Wouldn't It Be Nice to Really Pay What You Wish?

It is worth noting that several pricing schemes that often get lumped together are in fact quite different.

“If set up properly, PWYW can make it hard for all but the most callous customer to rip you off.”

There’s the honor-box system with a posted price list, like the one the Bagel Man used. In this scenario, there’s no one to collect the money but the price is essentially fixed, and the seller (the Bagel Man, or whomever) engages in a tradeoff: lower labor costs but higher risk of underpayment.

There’s the “freemium” model, with several iterations, in which someone offers a product or service or some portion thereof for free while finding an alternate means to monetize the enterprise. This is what Chris Anderson has written about.

And then there’s the sexiest, riskiest, funnest model: pay-what-you-wish. Think Radiohead. If you use a PWYW scheme too liberally, you are courting financial disaster. Just imagine if Tiffany & Co. held a PWYW day on all diamond jewelry. Personally, I love it when a salesman or contractor asks me “What do you want to pay?” for a certain good or service. My answer is always the same: “What I want to pay is zero. Does that work for you?”

So plainly there are limits to the viability of PWYW. But one factor that PWYW pricing calls into play is human conscience: if set up properly, PWYW can make it hard for all but the most callous customer to rip you off. Consider this story sent along by a reader named Jessica Donovan, about a nice-sounding guy in Essex, Vermont, who started a PWYW taxi service:

As an antidote to rigid financial conditions, Hagen got his cab driver’s license and insurance and officially opened for business last month with the Recession Ride Taxi. In his SUV, Hagen will take passengers anywhere they want to go in and around Essex — for whatever they want to pay.

There are no set prices for transportation, and Hagen also offers a cooler full of pay-what-you-want beverages to thirsty guests. He even offers special perks to frequent riders: he provides his passengers with hole punch cards, giving them a free ride after every six trips.

Of course, Hagen’s customers could easily get a free ride anyway; after all, he’s not forcing them to open their wallets. Since his payment policy is so flexible, he’s taken some strange trades: one customer gave him a $10 grocery card, and a local musician gave him his group’s CD. But in the weeks since the business has launched, Hagen hasn’t been short-changed once.

“I believed from the start that this would work,” he said. “I believed that people are going to be generous enough to make it worth my while, and I’m going to be generous enough to let them decide.”

I think most of us would have a hard time stiffing the taxi driver in a case like this. I wouldn’t even be surprised if his PWYW scheme generates so much goodwill that he makes more money than if he had a fixed price. When you match PWYW with a face-to-face, conscience-inducing contact, it’s not very risky. What I would like to know is what is the riskiest, easiest-to-rip-off PWYW scheme you’ve heard of, and how did it work out?

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  1. Rachael says:

    I got married in my old College’s chapel. The Dean said there was no charge for using the chapel for weddings, but it was customary to make a donation. So I did, but I had (and still have) absolutely no idea what sort of amount would be expected. It really was “pay what you wish”, not “pay what you wish relative to a known established price”.

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  2. Scott says:

    I have a friend with a farm in western Illinois, where I sometimes visit. Many of the locals who grow edible crops, or who have very large gardens, leave asparagus, or beans, or whatever, with a paybox. And it works great. I’ve never heard of anyone feeling people are taking without paying. I think in this case it works for a similar reason to being in the presence of the cab driver. It works in very local economies where people see individuals associated with the potential rip-off, rather than a big company–even if they’re not face to face. Good argument for buying and selling locally :)

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  3. Philippe says:

    I’d be curious to know what would happen to his income if he had an indicator of some sort as to how much the trip was costing him: would it increase payments or decrease it to be just at or above his costs.

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  4. Ed says:

    The pay what you want method seems to work when the ones paying already have an idea what the value of the goods or service are worth in an established market.

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  5. M.F. says:

    Essex, Vermont is not the largest city (18,000 people) and judging by the picture in the add, you call his cell phone to get service – you wouldn’t normally hail the cab from the side of the street – so Hagen knows who he is picking up, he may recognize or save the phone number. So if someone pays very little or not at all, they will be remembered and are at a disadvantage in the future as Hagen may not pick them up – or may put them behind picking up a well paying (or even new) customer.

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  6. jacob says:

    Downlifting – i think that’s what it’s called on this blog. any media files that you get for free can later be purchased either in original form or in kind.

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  7. pierre says:

    In Santa Monica, there are several (power) yoga studios that are donation based. And they keep opening new ones. The way it works is that you take a class and, at the end, you put whatever you want to pay in a box at the door. The suggested donation is $14.
    I see it as a clever way to price discriminate: the marginal cost of a student in the class is close to zero (so you don’t want to exclude people that are only willing to pay, say $7) and people are so exhausted (and in peace) at the end of the class that I guess few of them try to save a few bucks…

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  8. scott says:

    What mitigates the risk is the existence of a relationship. Friends don’t rip friends off.

    You don’t successfully run such a service unless people like you. Few people like “the system”.

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