Pay-What-You-Like pricing study is bullish on naming your own price

A paper in the Proceedings of the National Academy of Sciences reports on an experiment to test how pay-what-you-like pricing performs when compared with merchant-driven "discount" pricing, and suggests that people pay more when given the choice. Ironically, the paper isn't priced on a pay-what-you like basis (it's $10 for two days' access).

We investigate the role of identity and self-image consideration under “pay-what-you-want” pricing. Results from three field experiments show that often, when granted the opportunity to name the price of a product, fewer consumers choose to buy it than when the price is fixed and low. We show that this opt-out behavior is driven largely by individuals’ identity and self-image concerns; individuals feel bad when they pay less than the “appropriate” price, causing them to pass on the opportunity to purchase the product altogether.

Here's a summary from Science magazine:

...scientists tested pay-what-you-want (PWYW) pricing in three experiments. In the first, some boat tour riders were given the option to pay $15 for a photo of themselves, while others were asked for $5, and still others were asked for PWYW. More people bought photos under the $5 plan, about 64%, than when they could name their own price, about 55%. (Only 23% opted for the $15 photos.) Scientists think that when people have to decide on a fair price, fear of looking cheap keeps some from purchasing altogether, they report online today in the Proceedings of the National Academy of Sciences. In a second trial, researchers found that attendees at an amusement park paid five times more for a photo of themselves on a ride (such as the one above) under PWYW pricing if told that half the proceeds would go to charity. And in the third experiment, guests at a restaurant with PWYW pricing either paid someone directly for their meal or paid anonymously by slipping money into a box near the door on their way out. Customers paid about 13% more when they were anonymous than when they paid someone directly. In all cases, the team says, PWYW seems to work because we want to feel good about ourselves when doing it.

Pay-what-you-want, identity, and self-signaling in markets (Thanks, Isaak!)


  1. This is what I’m going to do some day…

    It may be some application, magazine, whatever. I’m going to do a “Pay-what-you-like-after-you-use-it” model. 

      1. Is it? “Shareware” was a term just getting off the ground when I was getting into the web. I guess I never realized thats what It actually was. NoNags was great back in the day! :)

        1. Sorry to disappoint, but the idea of “shareware” long predates the web. It had traction long before.

          Hard to imagine I know, but we still used our computers to interact and trade software and other data before HTTP and even to some extent before the Internet. :)

          1. Oh yes, I know. I’m looking at shareware as in how every 12 year old that convinced their parents to sign up for “50 FREE HOURS!!!” of CompuServe or AOL in the early 90’s found out about it. :D

  2. The difference between this study and most pay what you want offerings is that the pay what you want offerings are mostly online and nobody has to be embarressed about being too cheap.

    1. Totally agree here — if the study does not address pay-what-you-can online, then it’s missing a goodly piece of the puzzle. 

      1.  It did address anonymous pay-what-you-like, at least (and found people paid slightly more that way).

      1.  Akismet (the anti-spam plugin) has a really clever system on their pay-what-you-like donation page. There’s a slider for donation amount and a simple face next to it — a circle, two dots for eyes, a curved line for a mouth. As you move the slider up, the mouth curves up into a smile. As you move the slider down, the mouth first straightens, then curves down into a frown.

        You can donate nothing, but then YOU MAKE THE WEBSITE SAD.

        It worked on me. I couldn’t take the guilt trip, and donated just enough to make the face smile slightly.

  3. Tips should provide a similar experiment. I’m a total cheapskate, but when I’m at a sit-down restaurant with waitresses or even an ice cream stand with a tip jar, I tend to go over a little bit with the tips.

    1.  After a really good dinner, I’ve been known to tip the waiters, even though here in Australia it’s not at all expected in many restaurants.

      1. Here in America, tips are built into waiters’ wages, and if you don’t tip, they are often making less than minimum wage. Tipping is a stupid, classist system. (Which is to say: you should tip in the US, because otherwise you are favoring sub-minimum-wage labor.)

  4. Pay what you want doesn’t always work out. I was at an organization that tried an “honor system” for paying for a prepared lunch that was brought in every day where you had to put some money in for what you selected in an unattended box (rather than have someone spend the lunch hour collecting the funds). People ate the food all right, but far too few actually paid anything for it. The whole thing had to be canceled for lack of funds.

    I think the problem was that it was gradually accepted that you could pay nothing, and more and more people got comfortable with that idea, even though it meant the end of the program.

    1. I think this type of system works for one-offs, but your experience shows that for ongoing things it doesn’t, I have a similar experience running a weekly BBQ after a pickup ultimate game every week in the summer.

      1. Plus I think the fact there was no one there to monitor the funds played a role as well. Maybe an attendant would have made a difference. Or perhaps not.

        1. Another tactic would be to make announcements ahead of time indicating how much money was gathered and what that buys everyone.  You need a starter fund, but then you can say “This week we got $X and that buys the following collection of sandwiches every day.” or “This week we got $Y and that buys one box of crackers on Monday.” 

          People will be able to see a direct relationship between how much they put in, how they compare to the average, and what they get out of it.  It could certainly still fail, but it might stand a better chance of working out.

  5. A note on the profitability of pwyw. It seems that fewer people purchased (55% vs 64% for 5$) however this reduction of sales was offset by an increased average price of 6.43$.  

    This seems contrary to the typical stated objective of pwyw, of using the flexible pricing scheme to reach a larger crowd. It would have been nice to see data for a perhaps 7$ sales point, I suspect this would have been of similarly profitable compared to the pwyw model. 

  6. Take the ‘Weinerei’ in Berlin as an example.  Many articles have been written about the innovative pay-as-you-like model, and how wonderful it is.   But if you read the reviews on qype, there are a *lot* of people unhappy at the aggressive attempts to get money from the customers.   

    The fact is that for a lot of people, a pay-as-you-like model creates mistrust and worry.  It purports to be more fair, a compromise, but actually punishes nice people and rewards cheapskates.   

    I’ll stick to places that display their prices, thanks.

    1. In the Weineri’s case, it seems the model is pretty inappropriate because most people don’t know what a fair price for a glass of wine would be given how different wines can vary by an order of magnitude or more in price. At least in my case, I’d end up either ripping the restaurant off or absurdly overpaying.

  7. The non-profit that my wife and I run has been funded almost exclusively by a no-questions-asked sliding-scale-fee system. We do creative writing workshops for kids, and it’s really important to us that we serve a diverse group of kids–and that diversity is evident within individual workshops, rather than have groups of wealthy kids over here and groups of not-so-wealthy kids over there. 
     We’ve been around for five years, and we’re racing to keep up with the growth we’re seeing. 

  8. Assuming a sample size of 100, the $15 price point nets the most profit.  Especially considering less than half the work has to be performed.

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