Predicting consumers' willingness to pay for sustainable fashion products by discrete choice modelling (using Apollo library in R)

This project is my MSc thesis (March - August 2020). The R syntax is included in this repository.

The full report can be found here: https://repository.tudelft.nl/islandora/object/uuid:5ea48fce-fa1e-457d-8277-ad19784033bc?collection=education

Abstract:

"My project studies how consumers trade off price against hypothetically constructed ratings of environmental and labor rights practices. The following variables are chosen for analysis:

• 7 main variables representing information on clothes labels (price, country of origin, fiber content, washing instruction, drying instruction, environment rating, labor rights rating)
• 12 background variables (including 6 sociodemographic, 3 spending habit and 3 attitudinal variables)

A stated choice experiment was constructed to collect data from 123 people, and discrete choice modelling was employed to analyze the data.

The results showed that 5 out of 7 main variables (price, fiber content, washing instruction, environment rating and labor rights rating) play a significant role in respondents’ choice. Consumers prefer lower price, pure cotton (vs mixed blend) and the option to use washing machine (vs washing by hand). Regarding the environment and labor rights attributes, higher ratings are preferred, and the preference for higher ratings follows the law of diminishing marginal utility.

In the final model, 4 background variables including gender, country of residence, concern about sweatshops and skepticism of eco-labels were shown to moderate the effects of main variables. Women and residents in high-income countries are more sensitive to price. People who are more concerned about sweatshops attach a higher importance to labor rights rating, whereas people who are more skeptical of eco-labels care less about the it. A typical individual in our sample is willing to pay €12 to €36 more for 1-point improvement of either environment rating or labor rights rating.

Consequently, sustainable fashion brands can deploy either of the following two strategies to enhance their sales: (1) charge a price premium without losing their market share or (2) keep the same price to gain more customers."