A new study released this week by the Proceedings of the National Academy of Sciences sought to “investigate the role of identity and self-image consideration under ‘pay-what-you-want’ pricing.” Scientists tested the pay-what-you-want (PWYW) business model in three separate experiments. The first involved a boat tour, where riders were given one of three pricing options for a photo of themselves: $15 standard pricing, $5 discounted, or PWYW. Findings saw the discounted pricing had the highest percentage of buyers (64%) while PWYW scored 55%. Another field test revolved around amusement park ride souvenir photos and found PWYW pricing, with the added incentive that half the proceeds go to charity, earned five times as many buyers. And finally, an experiment in a restaurant with a PWYW pricing model revealed customers paid about 13% more anonymously (dropped in a box while leaving) than directly to a waiter. The research team concluded (via ScienceMag) that in all cases, “PWYW seems to work because we want to feel good about ourselves when doing it.”
The PWYW pricing model gained major prominence and awareness in 2007 when popular British band Radiohead announced its new album In Rainbows would be available online as a digital download for the price of “It’s Up To You.” While many thought such a move couldn’t possibly lead to profits (and in fact, the majority of downloaders chose to pay nothing), the album went on to generate more money before its physical release than total sales of the band’s previous album. Another success story of the PWYW pricing model from the world of video games is the Humble Indie Bundle, a collection of independently developed, DRM-free computer games released together. Since its inception in 2010, over 8 various bundles have been released. Besides allowing its purchasers to designate their own price, Humble Indie Bundle also allows buyers to assign how their money is distributed between the games’ developers, Humble Bundle Inc. (who runs the promotion), and a charity (these have included American Red Cross, Child’s Play, charity:water). This transparency leads to authenticity in the program and an increased, personal connection between the brand and the buyers.
Both of these examples reveal how the PWYW model can serve as a deterrent to the era of digital piracy, as both games and music have faced industry-changing upheaval. But examples of restaurants and physical retail offering similar models show a larger possible impact, especially in these harsh economic times. The advantages of the pay-what-you-want model are based on more than just a perceived ‘good deal.’ The personal, human, emotional aspect is also quite important, as the study shows, particularly in the case of adding charities to the mix. Pay-what-you-want goes beyond making a consumer feel good for ‘saving money’; they also feel they are making a positive impact because their money is going directly to those who they feel best deserve it, whether that be a charity or the individual workers most directly involved in the creation of the product/service.