Pay what you want
Encyclopedia
Pay what you want is a pricing system where buyers pay any desired amount for a given commodity, sometimes including zero. In some cases, a minimum (floor) price may be set, and/or a suggested price may be indicated as guidance for the buyer. The buyer can also select an amount higher than the standard price for the commodity.

Giving buyers the freedom to pay what you want may seem to not make much sense for a seller, but in some situations it can be very successful. This is because it eliminates many disadvantages of conventional pricing. It is obviously attractive to buyers to be able to pay whatever they want, for reasons that include eliminating fear of whether a product is worthwhile at a given set price and the related risk of disappointment or “buyer remorse.” For sellers it obviates the challenging and sometimes costly task of setting the “right” price (which may vary for different market segments). For both, it changes an adversarial conflict into a friendly exchange, and addresses the fact that value perceptions and price sensitivities can vary widely among buyers.

In the book Smart Pricing (p. 29), it is suggested that successful pay what you want programs are characterized by:
  1. A product with low marginal cost
  2. A fair-minded customer
  3. A product that can be sold credibly at a wide range of prices
  4. A strong relationship between buyer and seller
  5. A very competitive marketplace.


While most uses of pay what you want have been at the margins of the economy, or for special promotions, there are emerging efforts to expand its utility to broader and more regular use, as noted in the Enhanced Forms section below.

Variant terms include "pay what you wish," "pay what you like," "pay as you want," "pay as you wish," "pay as you like," "pay what you will," "pay as you will." "Pay what you can
Pay what you can
Pay what you can is a non-profit or for-profit business model which does not depend on set prices for its goods, but instead asks customers to pay what they feel the product or service is worth to them. It is often used as a promotional tactic, but can also be the regular method of doing business...

" is sometimes used synonymously, but is often more oriented to charity or socially-oriented uses, based more on ability to pay, while pay what you want is often more broadly oriented to perceived value in combination with willingness and ability to pay.

History and commercial uses

Pay what you want has long existed on the margins of the economy, such as for tips and street performers, as well as charities, but has been gaining breadth of interest in recent years. Theaters began using it for selected nights, and use for restaurants has been spreading, at least since its use for One World Everybody Eats, founded in 2003 in Salt Lake City. The restaurant is now owned by a nonprofit group that requires customers pay at least $4 for their entree
Entrée
An entrée is a dish served before the main course, or between two principal courses of a meal.The disappearance in the early 20th century of a large communal main course such as a roast as a standard part of the meal in the English-speaking world has led to the term being used to describe the main...

.

A major boost in awareness occurred in 2007, when Radiohead
Radiohead
Radiohead are an English rock band from Abingdon, Oxfordshire, formed in 1985. The band consists of Thom Yorke , Jonny Greenwood , Ed O'Brien , Colin Greenwood and Phil Selway .Radiohead released their debut single "Creep" in 1992...

 released their seventh album, In Rainbows
In Rainbows
In Rainbows is the seventh studio album by the English rock band Radiohead. It was first released on 10 October 2007 as a digital download self-released, that customers could order for whatever price they saw fit, followed by a standard CD release in most countries during the last week of 2007. The...

, through the band's website as a digital download
Music download
A music download is the transferral of music from an Internet-facing computer or website to a user's local computer. This term encompasses both legal downloads and downloads of copyright material without permission or payment...

 using this pricing system.

In 2010, Panera Bread
Panera Bread
Panera Bread is a chain of bakery–café quick casual restaurants in the United States and Canada that sells breads, sandwiches, soups, salads, and other bakery items. Its headquarters are in Sunset Hills, Missouri, a suburb of St. Louis.-Corporate history:In 1993, Au Bon Pain Co...

 used the system in a St. Louis, Missouri
St. Louis, Missouri
St. Louis is an independent city on the eastern border of Missouri, United States. With a population of 319,294, it was the 58th-largest U.S. city at the 2010 U.S. Census. The Greater St...

 suburb, and has generated further attention by opening more since.

In October 2007, Moshpit Tragedy Records
Moshpit Tragedy Records
Moshpit Tragedy Records is an independent record label from Canada which releases punk, metal and some of their subgenres . In 2007, they became the first record label to abandon physical releases in favour of a fully "sliding-scale" or "pay-what-you-want" download model.- Origin :Moshpit Tragedy...

 became the first record label to operate fully under the pay-what-you-want download system.

Introduced during May 2010, the Humble Indie Bundle
Humble Indie Bundle
The Humble Indie Bundles or Humble Bundles are a series of game bundles, that are sold and distributed online at a price determined by the purchaser. The games are multi-platform, DRM-free, and independently developed, and buyers can set the revenue split between the developers, charities and...

 was a set of six independently developed digitally downloadable video games which were distributed using a pay-what-you-want system (with inclusion of a buyer-controllable charitable contribution). At the end of the sale, 1.27 million dollars had been raised. They have since done four more bundle sales, generating a total of over $6 million in revenues, and securing an investment of $4.7 MM by Sequoia Capital
Sequoia Capital
Sequoia Capital is a Californian venture capital firm located on Sand Hill Road in Menlo Park, California. The Wall Street Journal has called Sequoia Capital "one of the highest-caliber venture firms", and noted that it is "one of Silicon Valley's most influential venture-capital firms"...

 in April 2011.

Economics

With the prominence of the Radiohead
Radiohead
Radiohead are an English rock band from Abingdon, Oxfordshire, formed in 1985. The band consists of Thom Yorke , Jonny Greenwood , Ed O'Brien , Colin Greenwood and Phil Selway .Radiohead released their debut single "Creep" in 1992...

 experiment, economics and business researchers began a flurry of studies, with particular attention to the behavioral economic aspects of pay what you want -- what motivates buyers to pay more than zero, and how can sellers structure the process to obtain desirable pricing levels? One early such study (possibly the first) was the one done by Kim et. al. in January 2009.

As pointed out by Kim, pay what you want is a form of “participative pricing,” in that the buyer participates in the pricing decision. It may also be viewed as a participative form of price discrimination
Price discrimination
Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...

,. While some uses of price discrimination have created negative reactions (and even legal restriction), the participative nature of pay what you want inherently avoids the consumer perception of unfairness in imposed (or even hidden) prices discrimation, since, in this case, it is the buyer who sets the price, not a seller who imposes it.

A study quantifying the significant added value of including a charitable contribution component in pay what you want, as a way to increase buyer williness to pay, gained coverage in the general press in 2010.

Enhanced Forms

Efforts have been made to expand on the benefits of pay what you want, to make it more useful and profitable to sellers, while maintaining its inherent appeal to buyers.

One such enhancement is reflected in the Humble Indie Bundle
Humble Indie Bundle
The Humble Indie Bundles or Humble Bundles are a series of game bundles, that are sold and distributed online at a price determined by the purchaser. The games are multi-platform, DRM-free, and independently developed, and buyers can set the revenue split between the developers, charities and...

, which has added a buyer-directed charity component to further increase buyer willingness to pay. This is similar to the research study noted above.

Another enhancement is an expanded process, called Fair Pay What You Want (FairPay), which shifts the scope from a single transaction view, to an ongoing relationship over a series of transactions. It adds tracking of individual buyers' reputations for paying fairly (as assessed by the seller), and uses that reputation data to determine what further offers to extend to that individual buyer. In that way it seeks to incentivise fair pricing by buyers (to maintain a good reputation, and thus be eligible for future offers), and to enable sellers to limit their risk on each transaction in accord with the buyer's reputation.

See also

  • Honor system
    Honor system
    An honor system or honesty system is a philosophical way of running a variety of endeavors based on trust, honor, and honesty. Something that operates under the rule of the "honor system" is usually something that does not have strictly enforced rules governing its principles...

  • Proof-of-payment
    Proof-of-payment
    Proof-of-payment or POP is an honor-based fare collection approach used on many public transportation systems. Instead of checking each passenger as they enter a fare control zone, proof-of-payment requires that each passenger carry a ticket or pass proving that they have paid the fare. Ticket...

  • Pricing methods
  • Pricing Strategies
    Pricing strategies
    Pricing strategies for products or services include the following:-Competition-based pricing:Setting the price based upon prices of the similar competitor products.Competitive pricing is based on three types of competitive product:...

  • Price discrimination
    Price discrimination
    Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...

  • Pay what you can
    Pay what you can
    Pay what you can is a non-profit or for-profit business model which does not depend on set prices for its goods, but instead asks customers to pay what they feel the product or service is worth to them. It is often used as a promotional tactic, but can also be the regular method of doing business...

  • Freemium
    Freemium
    Freemium is a business model that works by offering a product or service free of charge while charging a premium for advanced features, functionality, or related products and services...


External links

  • Pay-as-you-wish at Freakonomics
    Freakonomics
    Freakonomics: A Rogue Economist Explores the Hidden Side of Everything is a 2005 non-fiction book by University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner. The book has been described as melding pop culture with economics, but has also been described as...

  • Pay-What-You-Want for Musicians at Techdirt
    Techdirt
    Techdirt is a weblog that reports on technology trends, and related business and economic policy issues, often focusing on copyright and patent reform. The website was started in 1997 by Mike Masnick and it was originally based on the weblog Slash. Techdirt has been named among the favorite blogs...

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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