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?