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How can I get one estimate for price for calculating WTP?

Hey guys,

I have several attributes with different levels one of it being price.
With the normal latent class analysis I have estimates for all price levels (for each class). But what I need for calculating willingness to pay is one overall estimate for price (for each class).

I heard that it is possible by modifying the settings, but I have no clue how to do it. Could you please help me?

asked Dec 11, 2014 by anonymous

2 Answers

+1 vote
You can set price to be linear (which gives you one parameter for price per latent class, the coefficient of the linear function).  Once you've selected latent class as your analysis method, go to settings>attribute coding and in the pull-down menu next to price select linear instead of part-worth.  

But, if your respondents value price in a non-linear way, simplifying your model this way could make it fit the data worse.  There's a significance test you can run for this, the 2 Log Likelihood test.   If this test shows no significant difference, you can feel safe that you're not losing out on significantly better fit when using linear instead of part-worth coding.
answered Dec 11, 2014 by Keith Chrzan Platinum Sawtooth Software, Inc. (52,450 points)
+1 vote
I assume you've seen our warnings about the theoretical challenges of the Willingness to Pay concept.  We generally recommend against doing this.  Please see our white paper: http://www.sawtoothsoftware.com/downloadPDF.php?file=monetary.pdf

However, if you still feel you must compute WTP.  And, if you want to do it from a single coefficient, then you can obtain a single price slope within our Latent Class procedure by clicking:

If using the Latent Class Standalone software, click the "Attribute Information tab".  If using Latent Class built into the SSI Web system, click "Settings + Attribute Coding".

Then, select the attribute to be estimated as a single linear effect within the table.  

Then, under the "Coding" column, click the dropdown control to indicate "Linear" rather than the default "Part Worth".

Now, in the panel just to the right, indicate the values that you want associated with each price level.  Let's imagine your prices were $1.50, $2.50, and $3.50 (for three levels of price).  You would type "1.5" in the $1.50 row, "2.5" in the $2.50 row, etc.

Now, when you run Latent Class, you'll obtain a single beta for price rather than three separate part-worth utilities for a 3-level price attribute.
answered Dec 11, 2014 by Bryan Orme Platinum Sawtooth Software, Inc. (133,765 points)
edited Dec 11, 2014 by Bryan Orme