Wtp Quotes

Companies compete for customers by creating superior customer delight. Many companies strive to be best in class. But having better quality and higher WTP is no guarantee for success. What matters is the difference between WTP and price—in other words, customer delight.

Paying close attention to WTP throughout the customer journey allows you to see opportunities for increasing customer delight in a myriad of ways. Motivating consumers to purchase a product and facilitating its sale (by placing vending machines before the turnstiles) is a far narrower concern than the ambition to create a great customer experience. Recognizing

The concept is so simple: increase the maximum amount that a customer would ever be willing to pay for your product. The resulting opportunities, however, are extraordinary. As you begin to use the value stick and WTP to formulate your company’s strategy, keep these considerations in mind.

the ultimate arbiter of strategic success is an increase in customer delight, not WTP per se.

Near-customers are the ones whose WTP is fairly close to the level that is required to make a purchase. Understanding the determinants of this group’s WTP can reveal substantial business opportunities. It is useful to ask, Why are your near-customers not in the market for your product? Do they misperceive its value? How might you tweak your offering to boost their WTP and turn them into buyers?

Managers who pay attention to WTP consider the entire customer journey and search for opportunities to create value at every step along the way.

Products and services that raise the willingness-to-pay (WTP) for another product are called complements. These (easily overlooked) helpers contribute substantially to the WTP of just about every product ever created. Just think of all the complements without which cars would be far less valuable: roads, parking garages, gas stations, repair shops, GPS, and driving schools (figure 6-1).

Complements help raise WTP. The currency that counts in competition is customer delight, and complements are a powerful means of increasing WTP and, as a result, creating more value for customers.

Did you notice the pattern in the three examples? In each instance, we predicted substitution when in fact the new technology turned out to increase the willingness-to-pay (WTP) for existing products and activities. This type of bias is the norm. We fear change; potential losses loom larger than similar gains, a phenomenon that psychologists Amos Tversky and Daniel Kahneman call loss aversion.12 Loss aversion keeps us preoccupied with the risk of substitution even when we look at complementarities.

Network effects increase WTP by connecting users directly, through complements or via platforms. Companies that build network effects raise WTP and they limit competition at the same time. M

As long as the price increase is smaller than the rise in WTP, both customers and the company are better off. At the bottom of the value stick, companies create more attractive working conditions to lower WTS. They then share this value by reducing compensation. As long as the drop in WTS is greater than the reduction in salaries, both employees and the company are better off.

Internal refinement: A cross-functional group of internal experts comes together to refine and pressure test the hypotheses. These discussions bring together teams like marketing, sales, pricing, and product design. Initial customer validation: The team then starts validating product-market fit, perceived value, and WTP with target markets. Methods used include value trade-offs, ideal package (i.e. product configuration) creation, unaided WTP, and purchase probability (as outlined in Chapter 4). This typically occurs prior to writing any code. The gut-check: The concept must then pass an internal “smell test.” The team typically pitches the product concept to LinkedIn

Willingness-to-pay (WTP) sits at the top end of the value stick. It represents the customer’s point of view. More specifically, it is the most a customer would ever pay for a product or service. If companies find ways to improve their product, WTP will increase. Willingness-to-sell (WTS), at the bottom end of the value stick, refers to employees and suppliers. For employees, WTS is the minimum compensation they require to accept a job offer.

And there are only two ways to create additional value: increase WTP, or lower WTS.

Hubert Joly, a former strategy consultant and most recently CEO of Carlson, a hotel and travel conglomerate, took on the challenge. Recognizing the dire circumstances, Joly and his team devised a plan they dubbed Renew Blue. The core idea was to create more customer value by increasing WTP and improving price perception. Rather than thinking of Best Buy’s more than 1,000 stores as a liability that made it difficult to compete, the company reimagined their role and turned them into assets. Going forward, the stores would serve four functions: points of sale (the traditional role), showrooms for brands that built stores-within-a-store, pickup locations, and mini-warehouses.

Companies that outperform their peers increase WTP or decrease WTS in ways that are difficult to imitate.

The simplicity of the strategy is key if one is to execute at breakneck speed. Every executive, every store manager, every employee with an idea about ways to raise WTP or lower WTS can be sure that they are helping move the company in the right direction.

To begin this conversation in your company, take a piece of paper, draw a value stick, and ask three simple questions. What do we do to move WTP? How do we change WTS? What are the connections between our value drivers, prices, and costs?

I am deeply convinced that we can do better. The key to progress is a relentless focus on value creation, not value capture. Fortunately, there is no contradiction. Financial success, as we have seen time and again, will follow true value creation.10 At a policy level, this means that corporate leaders need to pay close attention to benchmarks number four and number five. Undermining markets will surely leave us poorer—and more divided! The most important work, however, takes place in companies. No matter where you sit in your organization, whether you work alone, in a team, or lead a large corporation, can I ask you to never tire of seeking new ways to increase WTP and lower WTS? Can I convince you that your role is both vital and noble? What better way to lead a life than being preoccupied with creating value for others, to touch their lives in ways both big and small?

companies cannot be good at everything; true excellence requires firms to shift resources from value drivers of lesser importance to critical customer concerns that drive WTP.