Tag Archives: PWYW

Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets

If you wouldn’t pay a fixed tuition fee, but were allowed to pay what you want (PWYW), how much would you be willing to pay for the course Customer Centric Digital Commerce? It would probably depend on your expected valuation of the course. However, would you be willing to pay voluntarily?

This is what Schmidt et al. (2015) studied

The authors studied the reasons why buyers are willing to pay voluntarily under PWYW and how competition affects the viability of PWYW. Below, the main advantages for sellers of PWYW are shown, with their corresponding results.

  • Advantage 1: Price discrimination: different customers pay different prices for the same product.

Buyers are willing to make substantial voluntary payments because of their own valuation of the product, the cost for the seller, and because of a strategic motive to keep the seller in business.

  • Advantage 2: Market penetration: maximize unit sales.

When the PWYW seller has a monopoly, almost all buyers buy his product. However, when there is also a posted price (PP) seller in the market, there is no full market penetration.

  • Advantage 3: Competition: drive competitors out the market with PWYWY.

When there is also a PP seller in the market, buyers have a reference price and therefore pay less to the PWYW seller.

When the market is not monopolistic, both sellers using a PP strategy is best. However, when one of them uses PWYW, the other seller is better off also using PWYW.

How did they study this?

They studied this by conducting a laboratory experiment, which is the main strength of the paper. Many field studies confirm that PWYW can be advantageous (e.g. Kim et al., 2009), but cannot explain why.

With a laboratory experiment, all variables can be controlled. Furthermore, the authors choose conservative design features. For example, no personal interactions, no complementary products, a fictitious product and no one observes how much the buyer pays. All these features make it easier for a buyer not to pay anything and therefore if buyers are willing to pay positive prices in the experiment, they are likely to also have a significant effect in real markets.

Managerial implications

There are several managerial implications.

  • PWYW is likely to be more successful for small shops and non-profit organizations.
  • PWYW is best suited for products with low marginal costs, that create high value for customers (e.g. museums, digital products).
  • Neighborhood shops are likely to receive higher payments than sellers dealing with customers only once.


From this, we can determine that a university has a possibility to succeed when applying a PWYW strategy. A university is non-profit, with low marginal costs and high value for students. Students are also recurring customers, since they take many courses. A university might even have a monopoly for certain courses, which benefits the university. However, students often do not have much money and prefer to spend their money on other activities.

Do you believe Erasmus University would survive with a PWYW strategy?


Kim, J.Y., Natter, M. & Spann, M. (2009) Pay what you want: A new participative pricing mechanism. Journal of Marketing. 73(1), 44–58.

Schmidt, K.M., Spann, M. & Zeithammer, R. (2015). Pay what you want as a marketing strategy in monopolistic and competitive markets. Management Science. 61(6), 1217-1236.


There is nothing permanent except change—analyzing individual price dynamics in “pay-what-you-want” situations.

The innovative pricing mechanism Pay-What-You-Want (PWYW) has received increased attention in both research and practice during the last years. Museums and restaurants such as Brooklyn Museum and Little bay in London already implemented it. With PWYW pricing, buyers determine prices, and sellers need to accept every price, even if it is below zero. This can create a positive consumer experience, since it eliminates fair and related risks. (Kim et al., 2009)

PWYW can either be used as a promotion tool (e.g., when introducing a new product) or as a sustainably pricing mechanism. However, when buyers determine the price paid, it is important to consider individual price dynamics. This is what Schons et al., (2013) looked at. They examined the dynamics in prices paid in PWYW situations over multiple- customer-seller transactions on an individual customer level.

How did they measure this?

In order to test this, they conducted a field experiment in combination with a survey. They collected data by selling iced coffee at PWYW prices in an outdoor coffee bar frequently patronized by young people for over eight weeks. The iced coffee was added to the bar’s product portfolio for the purpose of this study, which enabled the researchers to track customers’ pricing decisions without existing supplier-specific internal reference prices (IRP). To monitor repeat purchases, they added a loyalty card that contained an ID that customers used to code their questionnaires at every purchase. The resulting sample comprised 966 first-time customers and includes 333 customer with two, 183 customers with three, and 128 customers with four purchases.

What did they find?

This paper elaborates on the importance of individual dynamics within PWYW pricing. First, first-time transaction prices are based on IRP. However, the influence of IRP on prices paid decreased over time. This is mainly because individual dynamics change over time. Buying frequently results in a decreasing downward slope in prices paid and IRPs because price paid in the first transaction calibrate IRPs to a level that already reflects customers’ fairness discounts. Second, customers with higher preferences for fairness pay on average higher prices. Third, repetition negatively affects customers’ price behavior, especially along the very first purchases. Lastly, it is important to note that within this study, the prices paid reached a steady state after the third transaction, only nine customers paid zero prices supporting the findings of Kim et al., (2009) and Kim et al., (2010), and customers underestimated the product’s cost by 16%. Can you imagine: buying the same product for the second time and pay a lower price or no price at all, while if you buy it for the fourth time, the price will not differ from your last price paid?

So what does this mean?

Sellers need to be aware that implementing PWYW for frequently purchased products does not ensure profits over repeated transactions. The profitability of a PWYW application depends on whether the long-term price paid after three transactions is still above the suppliers’ cost. In addition, this study confirms that customers have difficulty determining actual seller cost and hence consistently make lower estimations. PWYW pricing practitioners should therefore provide cost information to adjust customers’ initial estimates. Since this study investigated in PWYW prices at a local coffee bar, it would be interesting to see whether other larger settings such as clothing or electronic equipment result in the same conclusions. What is your opinion? Would you rather go to a coffee bar with PWYW pricing or to one with fixed prices? And if so, would you pay more than zero euro?



Kim, J.-Y., Natter, M., & Spann, M. (2009). Pay-What-You-Want—a new participative pricing mechanism. Journal of Marketing, 73(1), 44–58.

Kim, Ju-Young, Natter, M., & Spann, M. (2010). Where customers pay as THEY wish. Review of Marketing Science, 8(2)

Schons, L.M. & Rese, M., Wieseke, J., Rasmussen, W., Weber, D. & Strotman, W. (2012) There is nothing permanent except change—analyzing individual price dynamics in “pay-what-you-want” situations. Marketing Letters, 25, 25-36

Norms, Moods and Free Lunch

Paper: “Norms, moods, and free lunch: Longitudinal evidence on payments from a Pay-What-You-Want restaurant”

The restaurant “Wiener Deewan” in Vienna is among the 11 existing restaurants allowing customers to determine the price, a.k.a. pay-what-you-want (PWYW). Due to the adoption of the pricing model from the beginning, Riener and Traxler (2011) could study the evolution of payments for PWYW at the restaurant and the corresponding influence of norms and moods. Here are some more facts about the study:


Main findings

The first research contribution of the paper shows patterns found in the collected data:


The revenue was increasing as the number of visitors was increasing, but the average payment declined from approx. 5,5 to 5 euros.

The second research contribution provides an explanation of the previously presented results. Social norms affect long-term fluctuations in payment distributions as regular guests adjust their perceptions of social norms over time. Moods are the main source of short-term fluctuations as people in a good mood are expected to pay more. The number of sunshine hours is selected as an influencer and indicator of mood.



plusThe greatest strength of this paper is the lack of pre-existing payment recommendations such as reference prices or prior prices, which is a rare opportunity and an important prerequisite for the study of norms’ influence. The variance and evolution of the average price also serve as a proof of the gradual formation of social norms as repeating visitors steadily shape their perception of the pricing norm.

plus This study is the first continuous longitudinal study of PWYW as previous studies were conducted for a short-term (e.g. Kim et al., 2009) or for a discontinuous period (e.g. Regner and Baria, 2010). As a long-term study, it provides useful insights into the specific developments and evolution of mean and median PWYW payments, showing that payments’ variance decreased over time as the majority of payments came closer to the mean.
Figure 1. The evolution of daily mean and median PWYW payments

plusminusThe inclusion of both new and returning clients make the study applicable to regular business situations. However, as 81% of the guests visited the restaurant repeatedly (Riener,2010), it would have been interesting to distinguish between the new and returning customers to study behavioral changes after each visit, i.e. if people are (and how) affected by social norms development.
minusAlthough mood has a strong correlation with sunshine and weather, as confirmed by various studies, the research doesn’t provide a convincing explanation and prove that sunshine is one of the main reasons for lower average payments. Sunshine might not influence all visitors equally as mood also depends on other external factors.To confirm the hypothesis, it would have been more useful for the researchers to conduct a survey, and quantify and establish the presence of corresponding mood conditions. 

Insights for businesses and academicians

Businesses might be surprised that PWYW pricing models don’t necessarily lead to clients paying nothing or a much lower price. The examined study shows that PWYW can bring a higher revenue and increase the number of visitors, presenting a long-term business strategy (Greiff et al., 2013). However, it is not clear if the model will be that successful if there were competitors using the same pricing model, which is an idea for future research.

Figure 2.Distribution of payments

Additionally, it will be interesting to observe if there are any differences in the evolution of payments between products and services (and further between commodity and luxury/enjoyable goods) as services have an inconsistent quality (e.g. a dish will taste slightly differently each time) while many products have a consistent one (e.g. a model of t-shirt looks and feels exactly the same).



Greiff, Matthias, Henrik Egbert, and Kreshnik Xhangolli. “Pay What You Want-But Pay Enough! Information Asymmetries and PWYW Pricing.” Management & Marketing 9.2 (2014): 193.

Kim, J., Natter, M., Spann, M.. “Pay what you want: a new participative pricing
mechanism”. Journal of Marketing 73 (1), 44–58.

Photo: Inês Lizard.  https://static1.squarespace.com/static/552a6bb1e4b010138baaaca6/t/55630de7e4b004a8dfc9c839/1432555867407/vienna-restaurant?format=750w.

Regner, T., Barria, J. Do consumers pay voluntarily? The case of online music.
Journal of Economic Behavior and Organization 71 (2), 395–406.

Riener, G., 2010. How Free is your Lunch? University of Jena, mimeo.

Riener, Gerhard and Christian Traxler. “Norms, Moods, And Free Lunch: Longitudinal Evidence On Payments From A Pay-What-You-Want Restaurant”. The Journal Of Socio-Economics, vol 41, no. 4, 2012, pp. 476-483. Elsevier BV, doi:10.1016/j.socec.2011.07.003.



Shooting Virtual Bad Guys – For Charity!

The video game market is huge. In 2014, the global market for PC and console games was valued at 46.5 billion US$ (Statista, 2016). Steam – the largest PC gaming platform – had just over 6000 games in its library at the end of 2015. This number has grown significantly given that there were roughly 3700 games in the Steam library in 2014 (Makuch, 2015). Add to this the price of games which usually ranges anywhere from $15 – $60 and you will understand why the industry has grown so large. But what if you’re a broke but charitable student? Surely there must be a way to get your fix of new games, without breaking the bank?

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How to implement PWYW pricing successfully

Pay what you want (PWYW) pricing mechanism can be a successful promoting tool to boost your business. PWYW is in general perceived as more fun, innovative and benefits from higher word-off-mouth behavior than more traditional promoting tools such as sampling and discounts (Kim J.Y. et all, 2014). Nevertheless, the accompanying losses and especially the uncertainty of it, discourage companies from using this pricing mechanism as promoting tool.
This blog will teach you how to improve profitability of the PWYW pricing mechanism and how to decrease variance in prices paid.

Continue reading How to implement PWYW pricing successfully

Your total is $0 – Cash or Credit Card?

Pay what you want (PWYW) pricing has been in existence for some time. The mechanism allows consumers to pay whatever they value the good at, often including zero as a price. Hotel, flight and car rental comparison site priceline.com has made use of the mechanism since its conception in 1997. From there on many industries have empowered their clients to decide the amount they are willing to fork over. The pricing mechanism has spread to amongst other the game industry (humblebundle.com), software industry (stacksocial.com) but also more analogue industries like restaurants (TRUST, Amsterdam) and movie theatres (Popcorn as Anything, Newtown Australia). The PWYW mechanism came under great attention in 2007 when Radiohead invited consumers to buy a digital copy of their album In Rainbows. In an interview with Music Ally, Radiohead’s Head of Business Affairs Jane Dyball “confirms that Radiohead had made more money before ‘In Rainbows’ was physically released than they made in total on the previous album Hail To the Thief.” (Music Ally, 2008). Obviously, consumers are willing to pay for something that they could obtain for free. But why would they?

Continue reading Your total is $0 – Cash or Credit Card?