Consumers' willingness to pay using an experimental auction methodology: applications to brand equity

Abstract

AbstractResearch has established a relationship between willingness to pay to price premium and brand equity, however, most studies used stated preference data, which are hypothetical situations. Although the experimental auction methodology has been well documented in the previous literature, its application in understanding brand equity has been minimal.The purpose of the study was to determine the relationship between brand equity and consumers' willingness to pay a price premium for branded apparel products using revealed preference methodology. In order to determine the relationship, the Becker‐Degroot‐Marshack experimental auction mechanism was used with the endow‐and‐upgrade approach followed with a survey. The survey included 10 multidimensional brand equity questions adopted from the Yoo and Donthu brand equity scale, demographics, previous brand experiences, importance of apparel product attributes and beliefs about brands. The experiment resulted in 100 usable observations. Brand equity was analysed using a composite score on the multidimensional brand equity measurement (Yoo and Donthu), willingness to pay a price premium was analysed using descriptive statistics and Tobit regression analysis was used to analyse the relationship between brand equity and the willingness to pay a price premium.Findings indicated that the overall brand equity score, a belief that there are more choices in branded merchandise and the importance of brand in making clothing purchase decisions had a modest positive and significant influence on the willingness to pay a price premium. The higher the brand equity, the higher the importance of brands in making clothing purchase decisions, and belief that there are more choices in branded merchandise, the higher the price premium a consumer was willing to pay.