Pay What You Want (and Maybe Still Feel Like You Got Cheated!)
the complexities involved in allowing customers to call the shots
Posted Apr 27, 08:56 pm in business models, economics, human nature, marketing
The PWYW Paradigm
There’s been a lot of talk within the past few years about Pay-What-You-Want (PWYW) pricing. Much of the public discussion about it has stemmed from and has revolved around Radiohead’s decision to release their album In Rainbows online, and to allow users to pay whatever they want for it— much to the annoyance of certain other artists, like Robert Smith of the Cure, for example, who doesn’t want music (especially his) “devalued” in this manner. Various restaurants, coffee shops, and other businesses have been cautiously implementing this scheme as well, many of them before Radiohead adopted it.
Honestly, I’m not exactly sure why all these people are doing this. Is it a philosophical meditation on the complex relationship between money and humanity? Is it in the lofty hopes that reliance on altruism will actually generate more profit than would otherwise be generated through standard market norms? Is it the idea that rich people will be thoughtful and generous, and knowingly offset the losses incurred by the poorer people who couldn’t afford normal prices and thus don’t pay as much? Is it a sort of neo-socialist experiment that means to question the values and by-products of our firmly entrenched capitalist system? Regardless of its intent, I’m curious about it even though my first reaction to it is to view it more as a novelty than a straight-faced business model— which of course, does not necessarily discount it as a valid business model nor invalidate it as a legitimate political statement (if it happens to be one).
A Weird Experience with PWYW
When I think about PWYW, my first thought is of a somewhat unpleasant incident shortly after my undergraduate days at Berkeley. On weekends, in the parking lot of the Ashby BART station there was a rather idiosyncratic flea market where you could find items as unusual and varied as Aboriginal didgeridoos, homeopathic medicine for every disease under the sun, and ultra-cheap tax preparation from a filthy man sitting in the back of an even filthier truck. And on occasion there was a massage school student who hung around and advertised free (but pay-if-you-want-and-what-you-want) back massages. Being that they were free and I could just tip him whatever I felt like, I one day thought I would just get one of these free massages, drop a couple bucks in his tip jar, and be on my way.
My recollection is that it was a pretty good massage, and one that I really needed. However, I found that immediately after I had emerged from my deeply relaxing 10 minute massage session, I was standing, somewhat sheepishly, before this man and his tip jar. I say ‘sheepishly’ because beforehand I had (somewhat naively) viewed the experience as a sort of free lunch. But now I instinctively wanted to reciprocate for the massage in a “fair” manner— not least because he was standing expectantly in front of me, clearly able to see how much money I was going to put in the empty jar. The shame of being seen paying only $2 in tips negated the possibility of me doing that. He didn’t know my name exactly, but yet I felt weirdly afraid of looking like, or possibly being, a bad person who paid $2 for a 10 minute massage.
So here I was, saddled with guilt for taking this guy’s services and thinking about not paying him a market price for it. Rather begrudgingly, I ended up giving him $10 for a massage that if it were advertised as being $10, I wouldn’t have gotten at all. And even then, this $10 I knew was below fair market price, but I rationalized that I was a poor student so I couldn’t possibly give him more than that. So even though I paid, I still walked away from the transaction with a sensation of guilt which follows me around to this day!
In a normal transaction, both parties presumably make a mutually satisfactory exchange and go about their days. Here, there were odd social norms that came into play unexpectedly, feelings of guilt, and lingering dissatisfaction (I walked away from the transaction feeling insecure and with unpleasant memories of what should have been a pleasant experience). I think this is a big risk for a business to take, even though the PWYW model is arguably kind of a neat and somewhat playful concept. The fact that there’s a very good chance that a customer might leave feeling like they either underpaid or overpaid is not really a good sensation to create if you want repeat business. It may be possible, however, to alleviate such problems. To understand how, we have to think about how the ambiguity of the situation might affect the thinking of someone in that position. So let’s start with and why someone might pay more than they really felt like something was worth. Here, I will use the example of a PWYW restaurant, of which there are apparently a handful scattered across the globe.
Things for a Business to Think about Before Implementing PWYW
Consumer’s fear of others’ judgments (“I don’t want my date/wife/waiters/owner to think I’m cheap so I’m going to pay more than I think this meal was worth”) will create a negative evaluation of the business because they will feel like they were guilt-tripped into paying more than they wanted to.
A restaurant could reduce the amount of personal interaction at the time of payment between restaurant staff and the customer, or better yet, reduce this contact over the course of the whole dining experience. The risk here is that even though you will be making the patron more comfortable (if with less customer service), you are running the serious risk of collecting insufficient funds to continue operations. The guilt and shame factor that comes with human interaction is one of the main principles propping up the idea of someone being generous in their payments. Without eyes being on them, so to speak, customers are more apt to shirk based on their own post-hoc rationalizations about why they shouldn’t pay what they actually thought the meal was worth.
Consumer self-perception and self-image involves how people view themselves (“I know I am not a cheapskate, therefore I should pay an amount that reaffirms to me the idea that I’m a generous person— especially when an opportunity comes up to take advantage of the situation, and justifiably be a cheapskate”). You’d like them to want to view themselves positively (by feeling self-congratulatory about their doing the right thing), and you’d like them to maintain attitudinal and behavioral consistency (that is, they do what they morally think is the right thing). You want them to hold up their end of the moral bargain, but not necessarily because of guilt. And you want them to not resent you for it. And you want them to keep doing it as a repeat customer.
Guilt aversion (“I don’t want to walk away from here feeling like I underpaid; that would eat away at my conscience”) is something you do not want to invoke. You don’t want people to leave feeling like they overpaid or underpaid; you want them to walk away satisfied, and absolved of any moral or economic ambiguity. This is difficult to do in a business model that seems not only to openly encourage it, but which invites these weirdly complex and open-ended transactions.
Overpayment as insurance (“I don’t know how much all this was worth, so I’d better give an amount that definitely covers it to avoid underpaying or looking like a jerk”) is also not good. You might like it because you are getting paid more, but it’s probably not going to make someone want to come back. If people leave feeling like they overpaid, there’s a very good chance that they will take their business somewhere else where they can get a full understanding of the nature of the transaction before they are forced to carry out the terms of the contract in a manner that is either unpleasant or unexpected.
Novelty (“this restaurant should be rewarded for being unique” or “this is such a strange and wonderful experience that I think giving more money is justified”) is probably not a good thing either. Yeah, you might get some wide-eyed golly-gee-shucks folks in who love having their expectations subverted, but I would be wary about relying on an endless stream of them popping in just because of your payment scheme. I would hope that your restaurant or business is actually remarkable in whatever it is supposed to be doing, rather than in how it collects on the bill.
Potentially Revenue-Changing Input Variables
I am curious how end-of-year revenue would differ in PWYW businesses if you could toggle certain variables. Here are the variables I would be interested in switching in order to gauge the change in the outcome:
Payment in person vs. payment in private – If there was no way to trace back payment to customer, what would change? That is, if the customer could pay without anyone but himself knowing how much he paid, and the restaurant could only calculate total sales at the end of a night instead of seeing what each customer paid, how would the revenues differ? My guess is that it would be a hell of a lot lower.
Numeric anchors – If there were numbers shown around the restaurant, perhaps referring to the standard menu pricing or perhaps even arbitrary numbers, how would this affect what people paid?
Visual and sensory anchors – If there are no numbers in a PWYW restaurant, what anchors are customer payments tied to? Decor? Level of formality of the business/restaurant? Lighting? Quality of food/products? How would changing these factors affect consumer behavior?
Geography / Politics of Clientele – How would the success of a business/restaurant be affected by the different political compositions of different geographies? I get the feeling that a PWYW business would generally play out better in progressive (‘liberal’) strongholds, where— as Jonathan Haidt’s “The Happiness Hypothesis” contends— there is a stronger focus on individuality, autonomy, and acceptance of ambiguity (“this restaurant is unique”; “these guys think ‘outside of the box’”; and “this restaurant pleasantly subverts standard market norms”) vs. in more traditional (‘conservative’) areas, where there is a higher emphasis on order, structure, and adherence to norms (“I want to know how much I’m paying beforehand— so why doesn’t this restaurant do it?”; “this restaurant tries too hard to be different”; “their payment system, while novel, just introduces confusion and unease”; and “unlike most business transactions, this one does not give me proper closure on the deal because afterwards I still retain a sensation that I either overpaid or underpaid”).
Final Thoughts
The PWYW system is an intriguing one, and for reasons I can’t really articulate, it seems like the next evolutionary step in business and cultural exchange— but in my estimation, there are some serious barriers that need to be examined and broken before it can work successfully as a widespread business model. It would be interesting to see if and how these barriers will (or won’t ) be negotiated.
Have you had an experience with a Pay-What-You-Want system? Tell me about it in the comments!