How to Maximize Pay-What-You-Wish Pricing

Pay-what-you-wish pricing schemes have now been employed by everyone from musicians and restaurateurs to entrepreneurs. But new research suggests that the true path to maximizing profits is to combine pay-what-you-wish pricing with an appeal to charity. Ayelet Gneezy, a marketing professor at the University of California-San Diego, conducted a field experiment at a theme park (sample size: over 113,000). Gneezy presented four different pricing schemes for souvenir photos: a flat fee of $12.95; a flat fee of $12.95 with half going to charity; pay-what-you-wish; and pay-what-you-wish with half going to charity. At a flat fee of $12.95 per picture, only 0.5% of people purchased a photograph; when customers were told that half the $12.95 purchase price would go to charity, a meager 0.59% purchased a photo. Under the simple pay-what-you-wish variation, 8.39% of people purchased a photo, but customers paid only $.92 on average. The final option — pay what you wish, with half the purchase price going to charity — generated big results: purchase rates of 4.49% and an average purchase price of $5.33, resulting in significant profits for the theme park. “When the charity factor is introduced, these casual freeloaders balk at the idea of paying nothing, because it’s more likely to reflect badly on them,” writes Ed Yong. “Rather than naming a higher price, their preference is to avoid buying altogether — for them, it isn’t worth it. Sales fall, but the actual profits go up because the remaining customers are motivated by their desire for the product and for the cause, will pay for both.” (HT: Josh Shpayher)[%comments]

Drill-Baby-Drill Drill Team

I wonder what Ron Popeil would think about selling this idea? But wait there is more.....For a Limited Time Only....Act Fast Supplies are Limited.......If You act now get a free set of1x1 Wallet Prints,,,,,, Would you like Fries with That......Joe the Crippled Orphan was Abused Daily, Won't You Help Joe?





You can not maximize pay as you wish pricing because the portion that goes to charity "actually has to go to charity", or else it's a scam. So it is not the way for business to maximize their profits.

This really is the least of concerns for economists right now, as it doesn't really work, and we have real issues to address in the meantime. Please come up with something better!!!

E. Nowak

Wow, if this doesn't prove that the term "ethical business" is an oxymoron. Using a person or cause as a way to sell something isn't charity, it is exploitation. Of the customer and of the charity. I think you need to ask the NYTimes Ethicist what he thinks about this.

I know the business/charity model has been used forever, but it doesn't make it RIGHT.

Ian Kemmish

Or perhaps they were more motivated by the desire not to appear mean in front of their children? A control experiment conducted somewhere other than a theme park would have been nice.

Other interesting locations would be a) near a charity shop; b) near a charity poster; c) near a bank.....


Maybe $12.95 is too expensive for the photos. What if they charged $5.00 for the photos without half going to charity. The percentages could drop to 2.5% and still make the same profit as giving half to charity at 4.49%


@Chris: Obviously they take into account the money given to charity! They're saying that even *after* giving half of the proceeds to charity, they would be left with an average of $2.665 from 4.49% of park-goers, and that that amount of money is more than they got from the other three pricing schemes. They maximized pay-as-you-wish pricing, because more people purchased their product than they did with a flat rate, and the people who purchased their product gave nearly six times more money than they did when none of the proceeds were promised to charity.



If you do the calculations, you'll see that they are almost doubling their profits even after giving half to charity. Everyone wins.


I'm wondering what the effect of doing this on a large scale would be. My instinct tells me that people would become more aware of the psychological factors affecting their own choices, and the shame factor might decrease over time.



A few quick calculations shows that after giving the money to charity, they still make more money overall with the fourth option. For calculation ease, suppose 10,000 people in each scenario. 'x' is the cost of producing one photo.

Flat fee:
50 people buy at $12.95, total profits $647.50 - 50x

Flat fee w/ charity:
59 people buy at $6.48, total profits $382.03 -59x (and $382.03 to charity)

Pay as you wish: 839 people buy at average $0.92, total profits $771.88 - 839x

Pay as you wish w/ charity: 449 people buy at average $2.67, total profits $1,198.83 - 449x (and $1,198.83 to charity)

If the cost of producing a photo is less than $1.50, then the company makes more profits (AND sends more money to charity) with the last option.


@IAN Kemmish
Dude why would people get their picture taken near a charity poster or a bank?

Dude, they made more even if they gave half to charity.

Dude, Charities exploit people all the time to drive up donations. Think ASPCA commericals, Susan Sommers, the DNC, various minority religious groups, etc.

I suggest a study where we look at the demographic of the people who do Pay-What-You-Wish, then exploit them more to maximize return.


original data assuming a 10,000 person test (it isn't clear above if it is 113,000 per test):
original: 50 purchases at 12.95 = $647.50
half/half: 59 purchases at 12.95 = $764.05/2 = $382.02
pay as you go: 839 * $0.92 = $771.88
pay as you go/half: 449 * $5.33 = $2393.17/2 = $1196.58

I don't understand the comments about ethically wrong or deceptive practices. This benefits a charity by almost $1200 and add $550 profit to the picture business. Whereas any other pricing model tested gives less to charity. It would be interesting if they did a "pay as you wish 100% to charity" testing as well.


The park gets double the original money (presuming that overheads don't soar due to the extra prints) and the named charity gets a tidy amount too.

Sounds fairly interesting to me.




Guy at HockeyBias dot com

Fascinating. Thank you! .

Closed circuit to "Huh?" Do you think your overuse of the word 'Dude' cuts down on your credibility?

XP Econ Guy

These results are incomplete and somewhat misleading. They would be more informative if we knew the full demand curve for the photo (with and without the charity component). To do this, the fix price offers (with and without the charity component) would be randomized (e.g. change the offer price every hour). Since the pay as you wish self identify along the curve, the differences in percentage of people who purchase could identify the proportion of buyers who self select out at every price. It would then really be possible for the amusement park to set the optimal pricing policy. As is, the $12.95 price appears way too high relative to people's willingness to pay. As a result, these two treatments are not very informative.


#16 raises good points. it's a better approach to price setting and avoids the potentially manipulative charity factor others have raised.

On the other hand, commerce is driven by manipulation of every sort -- image ethics is really beside the point. If money is actually given to the charity then ethics are served and the matter is really about what maximises the money given to charity and to the business bottom line. If both win together, then concerns about perception of tidy ethics are really a luxurious conceit.

Another illuminating step I'd like to see would to sell the pictures prix fixe at $5.33 and then see how much the charity component adds to sales volume vs. profit/loss of split distribution of revenue.


For those who think that you still "make" more money after giving to charity.. this model is flawed for several reasons:

- it may only apply to small priced items where more people have the ability to give extra.

- this may be a one time deal, as people normally do not give to charity everyday, there you can not apply this across the board for all goods at the same time on a daily basis.

- the amount people give to charity would decrease overtime if this tactic is applied over and over again. the business may end up losing money at the end.

- you are assuming that there is no competition in this 'charity business', so if many other businesses start applying this tactic it would not work.

- you did not account for the model where you simply lower the price of the overpriced photo, more people will buy it even without pay as you wish or charity.

All in all, this is something that can not be applied across the board, and can not be considered when speaking of the larger economy as a whole. It's very much a useless endeavor please do come up with something better!!!



@18 -

Regarding your five concerns, you seem to have made conclusions without any evidence or testing, and then you go on to state that this was useless. The test did actually show something, and thus it is now useful to test the other parameters. It is provably not useless.

Eric M. Jones


I do wonder how the results would have changed had the conditions of the experiment changed a bit: How about on a cruise ship; at a prom; graduation; another theme park; Club Med; Sandals, 5th class reunion...50th class reunion.

I volunteer to explore this issue on the cruises and the luxury vacation resorts. Somebody else has to take the other ones.