Manager from Counts to "HB".  You can use the default settings.  Click Run.  An HB run is created called "Analysis Run 1" by default.  

After HB estimation concludes, you can exit the Analysis Manager to get back to the main Lighthouse Studio menu.  Now, the set up and run Market Simulations, click Analysis + Choice Simulator.  

In the choice simulator, add your competitive scenario and run market simulations.

If you have further questions, there is documentation in the Help manual for Lighthouse Studio regarding the simulator.  Or, you can also call our tech support team at +1 801 477 4700.
Perfect! Thank you so much