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]