Using contingent valuation to estimate consumers’ willingness to pay for differentiated coffees in Puerto Rico

Abstract

Product differentiation is a strategy used to develop products with particular attributes valued by consumers who are willing to buy them at higher prices. We use a single-bounded dichotomous choice contingent valuation method through in-person interviews (N=575) to estimate consumers’ willingness to pay (WTP) for high-quality and regular coffees produced locally. The results show that consumers are willing to pay $13.60 for a 227-g (8-ounce) bag of highquality coffee produced locally and $10.90 for regular coffee produced locally. It may be inferred that consumers are willing to pay $2.70 more for high-quality coffee, holding all else constant, which suggest that consumers value more the attribute of being locally produced than that of quality. The results also suggest that household size, income and education level of consumers can affect WTP values. We provide evidence that additional revenue can be generated by producing differentiated coffees. However, a cost analysis is required to complement this study and to better understand the economic viability of producing coffee with the characteristics evaluated in this investigation.