Summary

Pay what you want (PWYW) is an innovative pricing model in which buyer’s control over the price setting is at a maximum level; that is, the buyer can set any price above or equal to zero, and the seller cannot reject it. Previous research suggests that participative pricing increases consumers’ intent to purchase. Thus, PWYW may be preferred by consumers for the level of control offered and the novelty of the mechanism. 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 contrast to neoclassical economic theory, in which consumers purely maximize their utility, the results from three independent contexts—a restaurant lunch buffet, movie screenings in a cinema, and hot beverages at a deli—show that prices paid are significantly greater than zero. Prices paid at PWYW depend on buyer’s internal reference price and the proportion of how much the buyer is willing to share of his or her (potential) deal profit with the seller. Fairness, satisfaction, and income are identified as positive drivers of prices paid, whereas price consciousness has a negative influence. The analysis of revenues reveals that revenues are even higher with PWYW than baseline revenues using posted prices because of an increasing number of new customers at the restaurant and higher prices paid at the deli.

Overall, the results of the experiments indicate that PWYW might be suitable as a price promotion tool and may also help improve the seller’s credibility by letting the consumers decide about the prices of products. Implementing PWYW, the seller can demonstrate to consumers that he or she believes in the quality of the products because lower prices can compensate for lower quality without signaling low quality by lower posted prices. The application is also simple and easy to communicate to consumers. This may increase the chance of word of mouth and build up a positive pricing image among consumers. However, PWYW poses a risk that the price buyers pay will be much lower than the seller’s cost or even equal to zero. Especially for high-priced products, PWYW does not seem to be an appropriate pricing mechanism, because the incentives to realize a large deal profit may outweigh aspects of fairness. In such a situation, revenues will probably suffer if the seller cannot set a m
inimum price threshold.

In the three field studies of this article, a personal interaction between seller and buyer exists and potentially supports the applicability of PWYW. Further research should analyze the importance of such personal interactions on consumers’ decision process. Furthermore, PWYW might be a profitable alternative to free samples for new product introductions or money-back guarantees.