Pay What You Want: A New Participative Pricing Mechanism

Abstract

Pay what you want (PWYW) is a new participative pricing mechanism in which consumers have maximum control over the price they pay. Previous research has suggested that participative pricing increases consumers' intent to purchase. However, sellers using PWYW face the risk that consumers will exploit their control and pay nothing at all or a price below the seller's costs. In three field studies, the authors find that prices paid are significantly greater than zero. They analyze factors that influence prices paid and show that PWYW can even lead to an increase in seller revenues.

A review of the empirical literature on Pay-What-You-Want price setting

“…Five studies indicate that the association between the two variables is significantly positive (Kim et al, 2009(Kim et al, , 2014Mills, 2013;Regner, 2015;Riener and Traxler, 2012). Three investigations observe an insignificant correlation (Borck et al, 2006;Roy, 2015;Roy et al, 2016a), but the validity of two of the three null-result-publications is low because they examine student samples with restricted income variances.…”

“…Otherwise, in contexts where customers pay before consumption satisfaction is likely to exert a clear influence on prices paid only if buyers are already very familiar with the peculiarities of the purchased service or product and have therefore formed a stable evaluation of the offering and/or its supplier. A total of nine studies find that buyer satisfaction is significantly positively correlated with prices paid voluntarily after consumption (see Table 1: Borck et al, 2006;Gautier and Van der Klaauw, 2012;Kim et al, 2009Kim et al, , 2014aLeón et al, 2012;Machado and Sinha, 2012;Racherla et al, 2011;Riener, 2008;Schmidt et al, 2015). Solely, Drevs (2013) and Schons et al (2014) observe no significant association between the two variables.…”

“…Six studies include evidence according to which altruism of buyers has significantly positive impacts on the magnitude of their voluntary payment (Gahler, 2016;Huber, Lenzen et al, 2013;Huber et al, 2014;Kim et al, 2009;Roy et al, 2016b;Morwitz, 2011, 2013). Two analyses of Kim et al (2009), who examine PWYW food sales in a restaurant and ticket sales in a cinema, as well as a study of Drevs (2013), who also looks at the sale of cinema tickets in a PWYW setting, report insignificant correlations between buyer altruism and PWYW prices paid. With the exception of the work of Kim et al (2009) the studies, which report significant correlations, share the methodological weakness that they capture both altruistic attitudes as well as PWYW prices paid in a cross-sectional survey.…”

“…Two analyses of Kim et al (2009), who examine PWYW food sales in a restaurant and ticket sales in a cinema, as well as a study of Drevs (2013), who also looks at the sale of cinema tickets in a PWYW setting, report insignificant correlations between buyer altruism and PWYW prices paid. With the exception of the work of Kim et al (2009) the studies, which report significant correlations, share the methodological weakness that they capture both altruistic attitudes as well as PWYW prices paid in a cross-sectional survey. Therefore, it may well be assumed that the detection of associations between the focal variables is mainly an artefact of the data collection approach, Brought to you by | MIT Libraries Authenticated Download Date | 5/9/18 8:48 PM namely so-called "common method biases" (Podsakoff et al, 2009, p. 879): Survey participants who claim to be strongly altruistically motivated are likely to respond consistently in the same questionnaire by stating that they would also pay higher prices in fictitious PWYW sale contexts.…”

“…Fairness concerns reflect attitudes of buyers according to which they are convinced that customers should respond to the goods they get from sellers by allocating a proportional return in the form of an "adequate" voluntary payment to the seller (Kim et al, 2009;Natter and Kaufmann, 2015;Roy et al, 2016b). Nine publications using a total of 15 data sets report significantly positive associations between buyers' "preference for fairness" (Pöyry, 2015, p. L-26) and the level of PWYW prices paid (see Table 1; Drevs, 2013;Gahler, 2016;Kim et al, 2009Kim et al, , 2014 (study 2); Kunter, 2015;Lee et al, 2015;Morwitz, 2015, 2016;Schons et al, 2014).…”