“Pay What You Want” is a concept that allows customers to gain control back over the prices they pay. This technique is rather old and academic research dating back to 2009 showed the benefits of that approach. A few concrete examples were noticed here and there, but this marketing strategy remained rare. Firms remain reluctant to let customers decide and fear that this freedom may be misued by customers.
In this context we got interested in the initiative of Garçonne et Chérubin, a French online retailer specializing in footwear fashion. During winter sales they decide to adapt the Pay-What-You-Want (PWYW) scheme, slightly adapted to minimize risks.
How Pay-What-You-Want works at Garçonne et Chérubin
Garçonne et Chérubin have adapted the classical PWYW scheme to limit financial risks.
The customer proposes a price he’s willing to pay and commits to paying this price if his/her offer is accepted.
Offers are reviewed at the end of the winter sales period and customers informed of the website owners’ decision to accept or not the offer.
In a sense this mechanism resembles a bid that ca be conditionally accepted by the seller. It limits the risks of selling under the cost price while giving the seller the possibility to maximize returns based on the offers received.
The limits of the Pay-What-You-Want pricing strategy
The PWYW strategy has 3 limits :
- cultural limits : PWYW can’t be applied in all countries. For instance, PWYW would certainly be misused in The Netherlands. In that country, where consumers are extremely sensitive to price and savings-oriented, 100% cashback guarantees aren’t used.
- PWYW works better in offline settings where the customer is in direct contact with the seller. Not being able to hide behind a screen adds a social pressure that makes misuse of PWYW less likely. Would you imagine for instance giving a restaurant owner only 1€ after having enjoyed a 5-course dinner for 2 ? No one would dare acting like this because it would socially unacceptable.
- the effects on loyalty of the most attractive PWYW schemes are questionable. The PWYW experiment launched by Brandalley in 2009 led 85% of customers to pay 1€. The recruitment of new customers was massive for Brandalley; yet the effects on long-term loyalty (how many of those customers actually went back to purchase something) still needs to be discussed
The Pay-What-You-Want (PWYW) pricing strategy isn’t new. It’s been used sparsely for many years now and remains rare. Online PWYW strategies present the risk of attracting customers who won’t be loyal and thus will be unprofitable on the long run. Offline PWYW strategies may give better results because customers will be less likely to abuse the pricing scheme and will be more likely to pay a reasonable (rather than minimum) price for the service / good.
Image : shutterstock
Posted in Marketing.