Analyzing Socio-Demographic Determinants for Fair Trade Label’s Price Premia: A Practical Approach

The adequate skimming of consumers’ willingness-to-pay (WTP) for social product enhancements is key for companies’ monetary benefits, because an increasing WTP translates to increasing price premia. We investigate consumers’ WTP for the fair trade label in the jeans category and explore WTP differences between several socio-demographic segments. We conduct a discrete choice experiment and derive segment-specific WTP by averaging individual WTP estimates for socio-demographic segments. This approach enables statistic testing of segment-specific WTP-differences. We found substantial differences in WTP for varying income- and household-based segments and segments built from consumers’ awareness of the fair trade label. This information enables companies to derive adequate pricing strategies, i.e., second- or third-degree price differentiation strategies, when a social attribute enhances a product.