Consumers’ Willingness to Pay for Non-pirated Software

Consumers’ Willingness to Pay

for Non-pirated SoftwareJane L. Hsu

Charlene W. Shiue

ABSTRACT. This study analyzed consumers’ willing-

ness to pay (WTP) for non-pirated computer software

and examined how attitudes toward intellectual property

rights and perceived risk affect WTPs. Two commonly

used software products, Microsoft Windows and Microsoft

Office, were used in the study as objects to reveal con-

sumer assessed values. A consumer survey was adminis-

tered in Taiwan and the total valid samples were 799.

Respondents in this study included students from senior

high schools, colleges, and graduate schools, and general

consumers who were no longer full-time students. The

estimated average WTP for Windows was USD 58.55 and

for Office was USD 53.49, much lower than the respective

suggested retail prices in the market. Social norms had

strong positive influences on willingness-to-pay for soft-

ware products. The prosecution risk did not significantly

increase WTPs for software products due to the reason

that individuals who used pirated software were not at a

high risk of being prosecuted. Performance risk was

positively correlated to WTPs for software products. The

respondents segmented into the low-WTP cluster were

more likely to use pirated software than those in the high-

WTP segment. Source reliability, legitimacy, technical

support, and customer service were emphasized in deci-

sions of respondents in the high-WTP segment and could

be used in marketing strategies.

KEY WORDS: software piracy, willingness to pay,

intellectual property rights, perceived risk

Introduction

Usage of pirated software is a serious problem

worldwide and has become difficult to deal with due

to the easiness in duplicating copyrighted products.

McDonald and Roberts (1994) mentioned that

piracy was a problem of persistency. Piracy would

not disappear or lessen if nothing had done to pre-

vent consumers from using unauthorized software

(Business Software Alliance, 2006). Users of unau-

thorized software often lack respect for intellectual

property rights. The misuse of copyrighted software

not only affects the benefits of copyright holders, but

also weakens the intentions of manufacturers in

making investment in research and development.

The problem of software piracy will not diminish as

long as users have intentions to use unauthorized

software products. Would there be factors influ-

encing consumers’ decisions about choosing autho-

rized products? How much are consumers willing to

pay for the usage of authorized software products? In

order to quantify the willingness-to-pay (WTP) of

consumers in using authorized software, this study

selects two commonly used commercial software

products, Microsoft Windows and Microsoft Office, to

examine consumers’ usage patterns of unauthorized

software in addition to evaluating the dollar

amount of willingness-to-pay for these two software

products.

With advances in technology, individual users are

able to make and distribute unauthorized software.

The key issue in this matter is that the supply of

pirated software exists as long as there is a demand in

the market. For software piracy, legislation and

education may lessen the seriousness of the problem,

but may not stop users from using, reproducing,

sharing, and distributing unauthorized software.

Tang and Farn (2005) suggested assessing perceived

value of software products in order to generalize

prices in the market.

The objective of this study is to examine the

behavioral usage of pirated software products in

Dr. Jane Lu Hsu is Professor in Department of Marketing at

National Chung Hsing University in Taiwan.

Charlene Wan-Yun Shiue was a former Research Assistant in

the Department of Marketing at National Chung Hsing

University in Taiwan.

Journal of Business Ethics (2008) 81:715–732 � Springer 2007DOI 10.1007/s10551-007-9543-9

Taiwan. The willingness-to-pay measures are esti-

mated for authorized copies of Microsoft Windows and

Microsoft Office to reveal values consumers assess these

two commonly used software products. The results

of this study provide new insights into usage of

pirated software and are useful for the software

industry to apply price differentiation to segment

consumer markets.

Literature review

Piracy

Swinyard et al. (1990) indicated that computer soft-

ware was the first merchandise duplicated electroni-

cally on a large scale. Software piracy has become a

phenomenon even with the efforts software pro-

ducers have devoted to anti-piracy technology

development. Consequently, it is essential to examine

the software piracy problem from the demand side in

order to have a good understanding of the issue

(Block et al., 1993; McDonald and Roberts, 1994).

Consumers select counterfeits due to price

advantages (Alberts-Miller, 1999; Block et al.,

1993). Cheng et al. (1997) stated that relatively high

market price of authorized software was the main

reason of software piracy. Chen and Png (1999)

concluded, it would be better off to deal with end-

user piracy through strategies of pricing than mon-

itoring. Price reduction could have effects of easing

the establishments of authorized products like soft-

ware in product penetration and distribution in a

legitimate market (Cheng et al., 1997; Moores and

Dhillon, 2000; Papadopoulos, 2004). Cheng et al.

(1997) indicated that increases in consumer reser-

vation prices and ethical costs could reduce intention

of pirated software usage. Moores and Dhillon

(2000) suggested raising censure for using pirated

software.

Attitudes toward intellectual property rights

Consumer ethical attitudes toward software usage

had been identified as crucial factors influencing

software piracy (Eining and Christensen, 1991;

Logsdon et al., 1994; Swinyard et al., 1990; Taylor

and Shim, 1993). Swinyard et al. (1990) compared

attitudes of U.S. and Singapore students toward

software piracy and pointed out that Singapore

students had more casual attitudes toward software

piracy than U.S. students had. Similar results were

found in the study of Whiteman et al. (1998) that

Hong Kong and Singapore students had more per-

missive attitudes regarding the moral standards

toward computer usage than U.S. students had.

Leonard and Cronan (2005) concluded that uneth-

ical behavior in computer usage was more unac-

ceptable to females than males.

Ang et al. (2001) found that two social

dimensions (informative susceptibility and norma-

tive susceptibility) and three personality character-

istics (value conscious, integrity, and personal

gratification) affected attitudes toward piracy.

Wang et al. (2005) augmented the influential

dimensions of piracy in Ang et al. (2001) by

adding two new constructs, collectivism and

novelty seeking.

Perceived risk

Risk perception was found to influence decision-

making (Taylor, 1974), and was an important issue

in consumer behavior studies (Peter and Ryan,

1976). Retting and Rawson (1963) indicated that

perceived risk was an antecedent to ethical behavior.

Perceived risk was found to have impacts on ethical

decisions in addition to moral philosophy (Fraedrich

and Ferrell, 1992). Chiou et al. (2005) stated that

consumer piracy decisions were influenced by per-

ceived risk. Purchasing counterfeit products could

be risky to consumers once considering financial

risk, performance and functional risk, or social risk

(Wee et al., 1995). Wee et al. (1995) found that

higher income consumers were less likely to buy

counterfeit products, opposite of findings in the

study of Roselius (1971).

Tan (2002) applied performance, financial, social,

and prosecution dimensions in examining risk in

software piracy. Chiou et al. (2005) focused on the

relationship between prosecution risk and attitudes

toward music piracy due limited financial risk in

purchasing pirated CD or downloading music files.

Advanced technology assured the quality of pirated

music close to the originals with low performance

risk.

716 J. L. Hsu and C. W. Shiue

Willingness-to-pay measurements

WTP has been utilized by economists, psychologists,

and marketing researchers in evaluating demand for

goods and services as well as in measuring optimal

market prices (Wertenbroch and Skiera, 2002). Fu

et al. (1999) concluded that WTP was positively

related to household income levels, and those con-

sumers who were more concerned with pesticide

risk and had stronger preferences in health had

higher WTP. The findings in Boccaletti and Nard-

ella (2000) showed that WTP was positively related

to income and risk concerns. Skuras and Vakrou

(2002) found consumers’ WTP was positively re-

lated to educational levels. Homburg et al. (2005)

found that as customer satisfaction judgment chan-

ged from transaction-specific viewpoint to cumula-

tive prospect, the positive relationships between

customer satisfaction and WTP became stronger.

Krystallis and Chryssohoidis (2005) indicated when

consumers did not have confidences in certain

products, the WTP would be minimized, no matter

what the product category was.

Recent studies applied this method to measure

WTP to a variety of products and services, but mea-

suring WTP for authorized software products seems

to be lacking in the literature. WTP method is applied

in this study to examine the dollar amount consumers

are willing to pay for non-pirated software products.

Research design

Research hypotheses

Influences of various dimensions of attitudes toward

intellectual property rights and consumer perceived

risk are considered in the research framework in

measuring WTP for non-pirated software as pre-

sented in Figure 1. Based on findings in Ang et al.

(2001) and Wang et al. (2005), normative suscepti-

bility, value conscious, and novelty seeking are

considered in the framework and are expected to

influence WTP for non-pirated software positively

as indicated in the following hypotheses.

H1: Normative susceptibility dimension is posi-

tively related to consumers’ WTP for non-

pirated software.

H2: Value conscious dimension is positively related

to consumers’ WTP for non-pirated software.H3: Novelty seeking dimension is positively related

to consumers’ WTP for non-pirated software.

Based on the findings of Chiou et al. (2005), Tan

(2002), Wang (2005), and Wee et al. (1995), three

risk-related dimensions, performance risk, social risk,

and prosecution risk, are expected to influence WTP

for non-pirated software positively as indicated in

the following hypotheses.

H4: Performance risk dimension is positively re-

lated to consumers’ WTP for non-pirated

software.H5: Social risk dimension is positively related to

consumers’ WTP for non-pirated software.H6: Prosecution risk dimension is positively related

to consumers’ WTP for non-pirated software.

Questionnaire and survey

A consumer survey was administered to collect data

of consumers’ WTP for two commercial software

products while evaluating consumers’ perceived risk

and attitudes toward intellectual property rights.

Wang et al. (2005) used survey data collected from

two universities in China to examine whether sur-

Attitudes toward Intellectual Property Rights

Normative Value NoveltySusceptibility Conscious Seeking

H2 (+)H3 (+)H1 (+)

WTP for Non-pirated

SoftwareH4 (+) H6 (+)

H5 (+)

ProsecutionRisk

SocialPerformanceRiskRisk

Perceived Risk

Attitudes toward Intellectual Property Rights

Normative Value NoveltySusceptibility Conscious Seeking

H2 (+)H3 (+)H1 (+)

WTP for

SoftwareH4 (+)

H6 (+)

H5 (+)

ProsecutionRisk

SocialPerformanceRiskRisk

Perceived Risk

Non-pirated

Figure 1. Research framework.

Consumers’ Willingness to Pay for Non-pirated Software 717

veyed students had purchased pirated software and

their attitudes toward software piracy. Siegfried

(2004) analyzed students’ attitudes on software

piracy using survey data. Siegfried (2004) believed

surveyed students were likely to be more candid

without identifying information in questionnaires.

Tang and Farn (2005) studied the effect of inter-

personal influences on illegitimate usage of software

using survey data conducted in universities. In the

literature, surveys were administered to reveal soft-

ware piracy issues, and student surveys were used

widely to examine the illegal usage of software

products (Wang et al., 2005).

In this study, a questionnaire was designed based

on findings in the literature and discussions with

individuals who used pirated software. A trial survey

was conducted on January 16, 2006, in urban areas

of Taipei prior to the formal survey. Questionnaires

were modified based on suggestions from respon-

dents participated in the trial survey.

In the questionnaire, computer usage patterns like

average daily hours using computers on weekdays

and on weekends, commonly used pirated software

products, and channels used to obtain pirated soft-

ware products were questioned. Statements used to

measure attitudes toward intellectual property rights

were four-point Likert scales, with one indicating

the most disagreeable and four indicating the most

agreeable. For perceived risk measurements, uncer-

tainty and severity were measured separately using

four-point Likert scales, from very much impossible

to very much possible for uncertainty, and the least

severe to the most severe for severity. The willing-

ness-to-pay was measured using the payment card

method, and Microsoft Windows and Office were

objects used for respondents to assess WTP values.

Ranges of WTP were provided for each software

product, covering the recommended market price of

the software and equally divided into 20 smaller

price ranges for respondents to choose from. An

additional question was added to ask for respondents

to write down the exact dollar amount of WTP for

the software within the chosen price range. Other

questions like currently using authorized or pirated

software of Windows and of Office, considering fac-

tors while purchasing computer software products,

and possibilities of purchasing authorized copies for

the next purchase were asked. Socio-demographic

characteristics of respondents were also questioned.

Each respondent needed to have at least one

personal computer used on a regular basis, and had

installed software in that computer by himself/her-

self to be qualified to participate the survey.

Respondents were not required to have authorized

software purchase experiences for the survey. The

rationale behind this was to obtain data of pirated

software users. However, limitation of the survey

was that purchasing prices of authorized software

products could not be revealed. Respondents in this

study included students from senior high schools,

colleges, and graduate schools, and consumers who

were no longer full-time students. The formal survey

was conducted from January 20 to February 28,

2006, in Taipei, Taiwan.

This study surveyed high school students, college

students, graduate students, and general consumers

who were not currently enrolled as full-time stu-

dents in order to include respondents of various age

and educational levels. Five senior high schools were

randomly selected to administer the survey.

Administrative offices of selected high schools were

contacted for the official consent prior to the survey.

Upon receiving consent from high school adminis-

trators, questionnaires with instructions were mailed

to administrators of selected high schools, and then

several classes in each school were randomly selected

to conduct the survey. Completed questionnaires

were mailed back from administrative offices with-

out identifications of respondents. Valid samples of

high school students were 200. Four universities

were randomly selected, and trained surveyors

intercepted college and graduate students at the

entrances or in front of student unions to conduct

the survey. Valid samples of college students were

200, of graduate students were 199. For respondents

who were no longer full-time students, the survey

was administered at two memorial halls and Taipei

Main Station. Valid samples of general consumers

were 200. Total valid samples were 799. Since dif-

ferent sampling methods were applied in this study,

research findings need to be interpreted with care.

In answering the questions of unauthorized soft-

ware usage, respondents were assured the ques-

tionnaires were strict anonymous and data were used

for research only. Personal information would not

be revealed under any circumstance. While con-

ducting surveys in person, very few respondents

questioned reasons or purposes of getting data of


pirated software usage. The respondents were as-

sured by surveyors that the piracy issue was

important and honest answers would help

researchers to realize the situation in reality. Based

on feedback of surveyors, the vast majority of

respondents did not hesitate to answer questions of

pirated software usage. Some respondents would be

willing to talk about how and where they obtained

unauthorized copies of software products.

Analytical methods

Descriptive statistics were used in this study to

describe behavioral patterns of respondents in

general. Cronbach’s alpha coefficient was measured

to reveal reliabilities of scales. Factor analysis was

utilized to extract the underlying dimensions of

attitudes toward intellectual property rights and of

consumer perceived risk. Pearson correlation anal-

ysis was employed to test whether six hypotheses

could be supported. Cluster analysis was used to

segment the respondents into groups of different

WTP values.

Empirical results

Descriptive results of respondents

The total valid samples in this research were 799,

including 200 senior high school students, 200 col-

lege students, 199 graduate students, and 200 con-

sumers who were no longer full-time students. In

each sub-dataset, about half of respondents were male

(Table I). The average age of high school students,

college students, graduate students, and non-student

consumers was 16.9, 20.4, 24.8, and 30.7, respec-

tively. The educational levels of respondents were

relatively high that 72.46% of them were with edu-

cational levels of college or above. The majority of

student respondents were not married, while 29.59%

of non-students were married. In occupation of non-

student respondents, relatively more respondents

were in the sector of public/military/education

(26.26%), services (22.73%), and business sector

(22.22%).

The survey data indicated that piracy level of

operating system was 48.19%, and of word

processing software was 50.19%. The piracy level for

business software in Taiwan was 43% in 2005 and

41% in 2006 as estimated by International Intellec-

tual Property Alliance (2007). The piracy levels

calculated based on survey data were higher than

published piracy levels. These findings indicated that

information of piracy usage revealed in survey data

reflecting the situation to a certain level.

For the average monthly personal expenditure,

high school respondents had the lowest monthly

expenditure (USD 77), followed by college

respondents (USD 197) and graduate students

(USD 249). Non-student respondents had the

highest monthly expenditure (USD 383) on aver-

age. The average WTP for Microsoft Windows was

USD 58.55 and for Microsoft Office was USD

53.49. In general, respondents’ WTP for Windows

were higher than those for Office except the non-

student respondents. Among students, high school

students were willing to pay more money for

Microsoft Windows and for Office, while the graduate

students had relatively lower WTP measures. For

non-student respondents, although monthly per-

sonal expenditure was about fivefold of high

school students’ monthly personal expenditure, the

WTP measures were at similar levels. College and

graduate students had relatively low WTP mea-

sures. Due to the sampling methods applied in this

study, willingness-to-pay of high school students

was considered as an approximate measure of

young students since financial constraints of fami-

lies were greatly faced by parents rather than by

young generations while still studying in high

schools. Since parents of high school students were

not surveyed to match their WTP measures and

those of high school students, the results of rela-

tively high WTPs for Microsoft Windows and for

Office of high school students need to be explained

with caution. WTPs for Microsoft Windows and for

Office were not inversely related to educational

levels.

Differences in demographical characteristics

among four groups of respondents were tested. All of

the variables were statistically different at 1% signif-

icance level except for the gender difference. This

result revealed that demographical characteristics

among subgroups were distinct. WTP measures of

Microsoft Windows and Office are statistically different

among respondents in subgroups.


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Results of factor analysis

Results of factorized attitudes toward intellectual

property rights are listed in Table II. Three factors

were considered to be appropriate to explain

respondents’ attitudes toward intellectual property

rights based on the results of scree plots and eigen-

values using principal components analysis. The

attitudes toward intellectual property rights could be

expressed in dimensions of normative susceptibility

(five variables), novelty seeking (three variables), and

value consciousness (three variables). Total variance

explained in three dimensions was 63.05%. For those

items with loadings less than 0.3 were excluded from

the analysis (two of novelty seeking and two of value

consciousness), and the underlying dimensions were

re-analyzed to get results that coincided with the

dimensional structure of intellectual property rights

in the literature. The reliability coefficient, Cron-

bach’s alpha, was utilized to measure the internal

consistency of the dimensions. The reliability coef-

ficients of normative susceptibility and of novelty

seeking were above or close to recommended level of

0.7, but of value consciousness was lower than 0.7.

Factors of respondents’ perceived risk are listed in

Table III. Three factors were considered to be

suitable to explain respondents’ perceived risk based

on the results of scree plots and eigenvalues using

principal components analysis. The consumer per-

ceived risk could be expressed in dimensions of

prosecution risk (five variables), performance risk

(five variables), and social risk (five variables). None

of the original statements developed in the ques-

tionnaire was deleted in factor analysis of consumer

perceived risk. Total variance explained in the three

dimensions was 73.98%. The value of Cronbach’s

alpha coefficient of each dimension was above 0.7,

indicating acceptable reliability on dimensions of

perceived risk in this study.

Results of Pearson correlation analysis

This research utilized Pearson correlation analysis to

test whether six hypotheses (H1–H6) could be

supported. Pearson correlation coefficients were

listed in Table IV. Results revealed that only nor-

mative susceptibility was statistically significant in all

subgroups. Hence, H1 (normative susceptibility

dimension is positively related to consumers’ WTP

for non-pirated software) was full supported.

The sensitivity of social norms seemed to have

strong positive influences on willingness-to-pay for

software products. The implication of significant

positive relationship between the factor of normative

susceptibility and WTP was that individuals’

behavior seemed to be affected by thoughts and

deeds of other people in the environment. When

friends and family members believed using pirated

software was not appropriate, respondents tended to

have relatively high WTPs.

The dimension of prosecution risk was statistically

insignificant at 10% significance level in all subgroups.

Consequently, H6 (prosecution risk dimension is

positively related to consumers’ WTP for non-pirated

software) was not supported. The risk of being pros-

ecuted upon using pirated software did not have sig-

nificant influences on willingness-to-pay for

authorized software products. The rationale behind

the insignificant relationship between the factor of

prosecution risk and WTP was that individuals who

used pirated software were not at a high risk of being

prosecuted. Firms who were fined for using pirated

software upon software authorization check-ups were

occasionally revealed in media. Individuals who were

fined due to pirated software installations were less

commonly happened. This result along with signifi-

cant positive normative susceptibility indicated that

social norms rather than prosecution risks were influ-

ential in respondents’ WTPs for software products.

For students (high school, college, and graduate

students), dimension of value consciousness posi-

tively influenced WTP for software products. For

non-student respondents, value consciousness did

not significantly increase WTP for software prod-

ucts. This result revealed that students who felt

authorized software products were valuable would

have relatively high WTPs. For respondents who

were not full-time students, the WTP of authorized

software was not significantly related to value con-

sciousness. Marketing strategies emphasizing product

value of authorized software could not significantly

increase WTP of non-student respondents.

Hypothesis H2 (value conscious dimension is posi-

tively related to consumers’ WTP for non-pirated

software) was partially supported in this study.

Dimension of novelty seeking measured how

innovative respondents were in purchasing and using


TA

BLE

III

Fac

tors

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TA

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sk

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nts

WT

Pfo

rW

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0.2

348

<0.0

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0.0

848

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0.2

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<0.0

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017

0.9

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0.1

911

<0.0

001***

0.1

693

<0.0

001***

WT

Pfo

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ffice

0.2

667

<0.0

001***

0.0

858

0.0

162**

0.2

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<0.0

001***

0.0

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0.8

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0.2

118

<0.0

001***

0.1

790

<0.0

001***

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hsc

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ws

0.1

774

0.0

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0.0

980

0.1

772

0.2

700

0.0

002***

0.0

907

0.2

062

0.0

586

0.4

144

0.1

677

0.0

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ffice

0.2

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<0.0

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0.0

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0.2

968

0.2

370

0.0

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0.0

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0.1

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0.0

858

0.2

293

0.1

743

0.0

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0.1

921

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0.0

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0.2

272

0.0

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0.0

229

0.7

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0.3

110

<0.0

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0.1

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0.0

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WT

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0.2

216

0.0

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0.0

228

0.7

510

0.2

592

0.0

002***

)0.0

083

0.9

072

0.3

388

<0.0

001***

0.1

366

0.0

538*

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duat

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138

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461

0.1

207

0.0

895*

0.0

408

0.5

668

0.1

851

0.0

088***

0.1

490

0.0

357**

WT

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ffice

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487

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0.5

339

0.1

346

0.0

580*

0.0

611

0.3

912

0.2

277

0.0

012***

0.1

282

0.0

712*

Non

-stu

dents

WT

Pfo

rW

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ws

0.2

460

0.0

005***

0.1

040

0.1

467

0.0

791

0.2

702

)0.1

167

0.1

026

0.2

051

0.0

038***

0.1

078

0.1

316

WT

Pfo

rO

ffice

0.2

098

0.0

031***

0.1

921

0.0

068***

0.0

795

0.2

670

)0.1

010

0.1

567

0.1

953

0.0

058***

0.1

212

0.0

891*

***

Indic

ates

the

stat

istica

lly

signifi

cant

at1%

signifi

cance

level

;**

indic

ates

the

stat

istica

lly

signifi

cant

at5%

signifi

cance

level

;*

indic

ates

the

stat

istica

lly

signifi

cant

at10%

signifi

cance

level


new software products. Although novelty seeking

was positively related to WTPs of software products

for all respondents, the correlation coefficients were

relatively small (about .08). This result indicated that

even for those respondents who would be attracted

by innovativeness of software products, the WTPs

might not be significantly increased. For non-stu-

dent respondents, WTP for Microsoft Office was

positively correlated to novelty seeking. The inno-

vativeness of Microsoft Office that was attracted to

non-student respondents may reflect the multi-

purpose designs of Microsoft Office fulfilled the need

of novelty seeking of users who were no longer full-

time students. Students mainly use Microsoft Office for

assignments and may not be willing to pay for

innovativeness of the software products. Hypothesis

H3 (novelty seeking dimension is positively related

to consumers’ WTP for non-pirated software) was

partially supported.

Dimensions of performance risk significantly in-

creased WTPs for software products except for high

school students. For respondents who felt pirated

software did not function as well as authorized

products, the WTPs would be significantly higher.

High school students had not used software products

as long as college or graduate students and might not

take performance risk seriously. For non-student

respondents, performance of software products may

affect personal usage of computers and work. Hence,

performance risk was positively correlated to WTPs

for non-student respondents. Hypothesis H4 (per-

formance risk dimension is positively related to

consumers’ WTP for non-pirated software) was not

totally supported in this study.

Social risk would increase WTPs of software

products. For non-student respondents, the correla-

tion coefficients of social risk and WTPs for software

products were relatively small in magnitudes. Stu-

dents seemed to be affected by social risk and would

be willing to pay more for authorized software

products. Hypothesis H5 (social risk dimension is

positively related to consumers’ WTP for non-pi-

rated software) was generally supported in this study.

Cluster analysis of WTP for non-pirated software

This research utilized cluster analysis to segment

respondents into high-WTP and low-WTP clusters

in order to examine how dimensions of attitudes

toward intellectual property rights and consumer

perceived risk affected respondents’ willingness to

pay for non-pirated software. Factors of attitudes

toward intellectual property rights (normative sus-

ceptibility, novelty seeking, and value consciousness)

and of consumer perceived risk (prosecution risk,

performance risk, and social risk), and WTP mea-

sures for Windows and Office were used in clustering

procedure. The number of Cubic Clustering

Criteria (CCC) of the two-cluster solution was

31.48. Since CCC was higher than three, the two-

cluster solution was considered suitable for grouping

respondents into clusters.

The mean values of WTP in sub-datasets of dif-

ferent clusters were listed in Table V. Mean values of

WTP measures in the high-WTP cluster were sig-

nificantly higher than those measures of low-WTP

cluster at 1% significance level. More high school

students and non-student respondents were included

in the high-WTP cluster if sub-datasets were taken

into considerations. Low-WTP cluster included

more college and graduate students. While consid-

ering respondents in sub-datasets, high school

students in the high-WTP cluster had the highest

WTP measures, followed by college students and

non-student respondents. However, even for

respondents in the high-WTP cluster, the WTP

measures were much lower than the suggested retail

prices of USD 214.59 for Microsoft Windows and of

USD 170.99 for Microsoft Office. These results needed

to be explained with caution. High school respon-

dents surveyed in this study were consumers who

had not taken full financial responsibilities. The

reason high school students’ WTP measures higher

than college and graduate students could be due to

the fact that certain universities in Taiwan provided

funding for site license for current students to install

in personal computers. The real prices of Microsoft

Windows and of Microsoft Office faced by college and

graduate students would not be as high as suggested

retail prices.

More respondents were grouped in the second

cluster of low-WTP (452) than those in the first

cluster of high-WTP (347) as indicated in Table VI.

Slightly more respondents in the high-WTP cluster

were male and married than those in the low-WTP

cluster. The average age and monthly personal

expenditure among two clusters were not statistically


significant. Educational levels of respondents in the

low-WTP cluster were higher with more than

three-fourths of them with college education or

above. Since about three-fourths of respondents

were full-time students (high school, college, and

graduate students) by the time the survey was

administered, the occupations of respondents in two

clusters consisted of relatively high percentages of

students.

The willingness-to-pay for software products was

significantly higher for respondents in the high-

WTP cluster than those in the low-WTP cluster.

For those respondents in the high-WTP cluster who

installed pirated copies of Microsoft Windows or

Microsoft Office, their willingness-to-pay was lower

than it of those respondents in the same cluster using

copyrighted versions. Respondents in the low-WTP

cluster would be willing to pay limited amount of

money for software products, for those using either

copyrighted or pirated versions. In sum, willingness-

to-pay for Microsoft Windows and Microsoft Office was

relatively low, partly reflected that in the market,

pirated software products were easy to obtain and

users seemed to be reluctant to pay for the copy-

righted software products at full prices even they had

once purchased and installed copyrighted versions.

Due to sampling methods used in this study, high

school students may not reveal personal WTPs while

taking personal financial constraints into consider-

ations. Further analysis was done to examine WTPs

in high- and low-clusters without respondents of

high school respondents. The results are listed in

appendix table. Compared to WTP measures of all

respondents, deleting respondents of high school

students did not change WTPs at a large extent.

Reduction of WTPs in high-WTP cluster was larger

than reduction of WTPs in low-WTP cluster from

deleting respondents of high school students.

Factor means of normative susceptibility, novelty

seeking, value consciousness, prosecution risk, per-

formance risk, and social risk for respondents in

high-WTP cluster were significantly higher than

respective factor means in low-WTP cluster. The

results revealed that for those respondents who were

less affected by social norms and risk factors would

be willing to pay less for authorized versions of

software products.

Computer software usage patterns of respondents

in two clusters are listed in Table VII. Respondents

segmented into the low-WTP cluster were more

likely to use pirated software than those in high-

WTP group. In the high-WTP cluster, more than

70% of respondents had tendencies to purchase non-

pirated software (above 50% in purchasing inten-

tions, 48.70 + 15.56 + 9.51 = 73.77), and over

60% of respondents used non-pirated Windows and

Office at the time survey was conducted (76.37% and

61.16%, respectively). In the low-WTP cluster,

TABLE V

Mean values of WTP for Windows and Office

Variables High WTP cluster Low WTP cluster

High School Students (n = 102) (n = 98)

Mean WTP for Windows 109.82 30.00

Mean WTP for Office 94.75 26.72

College Students (n = 71) (n = 129)



Graduate Students (n = 58) (n = 141)



Non-students (n = 116) (n = 84)



Exchange rate NTD 32.107 = USD1 (average monthly exchange rate in Jan. 2006), and NTD 32.371 = USD 1 (average

monthly exchange rate in Feb. 2006), Central Bank of China, Taiwan


close to 70% of respondents revealed that they

did not have intentions to choose non-pirated

software (below 50% in purchasing intentions,

18.14 + 24.34 + 26.77 = 69.25), and less than half

of respondents in this cluster currently used

non-pirated software. Less than 10% and 2% of

respondents in high-WTP and low-WTP, respec-

tively, indicated that they would purchase non-pi-

rated software for sure. The results revealed that

respondents would use pirated software products to

substitute copyrighted products. The higher the

intention to purchase non-pirated software for the

next purchase, the lower the substitution of pirated

to copyrighted software products.

TABLE VI

Demographic characteristics and WTP measures by clusters

High-WTP cluster

(n = 347)

Low-WTP cluster

(n = 452)

Test p-value

WTP for Windows 94.78 28.71 24.1400a 0.0001***

For those who installed copyrighted version 98.40 30.01 18.5800a 0.0001***

For those who installed pirated version 83.35 27.48 10.5500 a 0.0001***

WTP for Office 85.98 27.44 24.8200a 0.0001***

For those who installed copyrighted version 92.77 28.74 17.2100a 0.0001***

For those who installed pirated version 75.91 26.68 14.4700a 0.0001***

Factor means (standardized)

Normative susceptibility 0.56 )0.42 15.6100a 0.0001***

Novelty seeking 0.12 )0.09 3.0300a 0.0025***

Value consciousness 0.32 )0.24 8.1300a 0.0001***

Prosecution risk 0.12 )0.09 3.0200a 0.0026***

Performance risk 0.36 )0.28 9.9900a 0.0001***

Social risk 0.41 )0.32 11.4100a 0.0001***

Gender (% of male) 55.09 43.23 11.0462b 0.0009***

Marriage (% of married) 11.01 5.79 7.1840b 0.0074***

Average age 23.63 22.88 1.6100a 0.1068

Monthly personal expenditure (USD) 229.70 224.01 0.4000a 0.6896

Educational level (%) 31.1600b 0.0006***

Junior high school or less 0.29 0.00 – –

Senior high school 33.72 22.57 – –

College 41.21 41.81 – –

Graduate school 24.78 35.62 - -

Occupation (%) 30.4538b 0.0002***

Public/Military/Education 8.93 4.65 – –

Industry 2.31 2.43 – –

Business 7.78 3.76 – –

Housewife 1.44 0.22 – –

Self-employed 1.44 1.55 – –

Services 7.78 3.98 – –

Students 66.57 81.42 – –

Unemployed 0.29 0.88 – –

Others 3.46 1.11 – –

Monthly personal expenditure and WTP measures for Windows and for Office are in USD

The exchange rate (NTD/USD) was 32.107 in January, 2006 and 32.371 in February, 2006a t-test statistics; bChi-square statistics

*** indicates the statistically significant at 1% significance level; ** indicates the statistically significant at 5% significance

level; * indicates the statistically significant at 10% significance level


TABLE VII

Computer software usage patterns of respondents by clusters

High WTP Low WTP v2 test p-value

Usage preferences: Pirated software (%) 40.29 75.66 102.3172 0.0001***

Non-pirated software purchasing intention (%) 170.3246 0.0001***

0% 2.31 18.14 – –

20% 9.51 24.33 – –

40% 14.41 26.77 – –

60% 48.70 26.11 – –

80% 15.56 2.88 – –

100% 9.51 1.77 – –

Software installed (%)

Non-pirated Windows 76.37 49.67 58.9267 0.0001***

Non-pirated Office 61.16 34.44 56.1009 0.0001***

Types of pirated software commonly used (%)

OS 34.58 58.63 45.4617 0.0001***

Editing software 40.35 57.74 23.7664 0.0001***

Web design 9.22 11.95 1.5176 0.2180

System development 1.15 6.42 13.7332 0.0002***

Graphic design 21.90 32.52 11.0039 0.0009***

Anti-virus 27.38 48.00 35.1063 0.0001***

Language translation 20.75 28.98 7.0209 0.0081***

Statistics 4.03 10.62 11.8919 0.0006***

Game/Entertainment 49.86 52.88 0.7169 0.3972

Multimedia 20.75 34.07 17.1735 0.0001***

Communications 9.22 16.15 8.2556 0.0041***

Others 0.58 3.54 7.8287 0.0051***

Channels (%)

Family and friends 66.57 73.23 4.1543 0.0415**

Download via Internet 55.23 71.68 23.1030 0.0001***

Internet auction 1.45 2.21 0.6085 0.4354

Road side stand/night markets 6.10 3.54 2.8992 0.0886*

Shops 4.36 2.43 2.2953 0.1298

Others 0.58 1.33 1.0927 0.2959

Considering factors in choosing software (%)

Price 82.13 83.41 0.2245 0.6357

Convenience 63.11 68.14 2.2112 0.1370

Source reliability 43.22 23.67 34.4035 0.0001***

Up-to-date 26.80 29.42 0.6661 0.4144

Legitimacy 40.63 17.70 51.6045 0.0001***

Technological support 60.80 51.99 6.1862 0.0129**

Free update 62.25 65.04 0.6649 0.4148

Customer service 61.67 40.04 36.7314 0.0001***

Gifts 8.93 11.73 1.6265 0.2022

Others 1.72 3.09 1.5058 0.2198

*** indicates the statistically significant at 1% significance level; ** indicates the statistically significant at 5% significance

level; * indicates the statistically significant at 10% significance level


For a variety of software, more respondents in the

low-WTP cluster used pirated software. Popular

pirated software includes OS, editing software,

graphic design, anti-virus, game/entertainment, and

multimedia. The vest majority of respondents

obtained pirated software from family and friends as

well as through Internet downloading.

Price seemed to be the most important factor for

respondents in software purchasing decisions that

more than 80% of respondents would consider it,

either in high-WTP or low-WTP clusters. In gen-

eral, price is a factor that cannot be ignored in

consumer purchasing decisions. The results of hav-

ing insignificant differences of the price factor be-

tween respondents in low-WTP and in high-WTP

indicated that price was important overall but was

not the factor that could be used to distinguish

respondents of low-WTP or high-WTP clusters.

Source reliability, legitimacy, technical support, and

customer service were emphasized by respondents in

the high-WTP cluster, but did not seem to be

important for respondents in the low-WTP cluster.

In sum, software piracy has become a phenomenon

in Taiwan. Consumers used a variety of pirated

software and less than 10% of respondents indicated

they would purchase non-pirated software for the

next purchases for sure. The WTP of respondents

for Microsoft Windows and Office were much lower

than the suggested retail prices in the market.

Enhancing consumers’ attitudes toward intellectual

property rights and perceived risk would increase the

dollar amount of WTP for Microsoft Windows and

Office. However, due to the easiness of downloading

pirated software from Internet and sharing with

others, software piracy issue could be hard to resolve.

Conclusion remarks

Conclusion

Usage of pirated software is a serious problem

worldwide and has become more difficult to deal

with due to the easiness in duplicating copyrighted

products. This study analyzed factors affecting

consumers’ willingness to pay for non-pirated

computer software. The willingness-to-pay was

estimated for authorized copies of Microsoft Win-

dows and Microsoft Office to reveal the value con-

sumers assessed these two commonly used software

products. Surveys were administered in Taipei,

Taiwan, and respondents were senior high school

students, college students, graduate students, and

general consumers who were no longer full-time

students.

Results of this study revealed that average WTPs

for software products were much lower than sug-

gested retail prices, indicating that users did not

value authorized software products as high as

market price. Social norms had strong positive

influences on willingness-to-pay for software

products. Individuals’ behavior of pirated product

usage seemed to be affected by beliefs of other

people in the environment. Respondents tended to

have relatively high WTPs when they thought

friends and family members would consider using

pirated software inappropriate. Students who were

affected by social risk would be willing to pay more

for authorized software products. The prosecution

risk did not significantly increase WTPs for soft-

ware products due to the reason that individuals

who used pirated software were not at a high risk

of being prosecuted in reality. Performance risk was

positively correlated to WTPs for software prod-

ucts. Furthermore, innovativeness of software

products did not increase WTPs for software

products at a large extent.

Respondents were segmented into high-WTP

and low-WTP clusters in order to examine differ-

ences in respondents’ willingness to pay for non-

pirated software. Respondents in the high-WTP

cluster were influenced by factors of normative

susceptibility, novelty seeking, value consciousness,

prosecution risk, performance risk, and social risk at

a larger extent than respondents in low-WTP clus-

ter. However, even for respondents in the high-

WTP cluster, the WTPs were much lower than

suggested retail prices of software products. For

those respondents in the high-WTP cluster who

installed pirated copies of Microsoft Windows or

Microsoft Office, the WTPs were lower than it of

respondents in the same cluster using copyrighted

versions. More than 70% of respondents in the high-

WTP cluster had tendencies to purchase non-pirated

software. In the low-WTP cluster, close to 70% of

respondents revealed that they did not have inten-

tions to choose non-pirated software.


The vast majority of respondents indicated price

was the factor while choosing software products.

Source reliability, legitimacy, technical support, and

customer service were emphasized by respondents in

the high-WTP cluster but not for respondents in the

low-WTP cluster. Due to the easiness of obtaining

pirated software and limited willingness to pay for

authorized software products, software piracy issue

could be persistent in Taiwan.

Implications

The willingness-to-pay measures of Microsoft Win-

dows and Office provided an estimation of values

consumers assess these two commonly used soft-

ware products. Four subgroups of respondents

(high school students, college students, graduate

students, and non-student consumers) were sur-

veyed in this study to reduce the limitations of

research applicability. Managerial implications based

on the findings of this study are listed in the fol-

lowing:

1. Software firms may need to cooperate with

government administration to establish edu-

cational programs to emphasize importance

and legitimacy of using authorized software.

Long-term consumer education is essential in

enhancing positive attitudes toward copy-

righted software products.

2. The market prices seem to be much higher

than what consumers value these two prod-

ucts. Lowering prices may be a way to re-

duce piracy levels in addition to applying

price discrimination in segmented markets.

An alternative that software companies could

utilize is to issue trial versions for users at

limited time. Since performance risk could

be emphasized in marketing authorized soft-

ware products, users who have tried non-pi-

rated software may be willing to pay for full-

version software.

3. Source reliability and customer services are

what consumers of relatively high willing-

ness-to-pay for software products emphasize.

Computer firms may utilize information

marketing strategies to strengthen the reli-

ability of copyrighted products as well as

quality customer services to increase the

willingness-to-pay for authorized software

products.

Limitations and further research

Limitations of this study are that only one particular

product category, computer software, is included as

research objects, and only the payment card method

is applied to measure WTPs for software products.

Certain biasedness may be introduced due to the

sampling methods and clandestine issue respondents

had to face in surveys. Further research needs to

broaden product selections to include other pirated

products as well as using other contingent valuation

methods in measuring willingness-to-pay for

authorized products.

A certain percentage of respondents did not

have purchase experiences of authorized software

product. Hence, the purchasing prices of autho-

rized software could not be revealed. This limits

the applicability of the research findings. The

suggested retail prices could only be compared

with WTP measures, but not with real purchased

prices of software products paid by respondents.

Further research may need to find out the dollar

amount respondents paid for software products to

be used as a measure of costs for the software

product usage.

Cultural values can be influential in decisions of

whether to use pirated software. According to Wang

et al. (2005), collectivism could have impacts on

usage of pirated products. Further research may need

to incorporate distinct dimensions of cultural values

in measuring WTP to reveal cultural influences on

software piracy. In this study, the survey was con-

ducted in Taiwan. Further research may need to

conduct surveys in different countries to examine

cross-cultural differences in WTP measures and pi-

rated software usage patterns.

Acknowledgements

This research was partially supported by Grant (NSC

94-2416-H-005-005) from National Science Council in

Taiwan.


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Appendix

TABLE

WTP measures by clusters without respondents of high school students

High-WTP cluster

(n = 244)

Low-WTP cluster

(n = 355)

t test p-value

WTP for Windows 89.24 28.10 18.3800 0.0001***

For those who installed copyrighted version 92.20 29.16 15.3200 0.0001***

For those who installed pirated version 80.47 27.19 9.9100 0.0001***

WTP for Office 82.78 27.46 19.1700 0.0001***

For those who installed copyrighted version 87.78 27.58 14.1500 0.0001***

For those who installed pirated version 75.95 27.31 13.2100 0.0001***

Monthly personal expenditure and WTP measures for Windows and for Office are in USD

The exchange rate (NTD/USD) was 32.107 in January, 2006 and 32.371 in February, 2006

*** p < 0.01, ** p < 0.05, * p < 0.1


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Jane L. Hsu and Charlene W. Shiue

Department of Marketing,

National Chung Hsing University,

250 Kuo Kuang Road, Taichung, 40227, Taiwan,

Republic of China

E-mail: [email protected]


Documents

Consumers’ Willingness to Pay for Non-pirated Software