Willingness to Pay is a critical concept in the Jobs to be Done (JTBD) framework that defines the maximum amount customers are willing to spend to get their job done better. Understanding customers' willingness to pay is essential for portfolio companies to accurately size market opportunities, develop effective pricing strategies, and create products that deliver value commensurate with their price.
In the JTBD framework, willingness to pay refers to the maximum amount a customer would pay for a solution that helps them get their job done faster, more accurately, and with less effort than current alternatives. Unlike traditional approaches that focus on what customers are willing to pay for specific products, JTBD focuses on what they are willing to pay to achieve their goals, independent of any specific solution.
Understanding willingness to pay is crucial because:
Traditional approaches to pricing often focus on factors that may not accurately reflect market opportunities:
These approaches all have limitations because they are anchored to existing products, current market conditions, or internal cost structures rather than fundamental customer value.
The JTBD approach focuses instead on:
This approach provides a more accurate picture of market opportunities, especially for innovative solutions that might create entirely new product categories.
Several key factors influence how much customers are willing to pay to get their jobs done better:
Jobs that are critical to customers' personal or professional success typically command higher willingness to pay. For example:
Jobs that customers perform frequently often justify higher investments because the benefits are realized more often. However, very infrequent but high-stakes jobs (like emergency preparation) can also command high willingness to pay.
The more customers struggle with current solutions, the more they're typically willing to pay for better alternatives. Struggling with high-priority needs within a job is a key driver of willingness to pay.
For customers with high opportunity costs for their time, solutions that save significant time often command premium prices. This is particularly relevant in business contexts where time savings translate directly to productivity and profit.
Solutions that reduce significant risks (financial, physical, reputational, etc.) associated with job execution can command higher willingness to pay, especially in regulated or high-consequence environments.
The availability, quality, and cost of alternative ways to get the job done influence willingness to pay. Limited alternatives typically enable higher willingness to pay.
While separate from intrinsic willingness to pay, practical budget constraints may limit what customers can actually spend, particularly in organizational purchasing contexts.
Understanding these factors helps portfolio companies identify high-willingness-to-pay segments and develop value propositions that address their most valued needs.
Accurately measuring willingness to pay requires sophisticated research approaches. The thrv methodology includes several techniques for determining customers' willingness to pay:
The most straightforward approach is to directly ask customers how much they would pay for solutions that get their job done better. This typically involves:
While simple, direct questioning has limitations due to hypothetical bias (customers may not accurately predict their actual purchasing behavior) and strategic responding (customers may understate willingness to pay to influence pricing).
Conjoint analysis is a more sophisticated approach that asks customers to make trade-off decisions between different combinations of features and prices. This reveals:
By analyzing these trade-off patterns, researchers can infer willingness to pay without directly asking about price, reducing bias.
This approach asks customers four key questions:
The pattern of responses reveals optimal pricing ranges and thresholds for different market segments.
This approach calculates the economic value a solution creates for customers by:
This is particularly effective in B2B contexts where economic value can be directly calculated.
Where possible, observing what customers actually pay for current solutions provides valuable benchmarks for willingness to pay:
This real-world data helps ground more theoretical willingness-to-pay assessments.
One of the most valuable aspects of willingness-to-pay analysis is understanding how it varies across different customer segments:
Job beneficiaries—those who directly benefit from getting the job done—often have higher willingness to pay than job executors who merely perform the job on behalf of others. This is important when developing solutions for markets where beneficiaries and executors are distinct.
Business customers often have higher willingness to pay for job improvements due to:
However, consumer premium segments can also show extremely high willingness to pay for solutions that address personal priorities or aspirations.
Customers who struggle significantly with current solutions typically have higher willingness to pay for improvements than those who find current solutions adequate. This makes struggle-based segmentation particularly valuable for identifying premium opportunities.
Even within the same customer segment, willingness to pay often varies significantly across different needs within a job. Understanding which specific needs command premium willingness to pay helps companies prioritize their innovation efforts.
Willingness to pay is a fundamental component of the Need Curve, which plots the number of customers against their willingness to pay to get their job done better.
The Need Curve reveals several important patterns:
The upper portion of the Need Curve represents premium segments with high willingness to pay. While these segments may be smaller in size, they often represent substantial revenue opportunities due to their high per-customer value.
The middle portion of the Need Curve represents mass market segments with moderate willingness to pay but larger customer numbers. These segments may justify standardized offerings that balance value and cost.
The lower portion of the Need Curve represents value segments with lower willingness to pay but potentially very large numbers. These segments may require different business models or cost structures to address profitably.
By understanding the complete Need Curve, portfolio companies can make informed decisions about which segments to target and how to position their offerings.
Understanding willingness to pay transforms how portfolio companies develop their pricing strategies:
Rather than basing prices on costs or competitor reference points, companies can set prices based on the value their solutions deliver relative to customers' willingness to pay. This typically results in higher margins and more sustainable pricing power.
By understanding how willingness to pay varies across segments, companies can develop tiered offerings or other price discrimination approaches that capture more of the area under the Need Curve.
For markets with segments that have very different willingness to pay, freemium models can address value segments with free offerings while monetizing premium segments through paid upgrades.
Understanding which needs command high willingness to pay helps companies decide whether to bundle features together or offer unbundled solutions that allow customers to pay only for what they value most.
Willingness to pay analysis helps determine whether customers prefer to spread payments over time (subscription) or make larger one-time purchases, based on how they value access to ongoing job improvements.
In thrv's proprietary Jobs to be Done methodology, willingness to pay serves as a fundamental element for creating growth strategies for portfolio companies:
thrv helps portfolio companies use willingness to pay to calculate the Securable Market—the total economic opportunity available in a market based on what customers would pay to get their jobs done better.
The methodology uses willingness to pay combined with struggle patterns to identify the most attractive customer segments for portfolio companies to target.
thrv helps companies develop pricing strategies that align with customer willingness to pay across different segments, maximizing both adoption and revenue.
By understanding which needs command the highest willingness to pay, thrv helps companies prioritize their product roadmaps to deliver the greatest customer value.
Willingness to pay insights inform go-to-market approaches, helping companies determine which channels, messaging, and sales models will best reach high-value segments.
This comprehensive approach ensures that all aspects of a portfolio company's strategy align with customer willingness to pay, maximizing growth potential and equity value creation.
For portfolio companies, understanding willingness to pay delivers several strategic benefits:
By focusing on what customers would pay to get jobs done better rather than current product prices, companies gain a more accurate view of market opportunities.
Willingness-to-pay analysis reveals natural market segments based on value perception rather than arbitrary demographic or firmographic characteristics.
Solutions designed to address needs with high willingness to pay typically command premium prices and resist commoditization pressures.
Development resources can be focused on features that address needs with high willingness to pay, increasing return on investment.
Understanding what customers value most helps companies develop distinctive positions even in crowded markets with powerful incumbents.
Willingness to pay represents a fundamental shift in how companies think about pricing and market opportunity. By focusing on what customers would pay to get their jobs done better rather than what they currently pay for existing products, the JTBD framework provides a more accurate and forward-looking foundation for strategic decision-making.
The thrv methodology provides portfolio companies with sophisticated tools for measuring and analyzing willingness to pay in their markets. This willingness-to-pay-based approach leads to more accurate market sizing, better segment targeting, optimized pricing, and ultimately accelerated growth and enhanced equity value.
By understanding the economic value that better solutions create for customers and what portion of that value they are willing to share through purchasing, portfolio companies can develop products and pricing strategies that maximize both customer adoption and financial returns.