Pay what you want
Pay What You Want (or PWYW) is a pricing strategy where buyers pay any desired amount for a given commodity, sometimes including zero. In some cases, a minimum (floor) price may be set, and/or a suggested price may be indicated as guidance for the buyer. The buyer can also select an amount higher than the standard price for the commodity.
Giving buyers the freedom to pay what they want can be very successful in some situations, because it eliminates many disadvantages of conventional pricing. Buyers are attracted by permission to pay whatever they want, for reasons that include eliminating fear of whether a product is worth a given set price and the related risk of disappointment (“buyer's remorse”). For sellers it obviates the challenging and sometimes costly task of setting the “right” price (which may vary for different market segments). For both, it changes an adversarial conflict into a friendly exchange, and addresses the fact that value perceptions and price sensitivities can vary widely among buyers.
In the book Smart Pricing (p. 29), it is suggested that successful PWYW programs are characterized by the following:
- A product with low marginal cost
- A fair-minded customer
- A product that can be sold credibly at a wide range of prices
- A strong relationship between buyer and seller
- A very competitive marketplace.
While most uses of PWYW have been at the margins of the economy, or for special promotions, there are emerging efforts to expand its utility to broader and more regular use. (eee "Enhanced forms", below.)
Other names include "pay what you wish", "pay what you like", "pay as you want", "pay as you wish", "pay as you like", "pay what you will", and "pay as you will". "Pay what you can" is sometimes used synonymously, but is often more oriented to charity or social uses, based more on ability to pay, while PWYW is often more broadly oriented to perceived value in combination with willingness and ability to pay.
History and commercial uses
PWYW has long existed on the margins of the economy, such as for tips and street performers, as well as charities, and has been gaining breadth of interest.
- Contemporary Christian music artist Keith Green implemented a similar structure for his album So You Wanna Go Back to Egypt. The album, available solely through Green's Last Days Ministries, was offered on mail-order coupon. A purchaser would send the coupon, along with the chosen purchase price (if any), to obtain the album.
- One of the earliest known "Pay What Your Heart Feels" initiative was started in 1984 at Annalakshmi Restaurant at Bangsar, Kuala Lumpur, Malaysia, inspired by Swami Shantananda Saraswati. This concept soon spread to some of the Annalakshmi restaurants located in other cities too.
- Theaters began using it for selected nights.
- Use by restaurants has been spreading since the opening of One World Everybody Eats, in 2003 in Salt Lake City. The restaurant is now owned by a nonprofit group that requires customers pay at least $4 for their entree.
- Software (freeware) is frequently distributed under this model, accompanied by a message similar to "If you find this program useful, send a donation to (email address) at PayPal, so that we may continue its development and add the features you request." Shareware can be viewed as an example if its functionality is not limited.
- A major boost in awareness occurred in October 2007, when Radiohead released their seventh album, In Rainbows, through the band's website as a digital download using this pricing system.
- In December 2007, punk/metal record label Moshpit Tragedy Records became the first to operate fully under the PWYW download system.
- In 2008, Wheatus moved to the system for all their future albums and old albums they owned the rights to, it is now their primary method of distribution.
- In 2010, Panera Bread bakery used the system in a St. Louis, Missouri suburb, and has generated further attention by opening more since.
- Introduced during May 2010, the Humble Indie Bundle was a set of six independently developed digitally downloadable video games which were distributed using a PWYW model (with inclusion of a buyer-controllable charitable contribution). At the end of the sale, $1.27 million had been raised. They have since done over twenty more bundle sales, generating a total of over $19 million in revenues, and securing in April 2011 an investment of $4.7 million by Sequoia Capital.
- In November 2012, Generous, a new addition to the PWYW model, opened signups for an initial beta release. Generous promises to bring pay-what-you-want to the masses, allowing everyone from musicians to yoga instructors to offer merchandise and services at a price of the public's choosing.
- In late 2012, McPixel had a PWYW weekend, in partnership with The Pirate Bay, as the creator Mikolaj Kaminski wanted people to try his game as a reason to buy it.
- In 2013, Activehours began inviting users to their service that lets employees get their paycheck whenever they want, with a pay-what-you-want pricing model.
- In August 2013, ICONventional Music began promoting independent music artists through weekly albums, available as PWYW digital downloads.
- Canonical implemented this system on Ubuntu download page. Their message varies, but usually asks to "Show Ubuntu some love. Or, alternatively, help out in the bug tracker ;)". One can adjust the sum they wish to contribute for each developement initiative from $0 to $125. Alternatively, there is an option to skip the payment and go straight to download of selected OS type.
With the prominence of the Radiohead experiment, economics and business researchers began a flurry of studies, with particular attention to the behavioral economic aspects of PWYW—what motivates buyers to pay more than zero, and how can sellers structure the process to obtain desirable pricing levels? One early such study (possibly the first) was the one done by Kim et al. in January 2009.
In a large scale experiment conducted in a large amusement park, Ayelet Gneezy, Uri Gneezy, Leif D. Nelson, and Amber Brown tested the effectiveness of PWYW by selling roller coaster photos to park visitors. Their results show that, although many more people buy the photo when it is offered under PWYW, the average price paid is very low ($.92), resulting in no income increase to the firm. However, when PWYW was coupled with a charitable cause (buyers were informed they could pay what they wanted AND that half of the amount they pay would be donated to a patient support organization) the average amount paid increased substantially (to $6.50), resulting in a significant income increase to the firm in addition to generating substantial charitable contribution. In a follow-up research paper, Gneezy and colleagues (2012) found that PWYW may deter some customers from purchasing. Their results show that this is because, "individuals feel bad when they pay less than the 'appropriate' price, causing them to pass on the opportunity to purchase the product altogether".
Efforts have been made to expand on the benefits of PWYW, to make it more useful and profitable to sellers, while maintaining its inherent appeal to buyers. One such enhancement is reflected in the Humble Indie Bundle, which has added a buyer-directed charity component to further increase buyer willingness to pay. This is similar to the research study noted above.
Humble bundle also encourages buyers to "beat the average" by adding additional content for customers paying more than the current average purchase price.
Another enhancement is an expanded process, called Fair PWYW (FairPay), which shifts the scope from a single transaction view, to an ongoing relationship over a series of transactions. It adds tracking of individual buyers' reputations for paying fairly (as assessed by the seller), and uses that reputation data to let the seller determine what further offers to extend to that individual buyer. In that way it seeks to incentivize fair pricing by buyers (to maintain a good reputation, and thus be eligible for future offers), and to enable sellers to limit their risk on each transaction in accord with the buyer's reputation. The FairPay architecture and how it builds on modern pricing strategy has been outlined on the Harvard Business Review Blog.
- Strom, Stephanie; Gay, Malcolm (May 20, 2010). "Pay-What-You-Want Has Patrons Perplexed". New York Times. Retrieved 2010-05-21.
- Smart Pricing, Chapter 1. "Pay As You Wish" Pricing, Raju and Zhang, Wharton School Publishing, 2010. ISBN 0-13-149418-X.
- "Restaurant depends on kindness of strangers". Associated Press at MSNBC. July 6, 2004. Retrieved 2007-03-27.
- Tyrangiel, Josh (October 1, 2007). "Radiohead Says: Pay What You Want". Time magazine. Retrieved 2010-05-21.
- About Moshpit Tragedy Records Retrieved 2012-02-03
- JY Kim, M Natter, M Spann (January 2009). "Pay what you want: a new participative pricing mechanism". Journal of Marketing 73 (1): 44–58. doi:10.1509/jmkg.73.1.44.
- A Gneezy, U Gneezy, LD Nelson, A. Brown (July 2010). "Shared Social Responsibility: A Field Experiment in Pay-What-You-Want Pricing and Charitable Giving". Science 329 (5989): 325–327. doi:10.1126/science.1186744.
- Better Revenue Models: Pay What You Want – Not Crazy After All These Years? Retrieved 2011-08-13.
- When Selling Digital Content, Let the Customer Set the Price Retrieved 2013-11-22.
- Pay-as-you-wish at Freakonomics
- Pay-What-You-Want for Musicians at Techdirt
- Pay-What-You-Want and donate to charity for English-learning applications at Edulang
- Shared Social Responsibility: A Field Experiment in Pay-What-You-Want Pricing and Charitable GIving at Sciencemag.com.
- When Selling Digital Content, Let the Customer Set the Price at Harvard Business Review