Pay What You Want Pricing (PWYW)
Pay what you want pricing, also known as PWYW, is the pricing strategy that does not set a selling price but allows the customers to decide based on the quality of the product.
This strategy allows the buyer to pay whatever amount they like. However, the seller may set the minimum amount to prevent any dishonest customers.
PWYW wants to convey two messages to the customers. First, company feels very confident about the product’s quality. The company strongly believe that customers will happy with the product and pay a high amount without setting a price. Second, they want to empower the customers to decide on the pricing compare to product.
Why do we need to use PWYW?
To Explore Social Media
In this social media era, everything can be explored and catch the attention of many people. It is even more effective than the other kind of advertisement. Usually, the company also provides free stuff or PWYW for a short time; people will keep sharing this on any platform to gain more like and share. By taking this advantage, the business will exploit social media very fast.
Short Term Promotion
It is highly likely to be a short term promotion only as the owner wants to get more attention from people and the media. It should finish after the company entirely operates.
Build Brand Image
There are many ways to promote the brand, and now people tend to decrease their belief over the advertisement. They believe that the ads will not provide the full picture of the product, especially the negative point. The viral of something different will have a stronger impact than traditional advertisements.
A café and restaurant in China have adopted the PWYW pricing as part of their promotion. They encourage the customer to pay for the food at any price without question ask. There is no limited order or quantity. Within a short time, customers keep increasing very much. However, they are the only people looking for benefits. They come and enjoy the food and left at a very low price, which is not reasonable. The promotion only lasts for a week, and the owner loses around $ 15,000.
Panera is a bakery-café fast-casual restaurant that has over 2,000 stores in the US and Canada. It is famous for using PWYW on every item on their menu. Panera is a non-profit entity which operates to increase awareness of poverty and hunger in the US. It suggests the customers pay whatever they want; however, it does not go as its plan. And the company decided to close its location one by one.
What are the Advantages of Pay What You Want Pricing?
|Pay What You Want Pricing Advantages
|To show our confidence to the customer over products’ quality
|This pricing shows that company has a very strong confident toward their product, it will encourage the customers to try this new product. This commitment will push customers to buy the products and spread information to others.
|To empower our customers
|The customers will feel special as they have strong power toward the company. They think that the company treats them well and even take the risk of losing money by using PWYW.
|To increase the market share
|This price will attack many customers, and our market share will increase too, even our revenue does not increase that much.
|It will be suitable for the last-minute deal as there is not relevant cost involve. There is the same cost for Air Plan and Theater even they are half empty or full. So it would be great if they use PWYW in the last minute sale. However, they have to ensure that the customer will not wait for the last minute booking.
|To strengthen customers’ relationship
|The customers will feel closer to the company. It will help to build connections between the customers and business.
|A new form of price discrimination
|Different consumers will have a different level of willingness to pay. With this strategy, we can charge up to the maximum level of all customers. They will pay at the maximum level of their expectations.
|To increase revenue due to consumer surplus
|If we set up a fixed price, there may be some consumer surplus due to our product quality. However, using PWYW, we will be able to increase our revenue up to that surplus. The consumer will fill that gap.
What are the Disadvantages of Pay What You Want Pricing?
|Pay What You Want Pricing Disadvantages
|Face with dishonest customers
|This is a huge problem when customers are not honest with products’ real value. They want to buy at an unreasonable low price even they know the value is much higher than that. It will not succeed in some societies which people are selfish and low ethical.
|Loss profit due to the low price
|There is a risk of reducing profit or even making a loss due to the customers pay lower than the full price. It will impact our bottom line as the cost remain the same.
|Customers will go away after raise pricing
|Some customers want to test the new product due to our new strategy, and they will not be around after we raise the price. Our market share will not belong to us forever, and they are very elastic.
|Customers cannot value the product.
|Some products cannot be valued easily, especially the cost related to R&D, design, and overhead cost. As they do not show as the part of the product, so the customers may undervalue the product.
|When we apply this strategy, there will be overcrowded by many people, and the real customers may not want to purchase our product. They treat our product a cheap brand, and it only for people who wish to pay a low price.
|Not suitable for long term strategy
|We cant apply this strategy for the long term due to the possibility of loss. It depends on so many factors that require time to survey and testing. The customers’ attitude, product type, social norm, these are the factors which will impact our business. We will end up losing too much before arriving at the profit.