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Willingness-to-pay: Creating permanent competitive advantage, for the right reasons

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Willingness-to-pay (WTP) is the maximum price the customer would have paid for the product, which the economist claims is how much the customer values the product. “Value” could come from anything—utility, pleasure, status, even irrational confusion. The economist claims that any transaction is evidence that WTP > Price, and the difference between those numbers is “Consumer Surplus.” It looks trivial at a first glance, but I’ve come to believe that analyzing “WTP” is not only non-trivial, but also leads to very different strategies, business models, and outcomes. I’m irked by this word “willingness.” In 2015, Martin Shkreli, then-CEO of Turing Pharmaceuticals, bought the rights to the drug Daraprim, which for 62 years had been used to treat a deadly parasitic disease. He raised the price of a pill from $13 to $750, skyrocketing the typical cost of treatment from $1,000 to $63,000. Martin Shkreli testifying before congress on a hearing on drug prices, before calling lawmakers “imbeciles

Willingness-to-pay: Creating permanent competitive advantage for the right reasons by Jason Cohen on May 21, 2023 This fresh take on "Willingness-to-Pay" analyzes three types of customer motivation, leading to superior strategies for growth that also better the world. source Traditional economics: WTP and Consumer Surplus The best businesses deliver $4 of value, charge $2, and costs them $1 to do it. It’s an obvious formula for both profit and happy customers, but what does “$4 of value” even mean? Economists have labels for this formula: Figure 1 Willingness-to-pay (WTP) is the maximum price

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