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Are “Pay What You Want” Models The Road to Success?

radioheadMy first run in with the Pay What You Want model was when Radiohead used this pricing strategy to release their album In Rainbows. Holding my love and obsession for Radiohead aside, I thought it was so cool that Radiohead let their fans either download the album for free or decide how much they wanted to pay. With that in mind, I paid the normal album price of around $12 knowing that the value I got from the music was worth the cost. (At the time I was a 15 year old kid with no money and a prime example of a music pirater).

The Pay What You Want (PWYW) pricing strategy is where the seller lets the buyer set the price above or equal to zero. The initial thought is that most customers would pay nothing for your product because of the neoclassical economic theory that consumers purely maximize their utility; thus choosing the zero amount option. However, many customers presented with the PWYW pricing set a price above zero; perhaps because they either enjoy the novelty, are loyal customers or maybe they simply practice unselfish behavior (what goes around comes around, right?). Let’s analyze the cost and benefits of business using the PWYW model.

Paste Magazine

pasteDuring a two week period in 2007, Paste Magazine offered a one-year subscription which includes 11 magazines and 11 CDs under the PWYW model. In a 2010 interview, publisher Nick Purdy claimed that Paste acquired 30,000 subscribers which would have otherwise required 2 million pieces of direct mail to generate that volume of subscribers. Purdy concludes that the PWYW model paid for itself in advertisements, and he makes the valid point that the PWYW model would not have worked if the ad revenue was not present.

Of course, effective marketing is necessary for a magazine because companies are more inclined to purchase ad space if the magazine has a lot of subscribers. Thus, the PWYW model helped Paste reach a wider audience which is great for a magazine, but is especially important for a company like Paste with low brand awareness. What Paste helped demonstrate is that PWYW is a low risk, high reward situation for consumers. They’re able to test out the magazine without committing, and are potentially long term customers if Paste’s content can prove itself valuable.

Cards Against Humanity cards_against_humanity_oldsweetsong

Cards Against Humanity, known as the very adult-version of Apples to Apples sold holiday card packs under the PWYW model. Here are their results: (source)

85,000 sets sold

$3.89 average price paid

$5.00 median price paid

$0.43 average credit card fee

19.79% of people paid $0

57.14% of people paid $5

516.7% increase in web traffic

Total cost: -$225,762 Total sales: $295,831.10 Total Profit: $70,066.27

I find the 516.7% increase in web traffic the most impressive result. It’s safe to say that Cards Against Humanity had a marketing success with the PWYW model. And seriously, if you’ve yet to indulge in a round of this game, you’re missing out.

CAH’s Additional Tactics:

CAH

Cards Against Humanity added some social pressure. They let the customer know how much it costs them to produce the product.  The $3 cost per unit may explain why the average price paid was $3.89.

What about the 16,822 people that didn’t pay for the card pack? Cards Against Humanity took an extra sassy step to sway the zero option group.

CAH21.png

If I chose to pay nothing to begin with, I would have reevaluated my initial decision and give Cards Against Humanity a couple bucks. Not for the reason that the message made me feel bad, but because the message showed mildy dark and sophomoric humor. This message may have also made customers feel guilty, but a good sense of humor might be just thing to sway these hold-outs.

Tech Dirt

Tech Dirt released 5 ebooks under the PWYW model through their insider shop. When downloading an ebook, there were 5 options: $5, $10, $20, $50 and pick your price payment. In the pick your price box, there is a preset ’5′ entered. The number zero is never shown on the page, showing their persistency in getting people to pay. Leigh Beadon made a super cool infographic showing the results:

insidershop

 

Louis CK

louis ck

Louis CK, a famous comedian, set the price of $5 for the download of his comedy show, but got no protection rights for the video which means anyone could go to torrent sites to download or copy it from someone else. This is a bit of a bending of the rules of the PWYW model, however I thought it was a great example: he made a $750,000 profit despite his fans ability to share the album with each other.

On the purchase page, Louis CK says, “Please bear in mind that I am not a company or a corporation. I’m just some guy. I paid for the production and posting of this video with my own money.” And for those that were considering downloading his live show for free, Louis CK (or, I suppose a Louis CK bot) sends a personal message that creates a connection with the customer; he lets them know that what he has to offer is valuable.

Proun

proun

Joost “Oogst” van Dongen launched his PC game Proun using the PWYW model. For more detail, check out his blogpost about PWYW, he has an interesting take. Joost lays out a kind warning for those considering a PWYW model: make sure you have a steady income already. If your consumers are unlike the consumers discussed above, you might be digging yourself into a big hole. Joost notes that PWYW worked for him only because Proun was a side project – a big personal bonus, if you will.

The PWYW model is not for everyone. These businesses can owe success through the PWYW model to a fair minded customer, strong relationship with customer, a product that can be sold credibly at a wide range of prices, or a product with low marginal cost. The PWYW model still lends itself to questioning whether or not it is a sustainable business model. Though one thing is for sure: it is an incredible marketing tool and PR boost.

 

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