The purpose of this research is to build a model to help understand consumers’ willingness to pay for professional services. Landscaping/Lawn and garden services, carpentry, plumbing, vehicle maintenance, apparel cleaning and alteration, tax return preparations, financial services including investment/retirement planning are all examples of services that, in general, consumers have the choice of doing the work themselves or outsourcing them. I refer to these services as professional services.
Professional services that can be produced by consumers present an interesting pricing challenge to service providers. Traditional pricing techniques have called for considering consumers, along with costs and competitors, in setting a price. However, consumers’ perception of the value of a service may have a special importance in pricing in the case of professional services where consumers have the option of producing the service themselves. While previous researchers have studied demographic and economic variables, I argue for a greater role of behavioural variables in determining the maximum price consumers are willing to pay.
I hypothesize that consumers’ willingness to pay is mainly driven by two broad dimensions: (1) their ability to either do the work themselves or pay for it, and (2) their readiness to pay. A set of factors fall under these two overarching dimensions. The ability dimension has two faces. The first facet involves skill availability, i.e., consumers’ perceptions of whether or not they can do the work themselves. One aspect of subjective knowledge is consumers’ confidence that they can perform a job comparable to a service provider. Hence, a perception of a difference in quality of the outcomes between one’s work and that of a service provider is expected to affect willingness to pay.
The second facet relates to the financial ability or availability of monetary resources. Hence, job security or anxiety is expected to affect financial ability. Costs of home production are expected to positively influence consumers’ willingness to pay for professional services. Home production is not free and involves costs. For instance, one needs to possess gardening tools and equipment to do landscaping.
Readiness to pay is mainly influenced by what else consumers can do with their time and by their interests and preferences. Instead of spending their time on home production, consumers can (1) work or (2) enjoy leisure activities. Opportunity to work for extra time and get paid for it may or may not be available. Moreover, individuals have different levels of appreciation of leisure time. In a broad sense, consumers’ valuation of time is expected to influence their willingness to pay for professional services. Also, consumers’ perception of the effort needed to do the work themselves is expected to influence their willingness to pay for professional services. Research in consumer decision making provides strong support for consumers’ attempts to minimize the effort they put into tasks.
Personal preferences and interests are expected to influence one’s readiness to pay for professional services. For instance, consumers may enjoy performing some professional services such as landscaping. Such enjoyment is expected to negatively affect consumers’ willingness to pay to outsource professional services. Moreover, research on reference groups and normative influence lend support to the influence of social others, e.g., friends and colleagues, on one’s behaviour. Accordingly, consumers’ willingness to pay is expected to be contingent on the behaviour of their reference groups.
To test my model, I conducted two separate cross sectional online surveys. Each survey focused on an industry; the services chosen for the first and second surveys were apparel cleaning and preparation of tax forms, respectively. Data were collected from 488 consumers for the apparel cleaning survey and 480 for the tax forms preparation survey. Both samples represent a cross section of shoppers.
In the survey, respondents were first asked to indicate their willingness to pay. Questions aiming at measuring the independent variables were asked then. These variables are perceptions of (1) subjective knowledge, (2) difference in quality of outcome between service provider and home production, (3) job security, (4) costs of home production, (5) opportunity of extra income, (6) appreciation of leisure, (7) value of time, (8) effort, (9) enjoyment, and (10) reference group. The last section was devoted to demographic questions including age, income, education and family size.
My survey findings lend support to the importance of behavioural variables as predictors of consumers’ willingness to pay for professional services. The behavioural structural equation models had good fits and all direct effects were significant in the two industries examined. Perceptions of subjective knowledge of how to perform the service and enjoyment of doing the service were the most significant variables in my models. Interestingly, the addition of the traditionally studied demographic variables did not result in better models.
In addition, for each of the data sets, I ran discriminant analysis with usage of the service (users vs. non-users) as the grouping variable. The discriminant analyses revealed that users and non-users of both professional apparel cleaning and tax preparation services differed primarily on behavioural variables such as enjoyment and reference group behaviour.
Understanding which behavioural variables predict willingness to pay for professional services provide insightful marketing implications. Given the importance of perceived knowledge and the difference in quality of outcome in case of make or buy, service providers may consider stressing in their promotional messages how much better the outcome is when they (versus consumers) produce the service. My findings also imply that making the importance of leisure activities and the related value of time more salient may lead to a higher willingness to pay for professional services.
Reference:
Nasr Bechwati, Nada (2011), “Willingness to Pay for Professional Services,” Journal of Product and Brand Management, 20(1), 75-83.
