Are you willing to pay for that?

Prices go up. That’s part of life, whether we like it or not.  We can just go along with it, reduce our consumption, or…take a stand.  For governments providing a service for which they charge, it’s a balancing act. How to raise the price of something without causing hardship or protests, while still covering the cost of providing it?

Last year I was involved in designing a study that, among other things, assessed customer’s willingness to pay for better utility service. This meant asking people all over the country, as part of a household survey, whether they would pay more for better service.

Governments planning to develop or upgrade public services may be interested in knowing to what extent consumers are willing to bear the costs of investment, via higher rates. For example, if water supply service provision is substandard, governments will develop investment plans to improve quality, supply, access, etc. Governments can go to commercial or development banks to access financing up front. However, typically they will seek to recoup at least part of those costs by passing them on to customers via higher tariffs. That was what brought me to the country in question.

The survey would, ideally, help determine what poor households could afford and whether proposed new tariff levels would pose a hardship or not. An array of mitigation measures, including various kinds of subsidies, can be developed for those households deemed to need them.  Beyond that, governments also want to know about overall household tolerance for paying more. Will higher tariffs lead to higher non-payment levels? Will they bring people to the streets? Could proposed tariff increases fail to pass? In that case the whole investment strategy would be called into question.

The way a willingness to pay (WTP) study works is that respondent are asked if they would pay more, either a specific amount, or as a percentage of their current water bill. Originally, this method contingent valuation, was used to estimate whether and how much extra people would pay for an environmental good, such as clean air or water.

There are all kinds of different ways of asking WTP questions. For example, you can ask a yes/no question, ask different households about different amounts and build a demand curve, or use an open-ended approach, asking them to volunteer an amount themselves.  Naturally, how you formulate the question will affect the answer.  And getting reliable answers is a challenge. Some people hold their cards close to their chest, unwilling to reveal they might pay more. Consciously or unconsciously, they enter bargaining scenario, like at a bazaar, hoping to get the best deal. Others may answer that they’re willing to pay a higher amount than they would like. They may be trying to convince the government to just hurry up and get on with the investment, and let’s worry about the tariffs later (when maybe they won’t go up quite so much).

Almost all WTP methods are quantitative. The idea is to collect data from a sample of households that represent a population of interest (a city, a region, a country).  Now, getting back to our survey:  about half replied they would not be willing to pay a cent more for water and sanitation improvements. Of the half that did say they’d pay more, the amount was about 5%. Fair enough.

What was interesting, however, was that when we broached the subject of paying more during a focus group, covering questions very similar to our survey, but in an open-ended, more in-depth manner, the share of people saying they’d pay more for better service was very high. Almost everyone said yes. Of course, this is not a scientific comparison – a thousand households vs ten people sitting around a table. But it got me thinking again about the manner in which we as researchers engage with our subjects.  How much does the context matter? Focus group discussions, by their nature, foster open dialogue and exchange of ideas. They tend to put the research subjects on a different footing. They are given more agency, they able to share their thoughts and ideas with a moderator who guides the conversation. (Unlike the survey interviewer, the focus group moderator is not trying to get through a long list of questions, looking to get a limited range of responses.)

This got me thinking about a hypothesis that might be worth testing. It goes something like this: asking about people’s willingness to pay as part of a back-and-forth conversation (i.e. focus group) rather than via a survey questionnaire leads to a greater stated willingness to pay. In the context of a conversation people can ask clarifying questions, can explain their reasoning, can describe under what conditions they would be willing to cough up more. Engaging them more as equals, as ‘experts’ so to speak, in the matter of their own consumption habits, leads to a different place.  Trust is probably going to be higher when people don’t feel so much like they’re just going to be a data point.

Methodological purists may argue that, ‘well, of course you’re getting different responses, since you’re asking questions in a different way.”  My response is – that’s exactly the point.  To me, the more relevant question is, to what extent do the research methods mimic real world conditions under which higher tariffs are pushed through?

While it would be certainly more difficult to analyze qualitative research on WTP than quantitative survey data, let us test what the former approach can add. Engaging customers through such an approach, treating them as thoughtful partners with valuable perspective on a public service, rather than only as data points, could be useful in informing tariff strategy. It could yield more information concerning the conditions people would countenance paying more, why and why not, and how to best to engage them on this often difficult topic.

The next time you ask someone to pay more for a service, don’t just take ‘no’…or ‘yes’ for answer.