The Z-Effect: Why Good Is Good, but Better Is Better

Abstract

Most preference construction research studies the response mode of choice. While such research is important, relatively little preference construction research has addressed the implications of constructing willingness to pay. Understanding willingness to pay is important for pricing because choice does not necessarily produce the same results or insights as willingness to pay. This research begins to extend the current literature on the construction of willingness to payby investigating how it is influenced by the dispersion of quality in product menus. Two experiments demonstrate that willingness to pay is influenced by relative quality (i.e., an alternative's quality relative to other alternatives in the menu). Specifically, these two experiments demonstrate that willingness to pay for an alternative in a menu can be manipulated without changing the objective quality of those alternatives because willingness to pay is correlated with an alternative's quality z-score. This result is an artifact of the difficulty of translating psychological values (preferences) into numerical values (willingness to pay) combined with the comparative nature of the menu context.