What is Pay What You Want Pricing?

Wonder how much to charge for your products? Let customers decide – the Pay What You Want pricing model can help you with that. This approach allows buyers to try free samples of goods or services, and gives sellers an understanding of their value. Let’s learn how the PWYW pricing strategy works, when businesses should implement it, and what its pros and cons are.

Numerous marketers employ PWYW pricing methods in a variety of contexts. To start with, we should note that Pay What You Want is a legitimate sales strategy, because it is based on human decency.

How does this approach work? To put it simply, with PWYW, a seller offers a product to customers without bills or charges. They can assess the item and decide if they want to pay for it or not. This is a straightforward example of how the Pay What You Want business model functions. In essence, Pay What You Want is based on two principles:

• The first point concerns how a business displays confidence. It indicates that a company is confident in the product's high quality and is prepared to let customers decide the product's worth, and therefore, price. A business that uses PWYW has no doubt that customers will like the product or service.
• Consumer empowerment is PWYW’s second guiding principle. Customers have complete power over a company that employs the technique. They can assess the worth and decide on a fair price. A business shows respect for its clients and greatly values their opinion and choice by granting them this level of control.

Some companies benefit more than others from the Pay What You Want pricing strategy. It often performs well in low-competition industries. Customers may perceive a product or service as ordinary in a saturated market, which causes them to pay less. Here are a few real examples of the Pay What You Want strategy – they explain how it functions:

1. A Pay What You Want approach is used by projects and websites like Wikipedia, which rely on reader donations for support.
2. Many cultural institutions follow the example set by the New York City's Metropolitan Museum of Art, which has been charging admission on a Pay What You Want basis for years. Residents of New York State and students from nearby areas still qualify for the PWYW policy.
3. Musicians ask for a fair price when posting their music online. For example, Radiohead used a PWYW pricing scheme to distribute its "In Rainbows" album in 2007. The exposure generated almost two million downloads in the first month alone, and the title song went on to top both the Billboard and United World charts, even though a large bulk of listeners did not immediately complete a purchase.
4. With the opening of numerous Panera Cares stores, Panera Bread started letting customers pay whatever they wanted for any menu item. These were classified as charity cafés for the benefit of the community, although they nonetheless generated 70% of the income of a typical Panera outlet.

At the same time, there are exemplary failures of the PWYW strategy. In 2016, the Last October restaurant in Guiyang (China) made the decision to test out PWYW pricing. Its motivations were based on a logic of trade-offs. The restaurant sought the opportunity to distribute free meals to as many visitors as possible when it had only recently opened. As a result, it began with a temporary PWYW pricing offer.

Customers could order as much food as they desired during this promotion and pay whatever they wanted after eating, no questions asked. The restaurant managers counted on gaining new clients who would return, just like it regularly happens with trial pricing schemes. The restaurant's actual outcome was terrible. It had already lost more than $15,000 in a week.

Why would anyone choose to go PWYW? It's a simple technique for content or product creators to go public. It empowers a democratic pricing policy for museums, cultural institutions, and organizations to guarantee that everyone has the opportunity to access their amenities. What about for-profit companies though?

This model could be fruitful because it gives the company a more confident appearance. They are prepared to take a risk on earning money because they are so confident in their assortment of goods. Additionally, it offers a means of developing trustful connections with clients.

Here are a few practices to improve this model's performance:

• PWYW works best for SaaS companies or items with cheap overhead, such as downloadable content and digital goods.
• Customers frequently feel more inclined to spend more when a business partners with a charity or nonprofit organization since it justifies whatever price they deem fair.
• To generate fresh revenue and draw in new clients, make the offer temporary. In contrast to a free offer or trial, it conveys a sense of value while doing the same thing.
• Give your buyers some guidelines for what the product should cost by using suggested prices.

‘Pay What You Want’ is obviously not for everyone. Going from a budget deficit to a surplus will be challenging or perhaps impossible if you spend too much time creating unique items or have greater overhead expenditures. Additionally, rather than generating long-term revenue, this kind of strategy is better suited to achieving short-term objectives. A PWYW pricing strategy may be an excellent way to get attention and nurture trust, even while it hasn't yet produced new sales leads, fresh publicity, or public exposure.

So, if you wish to appeal to a wider audience, you should offer lower prices or even offer free items. PWYW pricing, however, has a few potential drawbacks:

• It may reduce the perceived value of the product.
• It decreases or even eliminates income, especially in the long term, because it can be difficult to predict the outcomes.
• It does not guarantee that people will buy a full-fledged version of the product after getting a free trial.

In fact, the PWYW pricing method and dynamic pricing are quite similar. Both tactics can increase sales by stimulating demand, boosting customers' willingness to pay, or doing both simultaneously. The first, however, is based on the perceived value of the product by the client, and the second is based on a complex study of historical sales data and demand forecasting.

The PWYW pricing strategy is based on specific principles. First and foremost, it should be used when there is a strong demand for the product or service. Practice shows that when there is a greater demand for a good or service, consumers are ready to pay more. PWYW pricing can lead to consumers establishing prices that are far lower than what businesses had previously anticipated when demand was reduced.

The second component of this business model comes from prior relationships with the company in question. This is why PWYW pricing frequently fails for start-up companies because this pricing approach gives better results when customers are familiar with the brand or company. So if you are running an existing brand and want to introduce a new product or gain a new audience, a Pay What You Want strategy may work well for your business.

There are several reasons to implement the Pay What You Want pricing strategy, starting with the possibility to test your customers’ buying ability and ending with potential revenue growth.

Knowing how much clients are ready to pay is essential for determining whether the company's high-quality goods or services will be successful. However, people may have different ideas about what a thing should be worth. For instance, while some may regard $50 as a fair price, others may propose no more than $30. Regardless of consumers’ pricing preferences, a business will learn important details about the shopping habits of its clients. Based on this data, it is possible to analyze various business strategies and product changes with greater accuracy.

PWYW pricing is also used to attract new buyers. One may artificially increase demand, for instance, by allowing customers to pay what they are willing to for a service, such as a movie ticket. Just to give you an idea, let's say a ticket costs $20. However, when a company gives customers the option to choose a price, the majority selects $10, which is less than the standard rate. But even when the company loses money on the pricing, higher demand makes up for it. Naturally, many more people will start going to a cinema if the cost of tickets is halved. It may be a one-time transaction that increases the consumer base.

Finally, PWYW pricing presents an opportunity to increase income. The potential profit depends on how well a company is aware of consumer behavior and whether it is able to increase demand. Businesses have the opportunity to draw in new clients and generate income as a result, in addition to having a better understanding of what customers are prepared to spend for a good or service.

A Pay What You Want pricing strategy can be a great solution if you want to test your customers’ purchasing power and see how much your product is valued. Also, PWYW pricing helps understand your audience’s purchasing behaviors and come up with the best deal as a result. All in all, PWYW can be mutually profitable for both sellers and buyers.

If you doubt whether PWYW pricing is a good long-term strategy for your business, you can implement it as a temporary solution just to see how much customers are willing to pay. Later on, you can adjust pricing by using automation tools, such as price optimization software by Priceva. It will track the pricing benchmarks of your competitors and suggest improvements to your strategy.

Yes, this model can be very efficient when a seller is confident about the quality of their product or service. This strategy works well in low-competition markets where buyers are not confused by too many choices. PWYW pricing can be profitable when you deliver something truly valuable – people are ready to pay for an ultimately positive user experience.

This pricing strategy can be used when a company needs to 1) show confidence in a product or service; 2) attract new customers or build an audience from scratch; 3) perform a sort of custdev and see how buyers like the product. On top of that, PWYW pricing makes it possible to build relationships with the audience.