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We’ll test your business knowledge in each issue of Lehigh Business.
We’ll test your business knowledge in each issue of Lehigh Business and give you an opportunity to win bragging rights and Lehigh swag. This Biz Quiz comes courtesy of Danny Zane, associate professor, marketing department.
If You're Happy and You Know It...
Peer-to-peer (P2P) marketplaces continue to grow substantially. On websites like Etsy, Fiverr, UpWork and others, individuals can become business owners overnight. Unlike bigger companies in traditional marketplaces, sellers in these P2P marketplaces can’t advertise around traditional signals of quality such as brand name. They need to market differently.
Instead, sellers in P2P marketplaces have an opportunity to more personally and directly tell potential buyers about themselves and the production processes behind their products and services. One thing that sellers could share is their level of production enjoyment—how much pleasure and fun they get from producing a good or service. That Etsy shop owner could mention how they really enjoy making a particular piece of jewelry. That freelance marketer could mention how they love creating digital marketing campaigns.
Question
When a seller has high production enjoyment, and makes that known to potential buyers, how does it impact the price the seller is willing to charge (WTC) for that good or service and the price buyers are willing to pay (WTP) for it?
A) Decreases seller’s WTC; Increases buyers’ WTP
B) Decreases seller’s WTC; Decreases buyers’ WTP
C) Increases seller’s WTC; Increases buyers’ WTP
D) Increases seller’s WTC; Decreases buyers’ WTP
Answer
The correct answer is A.
Through research that Danny Zane and his colleagues conducted, they find that when a seller mentions that they really enjoy producing a product or providing a service, buyers interpret this as a signal of a high-quality offering, and in turn they are willing to pay more for that product or service. Now for sellers, that same high production enjoyment actually leads them to charge less for those same products or services they enjoy producing!
This is likely because sellers’ enjoyment of the production process provides inherent utility to them. Basically, they feel like they need less financial compensation because they already gathered inherent value from the enjoyable production process itself.
So, the seller on Etsy producing and selling jewelry feels the need to charge less for the jewelry that they really enjoy sitting there and crafting, probably because it feels less like work, is inherently satisfying to do, and so on.
To sum it all up, they think the saying “Don’t sell yourself short” applies quite nicely here. In general, sellers should be aware that their high enjoyment of certain production processes could lead them to undervalue their products or services relative to buyers’ perceptions of the quality of these goods.
The winners are below. Congratulations!
- Meghan McCabe ’23, accounting and BIS
- Christian Cunningham ’23, accounting and BIS
- Chris Parsons ’15, finance and accounting, MS ’16, accounting and information analysis
- Derek Zeller ’94, marketing