There are two types of customer-driven pricing schemes: “Name your own price” and “Pay what you want.” The difference is that in the latter, customers are permitted to pay nothing. At first glance, allowing your customers to choose their own price, even $0. is a losing strategy.
OK, you might have a point. Let’s face some facts:
However, this doesn’t mean Pay What You Want (PWYW) should be discounted entirely. If you follow some guidelines, you can put together a winning strategy that will net you more revenue than fixed price, and also provide benefits like exposure and loyalty that extend far beyond the single PWYW campaign you are running.
PWYW pricing was popularized by the band Radiohead, who priced the digital download of their 2007 album In Rainbows as pay-what-you-want. They signaled to their audience “It’s Up To You” and even allowed people to pay nothing for the download. The band claims they made more from these digital downloads than their previous album, in all formats. Radiohead’s success led to a string of copycat releases, in music, other forms of art, and also in digital download retail.
However, this also led to scientific research done on the PWYW phenemenon. I’ve sifted through the papers so you don’t have to, and pulled out the best tidbits from a handful of publications. Let’s dive in.
Dave’s Marketing Magic E-Book is On Sale: Pay What You Want! That simple message is often enough to pique people’s interest. “Did he say pay what you want?” If you pick an item that has a low or zero cost of goods sold, such as a digital download or a small piece of kitsch, then you can focus solely on the marketing of the product: Yes, people will download it for free, but some will pay. If enough people download it and enough pay at least something, you can still make more than you would with a fixed price.
Additionally, this will form a foundation of trust with new customers and existing customers, which can drive the price paid up even further.
One study with over 100,000 participants showed that if you have a PWYW product, people will pay more if they know part of their contribution is going to charity. This is because of a shift from corporate social responsibility to shared social responsibility. If people feel like they can directly contribute to charity through purchasing goods, they typically will. This is yet another way to build loyalty.
An Australian social organization called “Thankyou” recently ran a PWYW campaign. Their UI was helpful in signaling to their customers the impact of the pricing shown. Note that they never rejected the price, they only emphasized fairness by showing the cost of goods sold transparently in the checkout flow.
People’s self-images are tied to their purchases in ways that inexorably affects price. Consider an experiment that took place in a Vienna restaurant. The patrons were allowed to pay what they wanted for their meals but were given a choice: Pay anonymously via a sealed envelope or pay publicly in a fashion that allowed the owner to monitor payments. Anonymous diners paid more because their self-images were not involved in the payment.
Ok, this one is a little dark but again, research has shown that it can be effective. If you message something like “We are trying out pay what you want for this product. If it doesn’t work out, we will switch to a price of $15,” customers can sometimes be driven to make purchases to both support your establishment, as well as keep the fixed price away. Hey, you’re being honest!
Some combination of these tips should work for you. If you’re new to this and want to try this out, I suggest registering a Shopify account, and installing the Pay What You Want application.