Pay What You Want
(PWYW) is a unique pricing strategy in which buyers are free to pay any price
they want in exchange of a product/service, including zero. It is a participative pricing
mechanism that delegates the whole price determination to the buyer. The seller
simply offers one or more products under PWYW conditions, whereas the buyer
decides on the price. After the buyer has set the price, the transaction
automatically proceeds. Thus, the seller must accept the buyer’s price and
cannot withdraw the product offer (Kim, 2009).
The reason behind
giving buyers the freedom to choose their price is beneficial at times, because
it eliminates the disadvantage of conventional pricing, one of the main fallout
of which is buyer’s remorse. Buyer’s remorse is the sense of regret that the
buyer experiences after making a purchase. As the payment in case of PWYW is
totally voluntary, chances are very less that it would result in any buyer’s
remorse. It might aid sellers in price identification when they enter into a
new market. The information about the prices the buyers pay gives the potential
buyers Willingness to Pay (WTP) which will provide sellers a potential price
range.
Some modification in
PWYW can also be seen as a form of imposing Libertarian paternalism. In this,
we give the buyers freedom of selecting a price on their own. At the same time
by giving them some anchors we could possibly influence their decision making
which will direct them to optimal price.
What we did:
We conducted a survey
which in which we asked participants how much they would be willing to pay in
each of the following scenarios. We stated the scenario as follows, “You go to
a local grocery store to buy a water bottle (800 ml). There you find an option
of paying what you want, i.e. any price you feel justified, including price
"0". In the above setting, kindly fill the responses of what would be
your likely payment in each scenario.”
1. We first
gathered their response in a plain vanilla case where they would be only shown
a bottle and Pay what they wanted to.
2. In the
next iteration, we mentioned the cost of production and recorded what price
they would be willing to pay.
3. We then mentioned
that 30% of their proceeds would be directed towards charity and recorded what
price they would be willing to pay.
4. We then mentioned
the MRP of the bottle and recorded what price they would be willing to pay.
5. We set a
base price below which they aren’t allowed to pay and recorded what price they
would be willing to pay.
6. We
mentioned the average price paid by the previous customers and recorded what
price they would be willing to pay.
We floated a Google
form and circulated it among respondents mostly within the age group of 20-30,
most of them students in graduate and undergraduate courses. Our objective was to
initially see what price the buyer would pay without any conditions specified
and also to see how the price would change for all the subsequent
modifications.
Results
Plain Vanilla case: Given that you like this
bottle, with an option of Pay What You Want (PWYW), how much would you pay to
buy this bottle?
Initially, without any
anchor present, there were varying prices that buyers quoted. This was in
expected lines as each consumer will act in his own accordance and in line with
perceptions, which vary from person to person. It is however interesting to
note that 3 persons have quoted the price 0, while the highest proportion of
price quoted was Rs.100 by almost 20% of the respondents.
Display COP: It is displayed at the counter that the cost incurred for production
is Rs.50 (Mention the payment that you would make)
Interestingly, cost of
production did influence respondents to pay differential amount, but mean price
decreased from Rs.74.25 to Rs.61.51. This meant that when the cost of
production is lesser than the WTP, the PWYW price comes down significantly.
Similar would be the case if the cost of production is more than the WTP of a
buyer.
Proceeds to charity You are informed that the 30%
of the payment is given to a charity (Mention the payment that you would make)
Charity does seem to
act as a significant anchor in the current case. The average price has
increased to Rs.76 and almost 20% of the population is willing to pay Rs.100.
Interestingly, charity as a moderator has shown greatest increase in the mean
price. This however goes without saying that the percentage of charity (30% in
the current case) will also affect the price being paid.
Display MRP It is displayed on the package
that the MRP of the product is Rs.80 (Mention the payment that you would make)
MRP also acts as a significant anchor in
current case. Almost 48% of the respondents were willing to pay the MRP. The
average price however stayed at Rs.68.4. There could be several reasons for
this, one of them is the fairness element. When people come to know about the
MRP, they would feel that it would be fair to pay at least the MRP price. This
is the reason why PWYW price anchored around the actual price even though the
buyers had an option to pay any price they wanted.
Set a floor price You are told that the minimum
amount that needs to be paid is Rs.60 (Mention the payment that you would make)
Again the minimum price acts as a key anchor
in determining PWYW price as almost 61% of the respondents have anchored their
price at the minimum amount. Hence minimum amount setting could be a key
influencer.
Display average price by previous customers :The average price paid by the
previous customers is displayed at the counter i.e. Rs.65) (Mention the payment
that you would make)
Surprisingly, average
cost hasn’t been able to persuade the buyers to increase the price they pay for
the product.
Conclusion
In this study exploring the
participative payment mechanism of Pay What You Want, we could identify that
pricing behavior alters in the presence of various factors like cost of
production, altruism, minimum amount to be paid, MRP and average payment by
previous customers. While most of the factors could influence pricing
positively as per the survey responses, a negative trend was observed in the
scenario when respondents had to base their pricing decision on the
average payment by other customers. It is interesting to note that though
majority of the respondents were willing to pay a higher price initially
without any specific factors being mentioned, their willingness to pay reduced
considerably once the different situations are introduced. The differing
pricing strategies adopted by the respondents in the different scenarios
indicate that the interactive effects of the different scenarios being considered
could offer better explanations to the variation in the pricing responses of
individuals in the context of PWYW mechanism. However this aspect is beyond the
scope of this study.
Disclaimer: Even though our prof didn't quite approve of this idea (little pun intended?) much (indicated by the dismal scores we got), we did find this idea very interesting.
Let us know what you think of this.
Let us know what you think of this.
The other authors of this work are Remya T.Jacob & Abhishek.
Get into touch for more details.
