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Music, film and video game makes face a new online, digital world. And some are testing a revolutionary pricing system: "pay what you want." But a new study finds that when consumers can name their own price, many may opt out of buying at all. The study is in the Proceedings of the National Academy of Sciences. [Ayalet Gneezy et al., "Pay-what-you-want, identity, and self-signaling in markets"]
For the research, tour boat passengers posed for photos. Each boat ride announced a price of $15 per picture. But they then charged either $15, $5 or the option to pay what you want.
As expected, the fewest tourists purchased photos when they had to pay full price. But more customers bought photos when they cost $5 than when prices were pay what you want—which could have saved passengers even more.
The researchers suggest that choosing to pay less than an announced lower-than-expected price made people feel cheap. With choices then limited to spending more money or feeling like a tightwad, potential customers simply opted out of the purchase. So on sea or land, a low, set price may catch the most fish.
—Sophie Bushwick
[The above text is a transcript of this podcast.]
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7 Comments
Add CommentBut they announced a benchmark price of 15$ beforehand !
Reply | Report Abuse | Link to thisIf they had not created this expectation, wouldn't the study results be different ?
If someone says pay 15 bucks, but then says, 'Oh just pay whatever you want', it creates an expectation that 15$ is near the true price.
Of course it makes people cheap. But this does not reflect the actual 'Pay-what-you-want' model.
I don't think I agree with this. It's a faulty study, really. If they announced a price at the beginning, then people were given outside, formal influence on what the product was worth.
Reply | Report Abuse | Link to thisI know a bunch of people who have no problem buying Humble Bundles. They don't do more than say, "wow, you're gonna save a ton!" and then offer a bonus if you pay more than average. Average - not more than a set amount.
It's hard for me to believe people aren't going to participate. I think they need to reconsider their audience, and consider the way it was marketed. Cruise pictures are not video games. Cruise participants are not video game players.
I agree with J.'s concern. Consumer behavior regarding purchase of photos from a boat cruise is a poor choice to extrapolate to other media purchases such as music or videos & games.
Reply | Report Abuse | Link to thisWhile it might be hard to make controlled comparisons, I bet the purchase data already exists for several artists who have marketed their media under this model. Do you suppose data exists for counting online browsers who click on a media purchase link and don't end up buying it? Then the marketer/researcher could modify suggested donation amounts and see if the ratio of click throughs vs actual purchases changes.
Or maybe someone can devise an 'exit survey' when people leave the page to ask if they bought it, why or why not.
I never did like that 'pay-what-you-want', either online or off line. Online, you think that they don't really have a product or they are trying to steal your credit card information. Off line, you think, "that is a piece of garbage, or it doesn't work, and they are just trying to get rid of it," so I always throw a quarter into the till and think, "Well, if it is a piece of garbage or it doesn't work, I can always throw it in the garbage and I'm not out much." The best way to do it would be, put the original price and then a markdown price, say like 90% off. It stresses people out when you ask them to "make me an offer" or "pay what you want". I don't like people who puts stress on me like that, so I just smile on walk away.
Reply | Report Abuse | Link to thisPay what you want? I'll take a $25 car, thank you. ;)
Reply | Report Abuse | Link to thisIBM instituted a "take what you want" vacation plan. The vast majority of people take about 4 weeks. This plan lowered costs and administration for IBM while simultaneously improving morale.
I do not believe "pay what you want" would either drive away consumers or make some pay too much. The study is flawed.
A story is NOT a study. This one, since it provides no information about the study that has any FACTS, is just a story. I've seen bad studies before, and this could be used as an example of how not to study something. Let's just say scientists were neither present, nor injured during this story.
Reply | Report Abuse | Link to thisI don't think the study of offline purchasing behavior is in any way relevant to what's going on online, i.e. where the lion's share of content is getting sold nowadays. If you really want a good example of what the 'pay-what-you-want' pricing model may bring look hard into the case of Radiohead's "In Rainbows".
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