In the last couple of years there has been a pricing strategy which is becoming more popular amongst different companies. The ‘pay what you want’ pricing strategy concerns the freedom of consumers to pay any price they desire for a certain product or service. Certain companies who have implemented this pricing strategy include a floor price or set a minimum price for their products and/or services to be able to pay for the costs that they make. Thus, the question that comes in mind is if these companies who use this pricing strategy stay in business as long as other companies who use other pricing methods. I know that, in order to answer this question, different variables need to be researched.

As stated before, there are several companies who use the pay what you want pricing strategy. Headsets.com has offered their products to their consumers with no price attached to the products. The CEO states that the goal of implementing this price strategy is to lower the boundary for consumers to try different products. It interesting to see that managers are experimenting in different ways to encourage their consumer to try different products. Product which a consumer would have never chose in the first place. There are also services in which this pricing technique can be used. Jessica Martin is the owner of a consultancy company who uses this pricing method. For an two-hour business strategy session the customer can pay whatever he/she desires. She states that this pricing method encourages consumers to, early in the problem-solving process, ask for the advice of an experts. From my point of view this pricing method can be very beneficial in this situation. Maybe certain companies who would never ask for the opinion of an expert are more willing to grasp this opportunity with both hands.

Another company which also uses this pricing method is Bonvoy adventure Travel. Although this company let’s their consumers pay a price that the consumer have chosen, the consumers are not completely ‘free’ in determining the price of the trips. Bonvoy Adventure Travel offer different prices for different domestic places that a consumer can chose from.

The company that has impressed me the most is the restaurant Panera Bread restaurant who let their consumers pay any price for each item on the menu. The consumers can also chose to pay nothing at all. Interesting is to see that this restaurant uses the profit to help stabilize the community by helping homeless people finding a shelter, trying to find jobs for the unemployed etc. They attract more people in paying a ‘regular’ amount for the food, by ‘giving’ back to the community. The question that I asked earlier about the longevity if a company that uses the pay what you want pricing strategy is answered by the owner of Panera Bread. He states that his restaurant stays in existence by the community, if they start caring less than there will be an end of the existence of the restaurant.

Sources:

https://www.fastcompany.com/3024842/bottom-line/inside-five-businesses-that-let-customers-name-their-own-price

Traditionally movie studios have used the same marketing strategies to promote their movies. Think about advertisements through different channels on the television, release announcements in the newspapers or even advertisement which are visible for us to see on different billboards. According to McKinsey the global cinema advertising expensive where approximately 2.1 billion US dollars in 2014. This amount is expected to grow up to 2.8 billion dollars in 2018. So, in the near future we can state that the advertising expediture will grow. From a logical perspective I would assume that companies are blessed with the arrival of different great social media platforms. These platforms have a gigantic reach where consumers make use of but also corporations. In the past consumers could only inform eachother about a certain product verbally or via letters. Nowadays, the consumer has a much greater reach due to social platforms such as Facebook etc. These platforms make it easier and also less expensive for us to communicate. Thus, companies should also make use of these platform to have less expenditures, right?

To argue that the use of social media platforms can indeed decrease the advertisement expenditure and still increase box office performances I read an article about ‘the Power of the Like button’. The authors in this article state that before a certain movie is released the ‘likes’ of this prerelease have a signigicantly positive impact on box office performance. With box office performances the authors mean the opening week box office records. Thus, they state that a 1% increase in the number of ‘likes’ in the week prior to the release of the movie, is associated with an increase of the opening week box office records with 0,2% (Cheng et al, 2017). The authors did the research by firstly collecting data from the websites IMDb, Facebook and Box Office Mojo throughout the calendar year 2013. The data that they collected included movie-specific characteristic, ‘like’ activities on Facebook and the box office performance which is the amount of opening box office records. In the figure below you can see that the opening records of Star wars: The Force Awakens is roughly 248 billion US dollars.

There are two main stages in which the generated data was analysed. Firstly the authors wanted to understand the relationship between prerealesed ‘likes’ and box office performances by running a cross-sectional regression.  Secondly the authors applied the Fama-McBeth regression to estimate the prerelease ‘like’ impact over time. It is interest to see that a 1% increase in ‘likes’ prior to the release of the movie indeed increased the opening week box office record with 0,2%. Even more interesting to see that the prerealesed ‘like’ effect becomes stronger as it approaches the release date. This research makes a huge contribution to businesses that are considering to use the Facebook like button as a marketing tool. On the other hand, this article does not take the popularity of the actors in the movies into consideration and it is not clear whether the results of this research apply for other products which are movie related.

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Sources:

Ding, C., Cheng, H., Duan, Y. and Jin, Y. (2017). The power of the “like” button: The impact of social media on box office. Decision Support Systems, 94, pp.77 84.

McKinsey & Company, Global media report 2015, 2015. http://www.mckinsey.com/industries/media-and-entertainment/our-insights/global-media-report-2015.(Accessed 16.08.17).