In 2009 a paper was published in the Journal of Marketing on a new concept called “Pay What You Want” (PWYW) which seemed to be interesting for firms. This research showed counterintuitive results, namely that consumers will exploit their control and pay nothing at all or a price below the seller’s costs. The interest for this pricing method was born after the Motorhead proposed customers to pay what they wanted to download their latest album.
The authors of the research carried out 3 field researches and concluded that prices paid are significantly greater than zero. They went even beyond this conclusion and suggested that the PWYW mechanism may lead to revenue increases.
I was surprized to find an ad on the website of Le Soir, a famous Belgian journal, that promoted just that. “You are the Boss” claimed the ad; and you are indeed free to decide what you are willing to pay for a 3-month subscription to the digital version of the journal (on iPad or iPhone). After that period the normal price will apply.
My take :
Everything is based here on switching costs. The journal hopes that it will be able to attract new customers who will remain or who will not stop their subscription because of the administrative hassle. The offer is clever since there are no fixed costs or variable costs associated with the acquisition of an extra customer (the content is digital). The fixed costs are basically the costs for the creation of the content which are already distributed over the paying customers. The acquisition of a new customer, whatever the price he pays, is therefore an exra revenue for the seller.
Posted in Innovation, Marketing, Strategy.
