Pay what you want pricing a mix of results

Friday, March 8th, 2013 By

Panera Bread

A small number of businesses and so forth have tried pay what you want prices, with mixed results. Photo Credit: Kmf164/Wikimedia Commons/CC-BY-SA

There is a relatively new pricing scheme called “pay what you want” pricing, where people pay what they feel something is worth. A few high-profile examples have been recorded, though results have been something of a mixed bag.

Pay what you want a novel idea

We’ve all likely heard that “something is only worth what some idiot will pay for it.” There’s a modicum of truth there; if something is too expensive, some people will avoid buying it, even if they can afford it, because it’s just too expensive.

Everything made by Apple comes to mind.

However, there’s a grass-roots effort from the past few years where businesses established a pricing scheme called “pay what you want.” Pay what you want pricing is exactly what it sounds like; you can pay what you think the item is worth. If only that worked for credit cards or other loans.

There have been a few high-profile examples, the most notable of which being Panera Bread. A few established recording artists have tried it and so on, with a mixed bag of results.

Can work

A smattering of studies have found the model can work, according to NerdWallet. The best-known example is Panera Bread, or more accurately, Panera Cares. Panera Cares stores are a small chain – there are only five; the latest to open was one in Boston in Jan. 2013 – operated by Panera Bread’s charity foundation, the aptly named Panera Foundation.

The Boston Panera Cares did well when it recently opened, according to Bloomberg, making 109 percent of it’s costs back in the first day. Overall, according to NPR, Panera Cares stores have noticed a ratio where 60 percent pay the suggested price, 20 percent pay more and another 20 percent pay less or nothing. Most Panera Cares stores break even or better.

Other isolated examples exist. For instance, according to a post on the Gumroad blog, blog for popular e-commerce site Gumroad, pay what you want sales of a comic book collection by an artist who sells through Gumroad were encouraging. The comic had a suggested price of $1 or more; more than 80 percent of buyers paid more than the purchase price, averaging $6 or more, and 30 percent of buyers had paid five times suggested price or more.

Can also not

English art-rock band Radiohead, perennial favorite of hipsters – the most annoying, useless people on earth – used a pay what you want scheme when they independently released their 2007 album “In Rainbows,” according to The Verge. People could download it and pay what they felt it deserved or purchase a physical box set that had extra songs. Within one year of release, according to a 2008 NME article, it was found that most people who downloaded it didn’t pay or got it through torrent sites. However, physical sales of the box set were better than physical sales of their previous release.

Nine Inch Nails frontman Trent Reznor ran a test case, financing a giveaway – similar to Radiohead’s – for an album by recording artist Saul Williams. He found only 18 percent of the 150,000 downloaders chose to pay.

Ultimately, it seems to depend on who you’re offering a pay what you want or PWYW pricing scheme to and what it is. Music fans are known to want, if not in fact demand everything for free. Then again, music isn’t a physical product; ergo downloading, even illegally, seems harmless, likely a factor in why so many people do it.

Sources

Bloomberg

NPR

Gumroad

NerdWallet: http://www.nerdwallet.com/blog/2013/pay-what-you-want-finance-making-debut/

The Verge: http://www.theverge.com/2013/3/4/4054634/musics-pay-what-you-want-pioneers-sour-on-giving-away-songs

NME: http://www.nme.com/news/radiohead/40444

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