Pay What You Want! It is assumed by most of us that items and services come with a price. In the United States, this is usually a set price, one that is non-negotiable and metaphorically written in stone. However, some businesses, including e-commerce businesses, have found success with a new and definitely customer-friendly model known as ‘Pay what you wish’ or ‘Name your own price’. Because this trend is gathering steam, it is a pricing model that you are sure to run into at some point. It probably is not right for you, but here are a few factors to consider if you are feeling drawn to the idea.
Social Pressure is Key
There are several notable restaurants that are using this payment strategy. It takes all of the risks out of dining at a new establishment. How many times have you spent too much for a mediocre meal and felt that it was worth only a fraction of its inflated price? However, when you dine at a restaurant, there is a great deal of social pressure to pay.
Consider: most people tip their server the standard amount even though there is no law requiring it. No one is going to dine and dash on a regular basis. I bet that most people will pay even more than the restaurant would have charged simply to avoid looking cheap.
On an e-commerce website, this social pressure is completely absent. When was the last you received a tip, after all? People do not personalize their e-commerce experiences. They feel that they are dealing with a computer, not a real-life business owner with overhead and a mortgage to pay.
Choose Products Carefully
There are certain products that can be sold using the “name your own pricing” without compromising youre-commercee website integrity and profit margins. These are usually e-products, downloadable goods that cost you one time to create and then nothing to multiply. Ebooks are a good example. Even if customers undercut you in the pricing, you usually will make up for this in volume. As a bonus, there are many internet sites dedicated to sharing special deals. Customers are likely to share their deal on these websites and give you a little added traffic.
The product does not necessarily have to be a downloadable information product, but it should be something with a low cost—something that you could even afford to give away. Due to the lack of social pressure discussed above, many customers will name a price of zero.
Does It Work?
This strategy worked well for the band Radiohead a few years ago. The band did not release their new album, In Rainbows, through traditional channels. Instead, it was available exclusively for download. Customers named their own price, and almost two-thirds opted to pay nothing at all. However, the average was $2.26 per album. Because the album was downloaded 1.8 million times, the band earned more from this strategically priced album than from any other in their history. Since then, several music websites have sprung up with the same basic structure. Obviously this strategy works in some cases… the trick is deciding whether it will work for your ecommerce website.