One of the biggest obstacles that prevent a buyer from making a purchase decision is the fear that they will pay too much. From the seller’s perspective, there is the fear of pricing a product or service too high killing potential sales or too low, leaving money on the table.
There is an asymmetry of information in that the seller has a much more intimate understanding of how the purchase can benefit the customer… but all the customer knows is what the seller or their published content says. Enter “Pay What You Want” (PWYW) pricing.
When the buyer can name their price, it solves the big question on a buyer’s mind which is ”Am I paying too much”, also known as buyer’s remorse. It also solves a seller’s problem of coming up with a price and their remorse of pricing it too high or too low..
Pay What You Want is a value pricing strategy where the buyer determines the value, not the seller.
Many sellers fear that if buyers are given the option to name their own price they will simply assign a very low value to the product or service. However, there are a few ways that a seller can avoid these situations. For example, the seller may set a reserve price similar to an eBay auction so that if the buyer’s offer price is too low then the transaction does not occur. Or perhaps the seller can provide a suggested price to help guide the buyer into a price range.
Then there are a few ways to drive up the value that a buyer will perceive fair.
Add a Charitable Cause
A large amusement park tested the effectiveness of PWYW by selling roller coaster photos to park visitors. Their results show that while many more people bought the photos when it was offered under PWYW, the average price paid was very low resulting in no income increase to the amusement park. 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 charity) the average amount paid increased substantially, resulting in a significant income increase to the amusement park in addition to generating a substantial charitable contribution.
On the flip side, PWYW pricing may deter some buyers from purchasing because individuals may feel bad when they pay less than the ‘appropriate’ price, causing them to pass on the opportunity to purchase the product altogether.
Beat the Average
When coupled with a charitable cause, the seller can increase the buyer’s willingness to pay by encouraging buyers to “beat the average” by adding additional value for customers agreeing to pay more than the current average purchase price.
Post-Consumption Pricing
One simple enhancement is to shift the time that the buyer pays from the usual practice of expecting payment at the initiation of a transaction and prior to the consumption experience, to deferring payment to after the consumption experience.
Post consumption pricing separates the decision to buy from the decision of how much to pay. Information asymmetries about the quality of the product or service are reduced during the act of consumption so that buyers are informed about the product or service quality when they decide how much to pay for it. As a consequence, risk-averse buyers who may have refrained from purchasing under a fixed price strategy, or who would price the purchase at a discount to allow for this risk, can be attracted to purchase under a PWYW pricing ex-post consumption. In this case, the pricing strategy itself constitutes a signal to the buyer. Therefore, post-consumption pricing can be a profitable strategy to attract risk-averse buyers.
PWYW pricing works best when the buyer has a previous relationship with the seller. New buyers have no attachment or emotional connection to the seller. New buyers get a deal and are gone. However, if the buyer has had prior dealings with the seller and the buyer has to look the seller in the eye when making their offer as opposed to hiding behind technology, the buyer’s offer is very often a very fair one.
The business logic behind PWYW pricing is two-fold.
First, the seller conveys confidence, essentially telling the potential buyer that we are so sure you will like our product or service that you will pay for it.
The second reason behind PWYW pricing is how it empowers buyers. The seller gives total control to the buyer to weigh the value they have gotten from the product or service, and pay an appropriate price.
PWYW is an alluring idea, predicated on human decency and reciprocity. PWYW pricing is simple. Provide a good-quality product or service to the buyer, let them enjoy it, and then give them complete discretion to pay whatever they want.
Is a Pay What You Want (PWYW) pricing strategy a viable option for your business?
