Use pay-what-you-want promotions

Attract many relevant new customers to your promotion by letting them choose how much they want to pay (including $0). The technique sits between free samples and discount promotions.

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📝 Intro

Pay-what-you-want (aka choose-what-you-pay) is a type of pricing that allows customers to decide how much they would like to pay, including $0.

Most people tend to pay, rather than select zero. However, the average price per sale is lower than when you sell at a fixed price (or a discount).

Pay-what-you-want has another big downside when used in normal pricing: it shifts the burden of figuring out something’s price to the customer. Many will simply abandon rather than spend mental energy on doing that.

For normal pricing, it’s generally better to use pick-your-price instead (give a few options to choose from), or fixed prices (with special attention to flat rates, when possible).

But when it comes to special promotions, pay-what-you-want’s downsides can be turned into an advantage.

Let’s take a look.

P.S.: Thank you Felix for suggesting I cover this research!

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Previous tip: Flat rates sell better than pay-per-use (All tips here)

Use pay-what-you-want promotions for a large, targeted reach

Impacted metrics: Customer acquisition | Customer spending
Channels: Promotions | Pricing
For: B2C
Tip type: Existing research (May 2014)

📈 Recommendation

Use a pay-what-you-want promotion to gain the benefits of both free samples/trials (reach many people) and discounts (generate revenue).

You will reach a better targeted audience than giving away free samples, while reaching many more people compared to giving a discount (although you will earn less per sale).

🎓 Effects

  • Pay-what-you-want promotions vs giving free samples, generate more new sales (after the promotion), repeat sales, and word of mouth. They also reduce costs (generates some revenue and reduces waste).

  • In an experiment testing pay-what-you-want vs free samples for the promotion of Gillette razors:

    • People chose to pay €1.41 on average (11.8% of the regular price). Only 16.7% decided not to pay anything

    • 10.8% said they bought the product when surveyed 5 weeks later. Only 5.1% of those receiving free samples did (a 111.8% increase)

    • Participants told 2.5 others about the product, on average. Free sample receivers told 2 people on average

    • Roughly the same number of people were interested in both promotions (suggesting that pay-what-you-want attracts more attention, from the right people - even if it takes more effort to get the product)

  • Pay-what-you-want promotions vs discounts reach more new customers, generating more sales. However, they cost more per sale (people choose to pay less than a typical discount amount, on average).

  • In an experiment testing pay-what-you-want vs 40% discounts for the promotion of professional photo portraits:

    • People chose to pay €16.12 on average (equivalent to a 63% discount).

    • Pay-what-you-want attracted more than double the number of customers, generating €628.50 in total vs €385 of the discount promotion, despite the lower price per sale

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🧠 Why it works

  • Pay-what-you-want promotions are seen as more innovative and entertaining, so they attract more attention.

  • However, they also require more effort, so they filter out people who aren’t really interested in the product (but would still pick up a free sample).

✋ Limitations

  • This study is based on data from two field experiments (a promotion of Gillette razors and one of professional photo portraits). Ideally, we would have more studies, including lab experiments, to corroborate the data to more situations.

  • The novelty of pay-what-you-want promotions may fade if more companies use them.

  • It’s unclear what effect making the full price of the promoted product clearly visible (or not) would have. For example, would people choose to pay a closer price to it? Or would they see pay-what-you-want as an even better deal if the price is high, and then buy more of it?

🏢 Companies using this

  • Pay-what-you-want promotions are yet to be widely used. Very few companies have experimented with them.

  • One of the highest-profile uses of this method was Radiohead’s online release of their albumIn Rainbows in 2007. It was largely successful.

  • Everlane, a fashion brand, runs an annual promotion in which customers can pick from a set of prices (this is a pick-your-price promotion, not pay-what-you-want).

⚡ Steps to implement

  • If you’re planning a promotional giveaway or discounts, consider whether using pay-what-you-want would fit your audience, so you can boost the effect.

  • When using this instead of free samples or trials, keep in mind that you will have to set up payments: have a cashier (offline) or payments set up (online).

  • Make sure CTAs and descriptions are clear and simple, since it’s likely that most people will be unfamiliar with the concept.

  • You can try to nudge people to choose to pay close to the price of your choice by adding a reference price (e.g. “Suggested price”, “Value”, “Normal price”).

  • You can test combining this with pick-your-price to see what happens. For example, if people can choose between 3 discount options (20% off, 40% off, 60% off) they will likely pay a higher price and you will still retain most of the benefits of this method.

  • Remember, pay-what-you-want is not a sustainable way to generate revenue. Limit its use to boosting the effectiveness of your promotions. Use regular or pick-your-price pricing in your main sales channels.

🔍 Study type

Field experiments (with Gilette razors and photo portrait printing). Germany

📖 Research

Kim, J. Y., Natter, M., & Spann, M. (May 2014). Sampling, discounts or pay-what-you-want: Two field experiments. International Journal of Research in Marketing, 31(3), 327-334.

[Link to paper]

🏫 Affiliations

Goethe University Frankfurt and Ludwig Maximilians University Munich. Germany

Remember: This research could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

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