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In a bid to estimate the potential market for products and services, businesses often conduct market research to access one key objective; consumers’ willingness and ability to pay for a product 0r service. This is one of the fundamental tenets of market research as it unearths valuable insight for business and enterprise in developing strategy and tactics for products pricing and marketing.  

Willingness-To-Pay denotes the behavioral intention of a consumer to purchase a product, while Ability-To-Pay denotes the purchasing power of the consumer at a particular point in time. Market researchers explain these two concepts in the theoretical framework of Latent Demand and Effective Demand. Latent demand can be described as the willingness or desire of a consumer to buy a product at a particular time while Effective demand is the demand that is backed up by the ability to buy and not just mere desire or fantasy. Certain factors are responsible for influencing a consumer’s willingness to buy a product, some of which include:

• Brand Name: Good name and reputation.
• Product Need: The consumer’s need for the value offered by the product.
• Product Quality: Superior product with the hope of good satisfaction.
• Price Sensitivity: Consumers concerns about how high or low the product price is.
• Uniqueness of product: How distinct the product is.

Understanding the consumer sentiment in relation to these concepts (Willingness and Ability to Pay) is an indispensable requirement in market analysis. When making strategic assessment or decisions for product pricing and marketing, it is important to draw clear insight around market potential. This in-depth investigation into market potential based on pricing comes from the ability-to-pay rather than the willingness-to-pay, which could give a con. If a company gets a clear insight into the consumers ability-to-pay, they will be able develop strategies that could set pricing right. Measuring the ability to pay requires some econometrics of key indices.

A good market research will provide viable and actionable insights for companies and businesses to understand consumers’ Ability-To-Pay, which in return will help to develop strategic pricing, increase in sales and profitability.