Question

COLLAPSE

Many companies have been experimenting with variations of a “Pay What You Want” pricing schemes. One of the earliest attempts at this type of schemes is Radiohead’s 2007 In Rainbows album (fans could pay their price of choice for downloading it).

Other businesses picked up the idea – for the longer term (see for instance Panera), or as a shortly lived promotional activity (see for example Gap’s PWYW experiment ).

Let’s discuss this type of pricing scheme. How viable is this type of pricing scheme? What type of business would it be likely to work for – if any?

Answer 1

PWYW is referred to as Pay What You Want. It is described as a pricing scheme that allows the customer to choose a product and pay for it whatever they want. These types of pricing are quite attractive for the customers, however, when it comes to the viability of such kinds of pricing schemes, it may or may not work for a business. For instance, Radiohead's album was released and fans were allowed to download the music from the official website by paying whatever they wanted including zero amount. The band profited from this pricing scheme. Another example is of Terra Bite Lounge of Seattle. It adopted PWYW but when it suffered loss, it shifted to its old fixed pricing scheme. Therefore, it is concluded that it is not a viable option. It may temporarily work to gather customers' attention but not a long term viable option.

For what kind of business it is likely to work:

It is likely to work for the entertainment industry since fans are crazy about celebrities and their creations. They may pay a higher amount to see their favorite celebrity or acquire their creations. It can also work for start-ups to create a buzz but adapting it for the long term will only drive loss.