Pay what you want

Pay What You Want (PWYW) 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's 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" is sometimes used synonymously, but is often more oriented to charity or social 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.

• Theaters began using it for selected nights,

• Use by restaurants has been spreading since the opening of One World Everybody Eats, 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.

• Software (freeware) is frequently distributed under this model, accompanied by a message similar to "If you find this program useful, send a donation to (email address) at PayPal, so that we may continue its development and add the features you request." Shareware can be viewed as an example if its functionality is not limited.

• A major boost in awareness occurred in October 2007, when Radiohead released their seventh album, In Rainbows, through the band's website as a digital download using this pricing system.

• In December 2007, punk/metal record label Moshpit Tragedy Records became the first to operate fully under the pay-what-you-want download system.

• In 2010, Panera Bread bakery used the system in a St. Louis, Missouri suburb, and has generated further attention by opening more since.

• Introduced during May 2010, the Humble Indie Bundle 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 had been raised. They have since done over twenty more bundle sales, generating a total of over $19 million in revenues, and securing in April 2011 an investment of $4.7 million by Sequoia Capital.

• In November 2012, Generous, a new addition to the pay-what-you want model, opened signups for an initial beta release. Generous promises to bring pay-what-you-want to the masses, allowing everyone from musicians to yoga instructors to offer merchandise and services at a price of the public's choosing.

• In late 2012, McPixel had a 'pay what you want' weekend, in partnership with The Pirate Bay, as the creator Mikolaj Kaminski wanted people to try his game as a reason to buy it.

Pay what you want models are also closely related to crowdfunding.

Research on PWYW

With the prominence of the Radiohead 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.

In a large scale experiment conducted in a large amusement park, Gneezy and colleagues tested the effectiveness of PWYW by selling roller coaster photos to park visitors. Their results show that although many more people buy the photo when it is offered under PWYW, the average price paid is very low ($.92), resulting with no income increase to the firm. However, when PWYW was coupled with a charitable cause—buyers were informed they could pay what they wanted AND that half of the amount they pay would be donated to a patient support organization—the average amount paid increased substantially ($6.50), resulting with significant income increase to the firm in addition to generating substantial charitable contribution.

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. 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) price discrimination, 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 willingness 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, 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 incentivize 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
• Proof-of-payment
• Pricing methods
• Pricing Strategies
• Price discrimination
• Pay what you can
• Freemium

External links

• Pay-as-you-wish at Freakonomics
• Pay-What-You-Want for Musicians at Techdirt
• Pay-What-You-Want and donate to charity for English-learning applications at Edulang
• [1] at Science