What is in a Price? Estimating Willingness-to-Pay with Bayesian Hierarchical Models

• URL: http://arxiv.org/abs/2509.11089v1
• Date: Sun, 14 Sep 2025 04:39:35 GMT
• Title: What is in a Price? Estimating Willingness-to-Pay with Bayesian Hierarchical Models
• Authors: Srijesh Pillai, Rajesh Kumar Chandrawat,
• Abstract summary: This paper proposes a robust methodology to deconstruct a product's price into the tangible value of its constituent parts.<n>We employ Bayesian Hierarchical Conjoint Analysis, a sophisticated statistical technique, to solve this high-stakes business problem.<n>Our results demonstrate that the model successfully recovers the true, underlying feature valuations from noisy data.
• Score: 0.0352925259310339
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: For premium consumer products, pricing strategy is not about a single number, but about understanding the perceived monetary value of the features that justify a higher cost. This paper proposes a robust methodology to deconstruct a product's price into the tangible value of its constituent parts. We employ Bayesian Hierarchical Conjoint Analysis, a sophisticated statistical technique, to solve this high-stakes business problem using the Apple iPhone as a universally recognizable case study. We first simulate a realistic choice based conjoint survey where consumers choose between different hypothetical iPhone configurations. We then develop a Bayesian Hierarchical Logit Model to infer consumer preferences from this choice data. The core innovation of our model is its ability to directly estimate the Willingness-to-Pay (WTP) in dollars for specific feature upgrades, such as a "Pro" camera system or increased storage. Our results demonstrate that the model successfully recovers the true, underlying feature valuations from noisy data, providing not just a point estimate but a full posterior probability distribution for the dollar value of each feature. This work provides a powerful, practical framework for data-driven product design and pricing strategy, enabling businesses to make more intelligent decisions about which features to build and how to price them.

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