Question 4: Industries

Would the "PWYW" strategy work in other industries than the service industry? What kind of products would be most successful?

I think the PWYW pricing strategy can work finest with almost every kinds of information goods. For example, music, software, the case form HBR and so on.

These goods have some attributes in common such as the low cost and of sharing (distribution) and reproduction (the low even zero margin cost).

Using the PNYW pricing mechanism, the vendors of some information goods can improve the exposure of their products and increases consumers’ intent to purchase without facing a financial loss as some vendors who sell tangible goods do.

As mentioned in the article, PWYW can be a good strategy to implement in online markets. The most prominent example of an application of PWYW is that of the band Radiohead (fans could download their new album from their website and pay what they wanted). As a CD isn’t a service, the PWYW strategy isn’t only working in the service industry.

I agree with you Aurélie. In my opinion, Radiohead is already linked to a non-service industry so I would say that it could be profitable in the music industry, most generally in the entertainment industry, like concerts, theaters, books, etc.

I guess that physical products are not the best for this kind of sales, as you have your initial costs and all... Maybe software? There definitely is some software working on this rules... TA chose the right ones:)

But maybe also some services where knowledge is shared, like lawyer or medical consultancy. Where people are greateful for your time, approach,research, knowledge. and this would also eliminate bribes

The environment of where the transaction
takes places is (in my opinion) the most important chatacteristic, less than
the industry itself.


All the case’s examples are in restaurants
or at the cinema : when the customer pays, there is a direct interaction
with the seller (or waiter) that "humanises" the relation for conscientious customers, or places guilt for those who
are profit driven.


So typically for e-commerce, where there is
no physical interaction, I wouldn’t imagine as many people willing to pay a
fair price.Such a strategy would be risky.



Industries where we have a retailing
channel with direct customer-salesperson interaction are the most appropriate.


The case of Radiohead would be an exception for me, cos fans downloading their music will have a degree of conscientiousness to support the band they like.

I think it would really work in a restaurant, since you have really close relation with the people you're buying food to. You talk a lot to the waiter, the boss can also be present and talk with you. They are the people you will give money to.
At the end, when you have to pay, I think that you cannot possibly pay no or few money, especially if you have enjoyed your meal, because you know people are watching you and you know it is normal to pay for what you've got.

Well....I don't want to cause too much trouble, but I'm afraid I disagree with the arrangement 'software = good' and 'tangible products = bad'.

Let me explain that:
As a fair consumer I want to pay something close to the costs for the producer/seller.
- With a tangible product, I can imagine very well, why there must be some costs. The material, the worker, the plants...and so on. Since I know that I would not pay nothing are way too less. Right now I am thinking about (drinking) glasses or plates of IKEA. Actually, I would pay more for a plate or a glass than 1€. Don't ask me how they can produce it at such small costs.

- On the other hand, I can hardly imagine why a software (like Adobe CS4) should be worth up to 3000€ (144000TWD). I can hardly determine the value chain and the costs which are related to that product.

So there are two conclusions:

1) The value creation should be traceable for the consumer.
2) The price range should not be more than an day-to-day expense, which the consumer is familiar with.

I would say that even if Janick does not agree, i think there is a huge difference for products and services. Products sold in shops are usually buy after a long thought about the value it could add to us, and how we could benefit from it. The price was a good criteria to buy it or not. If we go to a store to pourchase it, we wont be able to use it right away so hard to pay after a few days...
For service like mideia, information, or even restaurants where we usually pay after consumption, it is way more easier and really could work i think, as we are expecting some benefits right away.
So actually, the difference is not really between service and products, but more if we did use the product right away (restaurants) or if we are going to use it way later (often real tangible products)

Can you think of any examples how IKEA or other companies could use a PWYW-strategy?

In case the consumer has a clear idea of the value creation of products they will be more willing to pay the seller for the actual product, I agree with Janick. If this is a crucial determinant is hard to say because of the huge information gap between seller and buyers. Like Florent mentioned in his example of restaurants it's easier to determine the price of the service once the consumer has already experienced it. In addition that is an example where the buyer has one-on-one contact with the provider of the service in a social setting where they're not able to 'hide' behind a screen.
I am not sure if this would be the same for online services

Schulz_Martin wrote:Can you think of any examples how IKEA or other companies could use a PWYW-strategy?

Maybe Ikea could launch a PWUW strategy for some basic furniture, like book shelves, desks. And then give customers the opportunity to customize their furniture for a fixed price. For example, customers would pay what they want for the basic white book shelf and then would pay a fixed price to customize it in order to make it fit with the design of their livingroom

jeremie_francois wrote:The environment of where the transaction
takes places is (in my opinion) the most important chatacteristic, less than
the industry itself.


All the case’s examples are in restaurants
or at the cinema : when the customer pays, there is a direct interaction
with the seller (or waiter) that "humanises" the relation for conscientious customers, or places guilt for those who
are profit driven.


So typically for e-commerce, where there is
no physical interaction, I wouldn’t imagine as many people willing to pay a
fair price.Such a strategy would be risky.



Industries where we have a retailing
channel with direct customer-salesperson interaction are the most appropriate.


The case of Radiohead would be an exception for me, cos fans downloading their music will have a degree of conscientiousness to support the band they like.

I totally agree with you. Even if i believe in the human nature fairness , I am nearly sure than when there is no physical interaction, people feel less guilty to undervalue a product or a service, unless it is something really important to them such as the concert of their favorite band

edith_bonnefond wrote:

jeremie_francois wrote:The environment of where the transaction
takes places is (in my opinion) the most important chatacteristic, less than
the industry itself.


All the case’s examples are in restaurants
or at the cinema : when the customer pays, there is a direct interaction
with the seller (or waiter) that "humanises" the relation for conscientious customers, or places guilt for those who
are profit driven.


So typically for e-commerce, where there is
no physical interaction, I wouldn’t imagine as many people willing to pay a
fair price.Such a strategy would be risky.



Industries where we have a retailing
channel with direct customer-salesperson interaction are the most appropriate.


The case of Radiohead would be an exception for me, cos fans downloading their music will have a degree of conscientiousness to support the band they like.

I totally agree with you. Even if i believe in the human nature fairness , I am nearly sure than when there is no physical interaction, people feel less guilty to undervalue a product or a service, unless it is something really important to them such as the concert of their favorite band

I agree with you guys, I would feel less guilty to undervalue a product or a service if I were just doing some shopping online than if I had somebody in front of me.

BartekWu wrote:I guess that physical products are not the best for this kind of sales, as you have your initial costs and all... Maybe software? There definitely is some software working on this rules... TA chose the right ones:)

But maybe also some services where knowledge is shared, like lawyer or medical consultancy. Where people are greateful for your time, approach,research, knowledge. and this would also eliminate bribes

I agree with Max and Bartek. The PWYW pricing strategy would work best in an industry where the the initial cost of production is high, but the cost of producing an additional unit is close to zero.. eg. software, e-books, music, etc. It could also work well, in the service sector. Eg. TheTourism Industry. How much are you willing to pay for a spa treatment at a hotel, or a tour guide for valuable information about thier country's culture. Not much cost is incurred in talking about a country's history or giving a massage. If PWYW is used, because it is a face to face interaction and people would not want to act stingy. Also if the quality of service given by the individual is superb, then the price would most likely be greater than zero. In my country, which is highly dependant on Tourism, service oriented employees receive tips greater than their wage, because tourists are highly satisfied with the treatment received at hotels, bars etc. So they pay based on their satisfaction level and fairness.

I think the authors have answered this question in the paper. They mention that "products with high fixed but low variable costs are more appropriate for the application of PWYW, because low variable costs limit the risk of prices below costs for the seller." Becides, personal interaction between seller and buyers also support the applicability of PWYW.

i think PWYW pricing would work for all industry given there are sales personnel to explain the value and the benefit of the product to consumers. like shirleyo mentioned above, there is got to be a personal interaction between seller and buyers.

Young artists are keen on this way to sell. Put aside my own experience, I have met and bought to young artists. Oftentimes, they do door-to-door and show you their pieces of art. When you are innovative and young, it is really hard to get other persons to know about you. So... by having a friendly chat, and suggest they 'buy' something, you can create a buzz. I recently heard that one of my classmate had some of his drawings in a modern art museum (and he started by PWYW... but now, he can set prices!)

priceline also adopts some sort of PWYW strategy as well, except they have reserve prices or restrict consumers to certain airlines or hotels based on the willingness to pay of consumers. it has worked out quite well for priceline.

I don't think this kind of pricing could work for all the kind of industries.
When you sell a physical product you have automatically a cost per unit produced due to raw materials, workforce... which is quiet important.
In a paw what you want model, it would be difficult to face this cost.

I think that the kind of customers you are targeting has a great impact on the success on PWYW strateggy. Like mentioned earlier, people going to top-class restaurant will be more willing to pay higher price, which would be associated with prestige.
On the contrary, if you sell for example, extension for computer games (like Sims) that will be bought by young people or student, a PWYW strategy might be a failure. As they have limited means, they certainly try to take advantage of it. And even if they want to pay a fair price, it will often be a bit less than a bit more.

Some of the points mentioned in the discussion of this question is good. In the paper, only consumer characteristics are examined, but not company/offerings/situational characteristics. For example, the cost structure of an offering (i.e., the proportion of fixed vs. variable costs), the nature of the offering (service vs. good; experience offering vs. non-experience offering), and online vs. offline transactions (e.g., the degree of anonymity).

Sure enough the cost structure of an offering has to be taken into account ! If you are a well-established company, with regular incomes, you can go for free samples but if it is not the case, PWYW is the best way to maintain the equilibrium between fixed and variable costs. Then again, is the product fabricated on demand or on shelves (where the storage cost comes into action)

I think the paper mentions that products with high fixed but low variable costs are more appropriate for the application of PWYW because low variable costs limit the risk of prices below costs for the seller. Consequently, it fits really well with information/digital goods, in which most costs go into making the first copy, and after that the variable costs of making many copies is basically negligible in comparison. That is why the PWYW worked well for Radiohead and could also work well for other artists and other products like movies/TV shows.